Email sent to Keith, with reply, then sent to me also:
Keith A.
How is everything going? From the PR it sounds like everything is going well. I'm sure there's a lot more that is going well, but you can't fill us in just yet.
I was curious about the gas zone thickness at the Humboldt-Chanute oilfield? How much pressure/gas can the swallow zones produce? I can't imagine a significant amount being so shallow. Is the oil/gas depth and flow rates very similar to this field?
I was also happy to see that you guys are having an independent oil geologist to come up with an accurate amount of oil/gas reserves. Will this report reflect the new leases acquired that shareholders still don't know about yet? Either way this report should really open some eyes! Again, I can't express how excited I am for you guys! I know y'all are working hard.
Do you have an approximate time when you can PR the new leases? Does the 3 sq. miles include this?
Thanks again for your time,
XXXXX
The "gas:" is coal bed methane gas (CBM)... produced from coal seams. We have 20 to 25' of various seams of it from 750 to 800'. Wells south of us are coming and holding a 100 mcfd or around $500 to $600 gross per day per well. These are pretty nice wells but we aren't going to play with it and are just going to drill through it.
Why you ask?
1. A lack of gas pipelines in the area. We have one pipeline about a mile to the west of our western lease lines. This pipe line is near capacity for its gas... it is around 90 to 100 psi. We would be bucking alot of pressure just to get gas into the system, ie; build our pipelines, the compressor station and all the other "unforeseens". The costs to produce suddenly get very unattractive in a hurry.
2. NG prices are down this year. There is a glut of natural gas in storage and on the market at the moment... and probably will be for the next two years or longer. Prices may come down even further, so the economics look better with oil than gas.
3. You have to "dewater" coal bed methane gas. In other words, lift the water off the CBM formation before it starts producing gas. This can take as long as 6 months (and you have operational costs, water disposal and no revenue) before you sell any gas. In other words, 6 months or longer of simply producing water with no income. I think we are better off leaving it behind pipe.
4. We cannot comingle oil and CBM zones (produce at the same time, the chemical make ups of the formations are not compatable).
5. When we begin drilling we plan on logging and other tests to prove up the CBM zones to oil/gas industry standards, then keep the CBM behind pipe. Basically we are going to prove up the formations and then leave them alone. Look at it this way: that gas has been in the ground millions of years and isn't going anywhere. We prove it up and it's simply unseen petro dollars in the bank. One of these days, someone will come along and want to buy us out. They either buy the shallow rights for the CBM or do a joint venture, or if they dont, who knows, in a couple of years, the NG market conditions might improve and we develope it ourselves. Like I said, it's been in the ground millions of years and isnt going anywhere.
6. Finally with NG, you have limited purchasers (pipelines), so if the purchaser starts yanking a producer around (which is standard operating procedure), the producer has little choice if there is only one pipeline in the area...like in our situation. Pipeliners = a quasi monopoly. Atleast with oil, if a purchaser starts messing with us, we dump them and get another to send their trucks out. This is experience speaking...from lessons learned.
Finally, it could be that these CBM zones turn out to be losers... a great big money pit. Really no way of knowing at the moment and we are not going to take a blind risk on them.
These geologist reports are like doctors opinions, sometimes it is best to get second or third opinions. They are useful tools but far from perfect. The only way to get perfection is to drill holes and extensively log them with the best logging methods (Sclumberger) on the market. Yup, this logging is insanely expensive and of no value to anyone but us in the business, but it is exact and very little margin for error if done correctly. This is one reason I have to laugh when I see some little company having a gazillion MCCF or BOD of "probable" reserves and the market goes nuts. Probable means just that, and is a far sight from PROVED and PROVED is what we work off of.
I cc'ed this to lowman, because this is the third email I got about this, I dont know if you post on the boards or not, but I dont mind if you do or if he does because it is the answer to alot of people's questions that have suddenly popped up in the past 24 hours.
Take care and thanks for the email
to make a million bucks over night" 
