CRZO » Topics » Wyoming/Montana Coalbed Methane Project Area

This excerpt taken from the CRZO 10-K filed Apr 10, 2006.

Wyoming/Montana Coalbed Methane Project Area

Rocky Mountain Region

In June 2003, we contributed our Powder River Basin interests, including all leasehold, wells and reserves, in the Arvada, Bobcat, Clearmont and Kirby prospects into the formation of Pinnacle. Our interests in Castle Rock, Montana and Oyster Ridge, Wyoming were retained. While no proved reserves have yet been booked in either area, drilling operations were conducted at both during 2005, with two and four wells respectively drilled in each area. As the end of 2005, we owned direct interests in approximately 159,090 gross acres (including 21,864 acres which have now been optioned via drill-to-earn provisions of a farmout at Oyster Ridge).

At year-end 2005, Pinnacle had completed the acquisition and/or drilling of 624 gross wells, or approximately 336 net. Of those wells, 621 encountered coal accumulations. Coalbed methane wells typically first produce water in a process called dewatering and then, as the water production declines, begin producing methane gas at an increasing rate. As the wells mature, the production peaks and begins declining.

As of December 31, 2005, Pinnacle had drilled 383 wells; of these wells, (1) 283 are producing gas; (2) 47 remain in the completion/hook-up phase; (3) 33 are in the dewatering phase with no early indication as to gas production; (4) 17 are waiting on or being evaluated for workovers or redrill or plugging and abandonment; and (5) three of these wells did encounter coal accumulations.

 

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As of December 31, 2005, of the 241 wells that Pinnacle had acquired, (1) 81 are producing gas, (2) 108 remain in the completion/hook-up phase; (3) 17 are in the dewatering phase with no early indication as to gas production; (4) 12 are waiting on or being evaluated for workovers or redrill or plugging and abandonment; (5) 18 that are producing gas at uneconomic rates are currently shut in; and (6) five have been plugged and abandoned.

The dewatering process may require significant time and resources, and there can be no assurance that a well that encounters coal accumulations will in fact produce gas in commercial quantities. The ultimate commercial success of the well will depend upon several factors, including the establishment of gas and/or water inflow, the presence of pipelines and infrastructure, the satisfaction of engineering or production issues and other risks and uncertainties associated with drilling activities.

See “Regulation – Coalbed Methane Proceedings in Montana” for a description of certain regulatory proceedings affecting coalbed methane drilling in Montana.

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