Areas of Operation

Gurnee Field, Cahaba Basin

We have the development rights to approximately 40,000 net CBM acres throughout the Gurnee field in the Cahaba Basin of central Alabama. At December 31, 2009, approximately 38% of our estimated proved reserves, or 79.2 Bcf, were located in the Gurnee field, of which approximately 85% were classified as proved developed. At such time, we had developed approximately 57% of our Gurnee field CBM acreage. We are the operator and own a 100% working interest in the area. As of December 31, 2009, we had 245 productive wells in the Gurnee field. Net daily sales of gas averaged approximately 5,800 Mcf for 2009. At December 31, 2009, our undeveloped CBM acreage in the Gurnee field contained 186 undrilled based predominantly on 80-acre spacing.

We extract gas from six coal groups within the Pottsville coal formation at depths ranging from 700 feet to 3,400 feet. At these depths, overall seam thickness in this area averages approximately 50 feet of high volatile bituminous rank coal. A total of 33 core holes have been drilled and over 600 gas desorption tests have been conducted on our acreage to determine the gas content of the coal and to define the coalbed methane resource under a substantial portion of the acreage in our leasehold position.

Our acreage is roughly evenly divided between a northern block, largely on the east side of the Cahaba River, and a southern block, largely on the west side of the river. The geology is generally more complex on the east side of the river with beds dipping from northwest to southeast. The geological setting west of the river tends to be less complex with more gently dipping beds. Most of the development to date in the Gurnee field has been on the east side of the river which is near existing infrastructure. We have recently begun drilling on the less geologically complex west side of the river in the southern acreage block. Initial results are encouraging with early initial gas production inclines and average gas production rates higher than elsewhere in the field. However, it is too early to reach any definitive conclusions. Future production growth in the field could come from several sources, including; new drilling, especially from the west side of the river if initial positive results continue; the dewatering of the high water production wells; and from increased gas production from existing wells, either as a natural occurrence or from improved treatment or re-completion techniques.

We have constructed and operate an approximate 38.5-mile pipeline from the Cahaba Basin to the Black Warrior River for the disposal of produced water under a permit issued by the Alabama Department of Environmental Management. This pipeline has a maximum design capacity of approximately 45,000 barrels of water per day, but would require additional pump stations and looping a portion of the line in order to reach the maximum design capacity, if needed.  We also operate a water treatment facility in the Gurnee field to condition the produced water prior to injection into the pipeline and a discharge pond at the river to aerate the water prior to disposal. We believe that our disposal pipeline and water treatment facility will meet all of our future water disposal requirements for the Gurnee field.

Pond Creek Field, Appalachian Basin

In the Pond Creek field in the central Appalachian Basin of southern West Virginia and southwestern Virginia, we have the rights to develop approximately 33,000 net CBM acres. At December 31, 2009, approximately 61% of our estimated proved reserves, or 127.0 Bcf, were located within the Pond Creek field, of which approximately 68% were classified as proved developed. At such time, we had developed approximately 49% of our Pond Creek CBM acreage.

As of December 31, 2009, we are the operator and own a working interest in 245 productive wells in the Pond Creek field. Net daily sales of gas averaged approximately 14,319 Mcf for 2009. At December 31, 2009, our undeveloped CBM acreage in the Pond Creek field contained 139 (net) additional drilling locations, based predominantly on 60-acre spacing.  

We extract gas from up to an average of 12 coal seams within the Pocahontas and New River coal formations at depths ranging from 430 feet to 2,400 feet. At these depths overall coal thickness in this area ranges from 10 to 30 feet of low-medium volatile bituminous rank Pennsylvanian Age coal. Prior mining activity revealed that these coal groups are gas rich. A total of 42 core holes have been drilled on and in the area of our acreage in the central Appalachian Basin and a geographically extensive gas desorption testing program has been conducted to determine the gas content of the coal and to define the coalbed methane resource under a substantial portion of our leasehold position.

CBM wells in the Pond Creek field produce comparatively lower levels of water. Produced water is either used in our operations or injected into a disposal well that we own and operate.


Lasher Project, Appalachian Basin

In the Lasher field in the central Appalachian Basin of southern West Virginia, we have the rights to develop approximately 8,000 net CBM acres. At December 31, 2009, approximately 1% of our estimated proved reserves, or 3.0 Bcf, were located within the Lasher field, of which approximately 92% were classified as proved developed. We are the operator and own a 100% working interest in the area. As of December 31, 2009, we had drilled 18 production wells. The proximity of the Lasher field to the Pond Creek field in southwestern West Virginia presents several advantages which helps reduce cost and provides operational efficiencies.