Petrol Oil & Gas has approximately 165,000 mineral acres leased, with 145,000 acres in Eastern Kansas and 20,000 acres in Western Missouri. The majority of the Kansas leases are located strategically in and around Coffey County, with additional leased acreage in six adjoining counties that includes Anderson, Osage, Lyon, Douglas, Franklin, Woodson and Greenwood. Petrol has also been acquiring mineral leases in nearby Bates and Cass counties located on the Kansas border in western Missouri and to date has about 20,000 acres under lease. Considering CBM well spacing of 80 acres, we currently hold enough leased acreage to drill and complete in excess of 1,700 gas wells.
When Petrol Oil & Gas entered the CBM industry, our contention was that eastern Kansas and western Missouri were obvious but overlooked regions for CBM production. We knew geologically that this region sat directly atop the Western Interior Coal Basin, more specifically the Cherokee and Forest City coal basins and according to our geologist this area, although undeveloped, had enormous CBM potential. Additionally, Petrol Oil & Gas was aware of an extensive gas distribution infrastructure already in place in the area, with interstate gas pipelines from four major pipeline companies running directly through Petrol Oil & Gas’s leased properties. These pipelines provide gas transportation conduits south to Tulsa and Oklahoma City, north through Kansas City and Omaha all the way to Chicago, and east to the eastern seaboard.
Our initial conviction regarding a CBM play in Coffey County and the surrounding area appears to be being proven correct. Leading Oil and Gas companies from around the country have entered the surrounding area. Quest (OTC ticker symbol: QRPC) a large independent domestic natural gas producer recently acquired CBM wells from Devon Energy for $126 Million and now have collectively approximately 700 CBM wells in the Cherokee basin of southeast Kansas and northeast Oklahoma. They indicate they have a very aggressive drilling program for 2004 having drilled 70 new well since Jan 2004. Layne (Nasdaq ticker symbol: LAYN) states their Energy Division will focus on Exploration and Production on CBM properties. Estimating $8,000,000 in CBM development in this coming year.
Because the gas bearing coal seams in eastern Kansas are relatively shallow, our drilling and completing costs are rather low. The costs to drill test and complete a typical well in 2004 is in the range of $100,000 to $110,000. Although not without regulation, the Kansas state government as well as associated local governments view CBM production favorably and support expansion of the industry as a means to economic growth and proper resource development. Petrol has 7 exploratory CBM wells in Coffey county alone and we are very encouraged with our results!
The Missouri CBM is even shallower than in Kansas and thus typical wells cost about reduced to about $40,000 to $50,000. Petrol has 5 exploratory CBM wells in their Cass and Bates county prospect near the western border of Missouri.
