Grant Atkins, President of Lexington Resources states, "We are excited at the prospect of further cost effective drilling operations, but moreover, I believe we have established our business model's proof of principle; the creation of gas based cash flow combined with the rapid repatriation of capital in a low risk drilling domain. Private drilling funds minimize shareholder dilution, while the Company retains long term residual interests in each well drilled at about the 50% level." Initial well funding has been arranged through drilling funds with private investors. Under current funding arrangements, private investors obtain prioritized payout of their risk capital and a residual ownership percentage in perpetuity after capital payback, after which, the Company "backs in" to majority well ownership.
Approximately three to four further horizontal gas wells are planned on this lease, and the Company is negotiating to obtain further leases in the area for future CMB drilling initiatives. Other major companies drilling in the fairway are Williams Energy, Questar Corporation, and Devon Energy Corporation among others. The Company expects to announce further drilling plans in the next week once arrangements and schedules are confirmed.
The drilling site is located in the Hartshorne coal zone fairway of the prolific Arkoma Basin, in the middle of one of the largest CBM drilling programs undertaken in the State of Oklahoma. According to the Oklahoma Geological Survey, 865 (40%) of the 2,179 CBM completions in Oklahoma from 1988 to 2002 were located in the Arkoma Basin. Wells adjacent to this property have average initial production of between .5 and 1.0 MMCF per day, although a number of the wells are producing over 1.0 MMCF per day. An average of 153 horizontal CBM wells completed in Hartshorne coal have provided initial production that averages 0.418 MMCF per day.
About Domestic Coal Bed Methane Gas Production: Methane (natural gas), occurs in association with coal, the Nation's most abundant fossil fuel resource. Conservative estimates (Rice, 1997) suggest that in the United States more than 700 trillion cubic feet (TCF) of coal-bed methane exists in place, with perhaps 100 TCF economically recoverable with existing technology. Coal bed methane now accounts for about 7.5 percent of total natural gas production in the United States. Since coal has such a large internal surface area, it can store surprisingly large volumes of methane-rich gas; six or seven times as much gas as a conventional natural gas reservoir of equal rock volume can hold. In addition, much of the coal, and thus much of the methane, lies at shallow depths, making wells easy to drill and comparatively inexpensive to complete. Exploration costs for coal-bed methane are typically low, and the wells are cost-effective to drill.
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