The Exploration Contract requires Storm Cat to spend $300,000 USD on exploration work by December 31, 2005. The exploration work to be conducted, primarily includes drilling a minimum of three (3) exploration wells and may include geological, geophysical and other technical studies. Subsequent to the end of the exploration work period, December 31, 2005, Storm Cat has until June 30, 2006, to elect to enter into a more comprehensive Production Sharing Contract similar to the agreement governing the Company's Noyon project in the South Gobi Desert, announced April 19, 2004. Anticipated depth of the minimum three (3) wells is approximately 600 meters, as the coalbeds within the Tsaidam Block are relatively shallow.
Should the exploration work on the Tsaidam block result in methane gas producible in commercial quantities, it is the opinion of Storm Cat's management as well as the Petroleum Authority of Mongolia, the principal market for the gas is Ulaanbaatar, Mongolia's capital. Ulaanbaatar is Mongolia's main political, economic, industrial, scientific and cultural center where approximately half of the country's population resides. Recently, Ulaanbaatar has attracted unprecedented population from Mongolia's rural areas. Therefore, the capital faces rapid growth resulting in severe challenges to respond to the increased demand on infrastructure and the environment. The current energy source for Ulaanbataar is "lignite coal", possessing high sulfur content, resulting in a serious air quality issue for the Mongolian Government and its residents.
During negotiations last week in Mongolia, the Chairman of PAM, Mr. Davaasambuu said "The Government's top priority is to improve Ulaanbaatar's air quality, particularly in winter. We are highly supportive of Storm Cat's coalbed methane exploration program within the Ulaanbaatar region in a much needed effort to lessen our reliance on coal."
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