The agreement between GEM and Ohio Triangle, L.P. was effective on November 21, 2005, and calls for GEM to purchase a 65% non-operating working interest in CBM acreage located in Ohio. GEM's current plans are to drill three core holes commencing by the end of the first quarter 2006 in Phase I. Based on favorable results in Phase I, GEM has the option to purchase approximately 20,000 acres of coal rights and initiate a Pilot Program in Phase II. Following a review of Phase II results, GEM has the option to begin a development program during which GEM would provide 100% funding up to total expenditures of $7.5 million.
"This new CBM acreage in Ohio is an excellent strategic fit for our growing portfolio of CBM acreage and is consistent with our goal of building stable production and adding reserves to our asset base," said Jim Denny, Chief Executive Officer and President of Gulf Energy Management Company.
Updating the status of GEM's existing CBM agreements, GEM and its partner, Ute Energy, completed drilling of three core holes on its Ohio CBM prospect area and four core holes on its Indiana CBM prospect area during the third and fourth quarter of 2005. Based on the results, GEM has elected to fund Phase II of the CBM agreement in Indiana and plans to drill its first pilot wells during the first quarter of 2006. Core samples from the Ohio CBM prospect are in the process of being analyzed. Depending on final results, GEM may elect to schedule drilling of pilot wells on its Ohio CBM prospect area during 2006.
"With the initial results of the core samples from our Indiana prospect now in, we believe the gas content and economics are sufficient to begin moving ahead with our first group of five pilot wells in Indiana," Denny commented. "Once these wells are in place and dewatered, we will have our first look at the production and the upside potential of this prospect."
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