Avenue Group Signs 15-Well Appalachian Basin Deal

Avenue Group, Inc. reported that its wholly owned subsidiary, Avenue Energy, Inc. (Avenue), has signed an agreement with Oil & Gas Management, Inc, (OGM) to participate in the drilling of up to 15 gross wells in the Appalachian Basin.

OGM, located in Mt. Pleasant, Pa., holds lease interests in more than 50,000 acres in Pennsylvania, West Virginia, and Maryland. The company operates more than 200 wells and associated gathering lines, compressor stations, and dehydration facilities.

Pursuant to the agreement, OGM will drill and operate up to 15 new wells whose well depths will range from 3000 to 5500 feet. Avenue in most cases will hold a 75% working interest and OGM will participate with a 25% working interest. Drilling is expected to commence in July. Each well costs approximately $250,000 and generally takes 10 to 14 days to drill and complete. The success rate in this part of the basin historically has been in excess of 90%, with initial production in the range of 50 to 90 mcfgd. Ultimate recoverable reserves have averaged 250 million cubic feet of gas per well.

"Going forward, we plan to seek other low-risk drilling opportunities in Appalachia and similar basins in the U.S.," Levi Mochkin, Avenue Group’s president and CEO, commented. "We see this agreement as the first of several which will provide Avenue with the opportunity to acquire low-risk oil and gas reserves."

"We are delighted to establish a relationship with Oil and Gas Management, who is an experienced operator in the Appalachian Basin," Norman Singer, Avenue’s president said. "In addition, we are also attracted to the value proposition of potentially producing natural gas at a premium price to NYMEX, rather than for the steep discount to NYMEX that most other U.S. natural gas sells for today. Some basis differentials now exceed $3.00 per mmbtu, creating a very pronounced value advantage for Appalachian Basin gas production."

Avenue is currently finalizing financing for this project and expects to announce the details in the next week or two.

The Appalachian basin covers more than 185,000 square miles across seven states (from Western New York through Georgia and Alabama) and is the U.S.'s oldest producing region, with production in excess of 46 tcf of gas from over 400,000 wells. In 2003, the National Petroleum Council estimated the basin still contained another 9 tcf of proved gas reserves and an additional 68 tcf of unproved gas reserves.


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