Under the terms of the farmout agreement, the Company obtained the right to explore for natural gas and oil at any legal location within the approximately 18,000 gross acres. So long as the Company drills at least one (1) well every 120 days, it will retain continuous drilling rights to the entire 18,000 acre block. The Company obtained the right to explore for all depths, except the Crane Zone of the Pettit formation, down to 100' below the deepest productive interval for each well drilled under the agreement. For each productive well drilled under the agreement, the Company will earn an assignment to 160 acres. The Company plans to begin exploration and development drilling activities on the farmout acreage during the second half of 2003 and currently plans to drill four to five wells before yearend. The primary target for the majority of the wells will be the predominately gas-bearing Upper Hosston section at depths between 6,500' and 7,500'. The Company estimates average gross completed well costs will be approximately $500,000. Although the Company's net retained working interest will vary over the entire 18,000 acre block, the Company anticipates its net working interest will range between fifty and seventy percent.
Commenting on the transaction, Walter G. "Gil" Goodrich, the Company's Vice Chairman and CEO stated, "This agreement further expands our inventory of opportunities and offers us additional exposure to natural gas reserves. The Bethany-Longstreet area, which was primarily developed for the prolific Crane Zone of the Pettit at approximately 5,500', has been very sparsely drilled for the Hosston section. Given the current strength of natural gas prices and the relatively low drilling and completion costs of the wells planned for the farmout acreage, we believe this transaction will provide the Company with an excellent opportunity to add natural gas reserves and production at very attractive finding and development costs."
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