August Energy to Drill Development Well on Iowa Field in LA

August Energy has entered into an agreement with Greystone Operating Company to drill a twin offset well to a producing well in Iowa Field, Jefferson County, LA. Located about 20 miles east of Lake Charles, LA., Iowa Field was discovered in the 1930's and was developed by major companies such as Shell and Amoco. To date the Field has produced over 475 billion cubic ft of gas and over 10,000,000 barrels of condensate and/or oil. Under terms of the agreement, August Energy makes a one time payment of $100,000 cash and funds the cost of twining the producing well (estimated at $1,200,000) to earn 45% working interest rights in the new drilled well, together with 45% immediate interest in the existing producing well and all of the leased acreage, pipeline, and all production and other facilities.

Using reprocessed 2-D seismic, together with modern 3-D seismic and subsurface geology, Greystone identified a new and apparently undrained fault segment on the northern flank of the structure in the field. Upon obtaining a 300 acre lease block, Greystone drilled a well which encountered a potential blow-out at a depth of 9,100 ft. Unable to control the high pressures encountered due to lack of a sufficiently large enough drill hole, Greystone opted to complete the well in a higher zone at 8,150 ft. This producing zone, estimated to have remaining reserves of approximately 1.5 billion cubic feet, is currently averaging 600,000 cubic feet per day together with 20 barrels of condensate and yields a net revenue to the owners averaging $110,000 per month. Two other zones also tested commercial in the well and are considered behind pipe reserves.

August Energy, upon the recommendation of its geologist, has entered into the Agreement with Greystone and, pursuant to its earn-in commitment, will drill a deep well deep test the formation at approximately 10,000 feet, referred to as the FY-NOD B Sand. Based on geological review of the reservoir, the Company is seeking to encounter up to 200 feet of productive formation with a potential for up to 15 billion feet of gas reserves. This particular reservoir has a history in the Field of yielding initial and sustained production rates of 6 to 12 million cubic feet of gas per day together with 200 barrels of condensate per day.

Geological evidence, together with 3-D seismic data, indicates that a well drilled to approximately 10,200 feet, offset approximately 200 feet from the existing producing well, should encounter up to six producing intervals from 8150 feet to 10,100 feet that could contain cumulatively an estimated 20 billion cubic feet of gas and 500,000 barrels of oil and/or condensate.

August Energy plans to drill the well this year (2004) once the rig is available, the location preparations completed and the permits secured. Estimated drilling and completion time will be 45 days from the time of spudding. Once spudded, August Energy will provide daily drilling reports on the Company's web site for those interested in monitoring its progress.

At Puckett Field, the Company reports that preliminary results from a rework program indicate a new gas producer from a previously abandoned well in the Field. Upon completion in a zone at 9,340 ft, the well came in with shut in pressure of 3,000 psi. Flow lines and production facilities are being installed so that the well can be tested and produced.