Kodiak Gets EA Approval for Pacific Rim Project in Wyoming

Kodiak Oil & Gas updates the status of operations on its Wyoming projects.

Pacific Rim Project Area

The Bureau of Land Management (BLM) approved the Pacific Rim Project Area Environmental Assessment (EA) in Sweetwater County, Wyoming, effective September 1, 2004. The EA encompasses approximately 47,597 acres of land within the Pacific Rim Area including the Pacific Isle and Chicken Springs projects and fulfills the BLM's responsibilities under the National Environmental Policy Act. The approved EA provides for the orderly development of the Coalbed Methane resources within the project area and considers environmental concerns for the area.

Pacific Isle CBM Project

Production rates from the nine existing CBM wells are trending upwards as the dewatering of the coals continues and the reservoir pressure is lowered. Barring a change in the production trend, the compression facilities will be installed during the fourth quarter with the intent to produce gas into the sales line. Based upon the current production rates of the existing wells, a development drilling program has commenced. Current development plans project nine wells to be drilled by the end of 2004. Approved drilling permits have been received for seven locations and two additional locations are awaiting final approval. Drilling operations commenced August 30, 2004 and to date, three wells have been drilled and production casing has been set. Completion work on the new wells is slated to begin next week and they will be immediately connected to the existing production facilities upon completion. The capacity of existing water disposal facilities is adequate to handle the additional nine wells without drilling a second disposal well. The Company owns a 20% working interest in the Pacific Isle CBM Project. The Company could participate in the drilling of as many as 80 coal bed methane wells if they are drilled on each one hundred sixty acres in the unit.

Chicken Springs Project

In July 2004, the Company completed drilling operations on the Chicken Springs PRFed 14100 SW29. Production casing was set to 6,183 feet. The well was designed to test the gas potential of the Almond Formation coals and sands. Thirty-one sidewall core samples were recovered from both the sands and the coals in the Almond Formation as well as the coals from the shallower Lance Formation. Adsorption analysis indicated very high gas content in the Almond coals and moderate gas saturation in the Lance coals. The Company owns a 40% working interest in the Pacific Isle CBM Project.

Construction of a three mile pipeline is being completed to connect the initial well to production facilities at the Trail Canyon Field. The pipeline is being built prior to final completion work in order to produce the well immediately into the sales line in an effort to avoid damage to the reservoir. Completion work on the initial well has commenced and is being staged in three phases. The first phase has been completed and involved an injection test of the Almond coals in an effort to gain information on the permeability of the coals. The following two stages will include fracture stimulation procedures on the two primary Almond sand zones. Work on the second phase will commence later this week.

Wintering range stipulations on the Federal leases being drilled allow for wells to be produced during the winter months but do not allow for drilling activity from approximately November 15 until April 30. Therefore, in an attempt to establish production and gain cash flow through the winter months, it has been determined that the coals will not be stimulated this year but rather will be placed behind pipe until next spring, as it would be impossible to construct the disposal facilities for the produced water associated with CBM production by November 15. It is expected that the coals would be completed in spring 2005 and water disposal facilities would be built at that time.

Applications to drill four additional wells in 2004 have been submitted for BLM. Development drilling will follow in October subject to the results of the initial test well. Current development plans will be subject to time constraints as a result of the wintering range stipulations. The BLM has approved one of the four permits and we anticipate that the remaining three permits will be approved in the next few weeks. The Company could participate in the drilling of as many as 45 dually completed sand and coal bed methane wells if they are drilled on each one hundred sixty acres in the unit.

Other Prospects

The Company is currently evaluating other shallow gas prospects in the Green River Basin in Wyoming as well as other opportunities in the Rocky Mountain Region. The Company has agreed to participate in the drilling of a 6,200' 2nd Frontier gas prospect (NE Marianne) located approximately 35 miles north of the Pacific Isle CBM Project in Sweetwater County, Wyoming. The well is a one mile step out from the Amoco Champlin 7-1 well that has produced 1.8 billion cubic feet of gas and still producing. The Company will have an approximate 35% working interest in the well. The well is scheduled to be drilled in mid-October. The NE Marianne Prospect provides another low risk opportunity for the Company to establish production and has immediate access to gas markets.

Corporate Outlook

The Company is in excellent financial condition and is fully funded for its exploration and development work scheduled for the remainder of 2004. The Company will be able to maintain an aggressive drilling program as it has a number of drilling permits already approved by the BLM, with more to follow, and has a drilling rig under contract through the end of the 2004 drilling program. The Company's goal by year end is to have 15-20 wells producing from its Pacific Isle Project and 3-5 wells on production from the Chicken Springs Project.

Kodiak recently announced the additions of three members to its exploration staff. The Company has added the employees in an effort to maintain and expand its aggressive posture towards the evaluation and development of new geologic prospects and to evaluate acquisition opportunities.