Black Dragon: #3 Well Begins Pumping Oil

Black Dragon announced that the #3 well has begun pumping oil. It appears that 99% of all the water that was used in the drilling and acidizing has been pumped back out of the formation. The result is that the four chalk wells which were doing a half inch a day of oil production are now four barrels a day. This current 3 1/2 barrel increase means increased revenue of $89,425 a year at $70 per barrel of oil and Black Dragon will see a return in its investment in seven months.

Mr. Smith went on to say that the next well that they use this new horizontal tool on, they are going to try a different completion, which will hopefully bring quicker and longer lasting increases in production in the chalk. The chalk has over 90% of its reservoir still in place.

Mr. Smith stated that he has received numerous calls concerning the last press release, so he would like to take the time to explain the billion dollar figure. Black Dragon would like to drill in phase one in eight Cotton Valley wells, which shows up in 8,000 -10,000 foot depth. The average Cotton Valley well is drilled on 640 acres, but sometimes the variance can be brought down to 80 acres.

Mr. Smith stated that he is in negotiations to acquire another 100,000 to 200,000 acres. The majority of the acreage could contain the Cotton Valley formation. Black Dragon already owns 3-6 sites, and has been in talks with another company to enter into a joint venture.

The Cotton Valley formation is a blanket sand, with depths of 300-400 feet thick. The first Cotton Valley well the Company would like to drill is offsetting the largest Cotton Valley ever discovered in Louisiana. It came in at 30 million MCF a day, and is currently doing around 3 million MCF a day. A gas well must be choked back, or you can damage the reservoir. If the Company hits a gas well that comes in at 30 million MCF a day, it will be choked back to around 6-7 million MCF a day. The Company assumes 4-6 million MCF a day, which equals around $240,000 a day, or $7.2 million a month. At an 84% net revenue interest, the Company would receive approximately $72 million in revenues a year. The Company plans to drill six more offset wells. Assuming all wells are at equal production, the seven wells would bring in approximately $508 million in revenues for the Company per year.

Please keep in mind that most of the Company's acreage has numerous oil and gas zones. When the Company drills down to 9,000 feet, it might pass through another five or six commercial zones. Core samples and logging on each well drilled will determine where the Company can drill shallow and mid-depth wells with a minimal amount of risk.

Finally, Black Dragon owns around 800 boreholes which are chalk wells. If the Company can commence to reopen all of its chalk wells and can get an average of 3-4 barrels a day, not counting gas, the Company could see an increase of gross production revenue of approximately $71.5 million per year.