SYNERGY OPERATING, LLC
PO BOX 5513, FARMINGTON, NM 87499
(505) 325-5449

Executive Summary

Synergy Operating LLC is seeking a Joint Venture Partner to bring their Southeast Chaco Slope Fruitland Play to PDP status. The Southeast Chaco Slope Fruitland Play lies along the north plunging southeastern flank of the San Juan Basin, New Mexico.

The coals of the Upper Cretaceous Fruitland have been prolific gas producers across the San Juan Basin of Colorado and New Mexico since 1981. The Fruitland Coal produced a total of 6.648 TCF gas over the period 1981-1999 in the San Juan Basin. In 2001 it was estimated that undiscovered coalbed gas resources in the basin totaled an additional 7.69 Tcf gas. Production is from high volatile to low volatile bituminous coal. Gas-in-place recoveries average about 80%. The coals of the Fruitland were derived from peats which accumulated in various swamp environments on the landward side of the Pictured Cliffs marginal marine environment. There are developed across the basin lying along northwest – southeast shoreline trends.

Across the project area, the Lower Fruitland Coal is characterized by one to three coal seams, ranging in gross thickness from 8 to 32 feet (see Type Log). The most prospective of these coals lies approximately 60 to 70 feet above the top of the Pictured Cliffs (see A-A’ Cross Section). This coal ranges in thickness from 10 to 30+ (Isopach/Lease Map) feet across the project acreage. Depth to production ranges between 450 feet to 900 feet across Synergy’s leasehold. In addition to the Fruitland Coal, the Pictured Cliffs Sandstone is prospective for gas production.

Synergy Operating LLC has spent approximately $2.1 MM to date, to drill and perforate the coal in twelve (12) wells (see maps), complete, install and run production pumps on three (3) wells (#134, #135 and #136), complete and install pumps on three (3) wells (#144, #190 and #159), complete five (5) wells (#130, #131, #132, #133 and #142) lay 5+ miles of gas and water gathering system and permit 18 locations including the Caleb Mesa SWD #1 well. In January 2007, Synergy perforated and pumped the Synergy 21-7-7 #136 and #135 wells. These wells while pumping produced approximately 30 BW per day per well and enough gas to run the equipment (estimate about 6 Mcf gas per day per well). The wells were pumped for an 11 day period. In October 2007, Synergy completed: perforated and stimulated the #134. An electric submersible pump was run in the well. The #134 was pump tested for about five days. Final test rates were gauged at 5 Mcf and 100 BW per day. A gas sample was taken and analyzed. Both the #135 and #136 wells were mudlogged through the Fruitland Coal section. Adsorption analysis was performed on these cuttings. In both wells, two coals were penetrated with gas shows recorded across each. In addition, gas shows were indicated in the Picture Cliffs (see Regional Map Montage (mailed upon request)).

Synergy Operating LLC is seeking a joint venture partner to spend about $1.715 Million to stimulate the remaining wells (#130, #131, #132, #133, #135, #136 and #142) in the ten (10) well pod, drill the Caleb Mesa SWD #1 well, purchase generators/skids, complete the pipeline work and the PNM connection. Synergy Operating LLC owns a 100% working interest and a 75% net revenue interest in these properties until payout with Yates Petroleum reserving a 12.5% overriding royalty interest convertible at payout on some of the wells (5 of the 12 drilled thus far). These are federal leases with a 12.5% MMS (Minerals Management Service) royalty. To date, Synergy has earned approximately 2880 gross acres of the 8,640 acres available to the project. There are seven (7) additional locations to drill on the earned acreage from Yates Petroleum, five of which are already permitted.

Prospect:

  • San Juan Basin – Chaco Slope, Shallow Fruitland Coal Play (< 900’)
  • Low Risk, Premier CBM Development Opportunity

Acreage:

  • 10,000 +/- Acres (100% WI / 75% NRI)
  • Area of Mutual Interest (AMI), T21N7W, T22N7W, T21N8W, T22N8W
  • Farmout Obligations (120 day continuous development)
  • Confidentiality & AMI Agreement REQUIRED

Wells:

  • Twelve (12) existing wells with gas & water gathering system
  • SWD – permit is approved
  • Five (5) APDs in hand ready to drill
  • Forty (40) Additional locations

Seeking:

  • Joint Venture Partner – Capital Needed – $ 1,715,000 – to achieve PDP status Synergy will be operator, ready to implement

Terms:

  • Partner to spend $ 1,715,000 to complete remaining wells ($105K), drill the SWD well ($700K), purchase generators/skids ($110K), complete pipeline work ($150K), and PNM connection ($650K). Flexible deal terms.

Geology/Reserves:

  • 160 Acre spacing, per well EUR of 345 MMCF
  • Coal Footage 20 to 30 feet (Horizontal Development ?)
  • Earn both Fruitland Coal and Pictured Cliffs
  • Gas Content Data, Mud & Well Logs, Adsorption Data, Gas Samples AVAILABLE

Analogous Production:

  • Coleman Oil & Gas, Rosetta, SG Interests, Dugan Production, XTO

Economic Model:

  • 15 MCFD per well initial rate. 1000% incline 1st yr. Peak @ 165 MCFD+
  • 185 BWPD per well decline @ 15% per year
  • Overhead $ 300 per well per month
  • Direct Op Cost $ 900 per well per month
  • $ 0.25 / bbl Water Disposal, $ 0.25 / MCF gas transportation
  • $ 5.00 / MMBTU flat over project life – 970 BTU/scf

Impact:

  • Initial Project (Pod-10 wells)
  • Gross Reserves: 3.448 BCF

Main Contact: Glen Papp gpapp@synergyoperating.com

Engineering: Tom Mullins tom.mullins@synergyoperating.com

Land: Patrick Hegarty patrick.hegarty@synergyoperating.com

Geology: Lisa Gusek lgusek@synergyoperating.com

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