BEYOND THE LAST FRONTIER

INTRODUCTION
This is a history of the early development by my company, Michiwest Energy, of the County Line Coal Bed Methane field area, which today produces over 26 million cubic feet of natural gas per day from the Big George coal seam in the Powder River Basin.
The County Line Field is located in and around T48N R77W, Johnson County, as outlined on this map. In 1998, when Michiwest began drilling wells in the County Line Pilot Program, the nearest three phase electrical power was ten miles away, and the large pipeline systems had not yet been built north of Glenrock, which was over 100 miles from the Pilot Program.
The title of my talk, “Beyond the Last Frontier,” is in part a tribute to John Masters who, in 1991, gave a paper titled “The Last Frontier.” As I recall, the last frontier was the boundary in an explorationist’s mind that had not been breached, and which was holding back exploratory creativity and courage. His comments inspired me, and seven years later, when facing uncertainties in the early development of the County Line CBM project, I reflected often on his comments and from them drew strength to stay the course. So I dedicate part of the success we have experienced at County Line to John Masters, as he has had an indirect hand in the success of the project.

My comments today, rather than being technical, will focus more on the human aspect of the field’s early development history. This is not a story of how a major company discovered a large accumulation. Rather, it is a story of how five individuals--2 geologists, 2 petroleum engineers, and an attorney/landman--joined forces, with no employees or staff, and moved a project forward to a successful conclusion against formidable odds. I hope our story may in some way help inspire my fellow explorationists to, as John Masters stated, go beyond the Last Frontier.

MICHIWEST ENERGY
In 1998, Michiwest Energy was a company of one. As a Michigan Basin exploration geologist since 1966, educated at the University of Montana, I had been involved in numerous prospects in Michigan, but never as an operator. In 1991, I decided to explore in the Rockies and formed Michiwest Energy, Inc. as an operating company. That year I began interviewing Denver geologists to look for guidance, and more importantly, good prospects. I first became associated with Dudley Bolyard, a fine man and fine geologist, with whom I drilled a few wildcat wells in Colorado and leased about 80,000 acres on deep gas prospects in Wyoming. I then had the good fortune to meet George Dolezal of Denver, who introduced me to the fine art of wildcatting in Wyoming. The last well drilled by Michiwest/Dolezal was in 1997, an unsuccessful attempt to extend Mr. Barrett’s Cave Gulch field to the northwest. At the conclusion of that well, I engaged Ron Baugh as a consultant to evaluate the Ft. Union/Lance logs of the well. Afterwards, I mentioned to Ron that I needed to find some lower risk prospects, that I had drilled too many dry holes, and did he have any ideas. His reply was, “Have you considered the CBM play in the Powder River Basin?” Land is pricey on the east side of the Basin near Gillette, but I have an idea on the west side of the Basin at Lake DeSmet. “It’s real shallow, has plenty of nearby electricity, a gas pipeline, and the water is fresh and can be poured on the ground!” It sounded good to me, so I jumped right in, looking for that easy money. Talk about a couple of optimists! However, that conversation began my venture into the CBM play in the Powder River Basin and eventually to the discovery of County Line.

MICHIWEST AND THE CBM PLAY
Ron and I joined forces with Ken Wagner, attorney/landman of Casper and leased about 15,000 acres around Lake DeSmet. After studying the area further and coming to grips with the logistics of the west side of the Basin, namely being 130 miles or so from the Glenrock hub, I decided that I should look elsewhere in the Basin--somewhere closer to pipelines and other resources. I did not want to move to the east side, partly because of acreage cost, and partly because of my reluctance to drill and produce from multiple, thin coal seams. I asked Ron to research the Powder River Basin and find the thickest single-bed coal, at the greatest depth, to ensure the largest reserve potential. Oh yes, and it was also supposed to be much closer to the Glenrock hub to improve our ability to sell gas in the event we were successful.
After a few weeks, Ron reported back that he had mapped a nine township area that contained a single-bed coal that was about 150 feet thick, called the Big George Coal. The thickest area was in the vicinity of T48N R77W, where it appeared that there could be as much as 200 feet of coal at a depth of 1200-1400 feet. That area was still over 100 miles from Glenrock, ten miles from three-phase electrical power, and about 30 miles from the nearest CBM producing well. However, the potential reserve, which we estimated to be as much as 1 BCF/40acre tract, was too significant to ignore.

COUNTY LINE PROJECT – THE BIG GEORGE COAL
A lease take-off of the area showed that Anadarko Petroleum had leased 27,000 acres in and around T48N R77W. The Anadarko lease block was well-situated over the thickest area of Big George Coal, and it was apparent that the best option was to make a farm-in with Anadarko or buy the acreage outright.
First, we had to complete our evaluation of the Big George coal and determine if we could make a project work. Our research showed that Coastal Corp., in the 1980’s, had drilled four widely spaced Big George Coal wells within their Sasquatch Federal Unit (slide) which approximated the Anadarko lease block. These wells were powered by generators and produced as much as 2,500 barrels of fresh water per day, along with sporadic amounts of high-CO2 natural gas before the project was abandoned as non-commercial. Based on my experience in northern Michigan’s Antrim Shale development in which closely spaced wells were used to de-water the shale and create a pressure sink, I suspected that the Sasquatch wells were too widely spaced and incapable of de-watering such a thick coal. The wells had, however, produced some poor quality methane gas--up to 55,000 cuft/day with 30% CO2. So, I concluded that a Pilot Program with numerous, closely spaced wells with large pumps stood a good chance of creating a pressure sink, hopefully allowing desorption of the gas. The high CO2 content was a worry, but we believed that Coastal’s gas was not desorbed gas, but gas produced from coal fractures.
Prior to approaching Anadarko about their acreage, I first needed to align Michiwest with a Wyoming field operations company, as Michiwest had no employees. I met with Wayne and Mike Neumiller of Casper, and they agreed to join with Michiwest, take a significant interest in the projects, and do the field operating. Following that step, Ken Wagner contacted Anadarko in an attempt to buy the 27,000 acres, as the lease block was the company’s only asset in Wyoming. Anadarko personnel were reluctant to sell, instead preferring a drill-to-earn arrangement. Michiwest was awarded a farmout, whereby 14 closely spaced wells would be drilled, pumps and generators would be installed, and upon successfully demonstrating commerciality of the coal, would earn a 50% interest in the leasehold. That agreement was formalized on June 2, 1998.

THE COUNTY LINE PILOT PROGRAM
For the Pilot Program, we selected State of Wyoming Section 16 T48N R77W, as permitting would be easier and faster than on BLM leases which could require an environmental assessment, and for its proximity to Burger Draw which could carry produced water to the Powder River. Fourteen closely spaced wells were staked (slide), approximately on 32-acre spacing, and discharge permits were applied for and received from WDEQ. In the meantime, we were contacted by Robin Fields of CIG Resources in Colorado Springs (a Coastal Company) who asked if we would consider taking CIGR as a partner in the venture. Fields was convinced that Michiwest’s approach would work, and he convinced CIGR to consider re-entering the area through a venture with Michiwest. To the credit of CIGR management, they agreed to join us in a project that they had abandoned ten years earlier. I was happy to have CIGR in the project due to their experience in the natural gas processing and transporting business in the Rockies.
The first well drilling began November 30, 1998, and the last well was completed in April of 1999. Pumps were in and generators set by June, 1999, and wells began pumping water on June 20. I had expected high water volumes, and I got them. Many of the wells would pump 3,000 barrels or more per day, and we reached a peak volume in September 1999 of about 47,000 barrels per day.
Once water production began, the hard work and difficult times soon followed. Coal fines tore up the pumps, and we went through more than 40 submersible pumps at $4,000 each. Generators would overheat and shut down or fuel trucks would not make it out to re-fuel the generators, causing several wells to stop pumping simultaneously. Downhole electrical cables would fray from vibration, requiring wells to be pulled frequently. In short, there were so many operational problems that it was difficult to continuously produce water. To my knowledge, no one had handled the volumes of water we were experiencing. Outfalls were handling from 3,000 – 6,000 barrels per day, depending on how many wells were directed to each one, causing constant re-design and re-construction of outfalls. The learning curve was vertical, but through time, many of the physical problems of handling water were improved. During the three months from June, 1999 to mid-September, 1999, we produced only water, averaging about 25,000 barrels per day. In mid-September 1999, we began to see a small amount of gas on the annulus of a couple of wells, and from that we were encouraged. And encouragement sorely we needed, as environmental groups had learned of our operations and strenuously objected to the discharge of water, putting great pressure on the WDEQ. The environmental groups focused on Michiwest’s operation, with almost weekly visits by one group or another. At one point, even a bus tour was conducted in the Pilot Area, which could be best described as very bad ground for buses. However, our discharge permits were in place and properly granted. Don Likwartz and his staff at the WOGCC, while monitoring us closely, recognized the significance of our operation, if successful, to the State of Wyoming and remained very supportive.
In the fall of 1999, the BLM announced that additional CBM permits would be granted, limited to 32 per applicant. The Neumillers, as North Finn, LLC, and Michiwest prepared to apply for 32 wells each, for a total of 64 wells. These would eventually become Alpha and Beta Pods of the Big George Federal Unit. Beginning in October 1999, Ron Baugh oversaw a large surveying and archaeology program to get those 64 wellsite and gathering systems ready for BLM field review. It was a huge effort in a short time span, but on January 3, 2000, Ron led the field review team successfully through the inspection, resulting in the issuance of 64 APD’s in spring, 2000.
Also in mid October, 1999, after four months of de-watering, two of the wells, the #32-16 and #33-16 began making some free gas off the annulus. Gas samples from those wells indicated a methane content of about 94%, very good news indeed. And the good news continued (#33-16 slide). In December, 1999, the #33-16, which had produced some gas, suddenly increased in production from the annulus, climbing in 11 days from less than 20,000 cuft/day to over 200,000 cuft. You will note from the slide that gas did not appear in this well until over 200,000 barrels of water were removed from that well. Not long after, (#32-16 slide), in January, 2000, gas from the #32-16 suddenly increased, rising from about 50,000 cuft/day to over 450,000 cuft by the first of February.
The overall gas production history of the Pilot Program can be seen on this slide (cumulative gas bubble map through 5/16/200), which indicates not only the significance of the #32-16 and #33-16, but how quickly other wells began gassing in the spring of 2000. The bubble map shows production through 5/16/2000 and indicates that by that date, cumulative production from the Pilot Program stood at just over 59 million cubic feet. In May, 2000, with so many wells producing gas, all of us involved in the project were greatly encouraged, for it appeared certain that the Pilot Program was a success.
With growing confidence, Michiwest made application to Powder River Electric for construction of a 10 mile three-phase power line to the Project. Bear Paw Energy, with whom we had made an alliance in 1998, began, at our request, to plan the construction of a 12”, 18 mile gas pipeline from County Line to the Ft. Union pipeline.
By June, 2000, with new BLM permits in hand, production averaging 500,000 - 600,000 cuft/day, and water decreasing slightly, Michiwest and Anadarko agreed that the Pilot Program was a commercial success. At the end of 2000, Michiwest Energy was assigned its 50% interest in the County Line lease block, which then totaled about 30,000 acres. Having purchased UPRC the previous year, Anadarko now had a large presence and operations in Wyoming and elected to become operator on January 1, 2001. In the 2 ½ years since undertaking the project, Michiwest and its partners had spent almost $3 million.
The following slides will reinforce the adage that “if you want to keep your geological interpretation simple, don’t ever drill a well.” The first two slides show the Big George structure and thickness prior to drilling the Pilot Program. Slide 3 shows the structure following the drilling of the Pilot Program, in which we encountered an unexpected synclinal area. Slide 4 is the structure after the Alpha and Beta Pods were drilled in 2001-02, showing a very complex structural picture.

SUMMARY
The County Line Pilot Project was successful in achieving the goal of establishing commercial production from the Big George Coal seam. Today, about 28,000,000 cuft/day from the field are produced with per-well averages around 350,000 cuft/day. Some individual wells have produced as much as 2,500,000 cuft/day. Several wells produce over 1,000,000 cuft/day. By the end of 2004, about 200 wells will have been drilled, and production may exceed 50,000,000 cuft/day in 2005. The project will finally have in the range of 400 - 500 wells with production near 1million cuft/day. Recoverable reserves are expected to be more than 500 BCF to 1 TCF, with reserves in the nine township area about 2 TCF. This represents a tremendous resource to the state of Wyoming.
The most gratifying part of the story to me is the personal. Wayne and Mike Neumiller worked incredible hours under great pressure to keep the field operations running, for to stop was to fail. Ron Baugh worked tirelessly throughout the project on geology, permitting, hearings, and team meetings. Ken Wagner took care of legal, land, and environmental issues. And at the end of the project, after incredible pressure on everyone involved, we are great friends.
Anadarko Petroleum was and is a great partner to work with. Anadarko personnel always kept their word and honored their commitments to Michiwest. Don Likwartz and his staff at WOGCC had the foresight to see the benefit to the state of Wyoming in our success and worked hard to make sure that we were able to continue the Pilot Program, even while we were undergoing the severest criticism. Wyoming owes Don a vote of thanks.
And to my partners in this project, my friends, I say thank you for the unwavering support and for the commitment you made to Michiwest Energy. Without Ron Baugh, Ken Wagner, and Wayne & Mike Neumiller, this project would not have succeeded.