Lake Placedo Ranch Prospect

Victoria County

The 677.68 acre Placedo Ranch lease is in southeastern Victoria County three miles west of Lake Placedo, Texas. The acreage was acquired to evaluate the potential of a small but significant structural feature delineated by subsurface mapping and proprietary 3-D seismic survey interpretation. The lease appears to overly a complex Frio structural feature that results, at least in part, from the presence of an underlying shale diapir. A series of similar shale diapir related structures are present along trend with significant production associated with them.

Subsurface mapping and seismic data indicate the targeted structural feature is bisected by a significant southwest-northeast trending “down-to-the-coast” fault that has about 1000’ of displacement at the basal Frio level (+/- 8000’) that decreases to 100’ at the Greta level (+/- 5000’). On the upthrown side of this fault, there is north-northwest dip away from the fault which creates an ideal trapping mechanism. The prospect acreage overlies this portion of the structural feature.

Evidence hydrocarbons have accumulated on this portion of the structural feature comes from the Aubrey C. Black (Pickens) #1 Shelton. This well, drilled in 1974, produced 323,929 million cubic feet (MMcf) of gas and 3,580 barrels of oil (BO) condensate from the top of the Tom O’Connor sand series at 6100’. This well’s log and sidewall core analysis also delineate shows in multiple middle Frio sands between 5500’-6500’. Many of these sands are productive in surrounding fields and the multiple shows suggest a well drilled on the flank of a structure. The data indicates a well drilled to the southeast of this key well will encounter the middle portion of the Frio section approximately 20’ high structurally. There appears to be approximately 500 acres of areal extent up-dip to this key well and very significant oil and/or gas reserves could be present.

The 3-D seismic data indicates significant minor faulting associated with the prospective structure. Two small, splay faults associated with the primary “down-to-the-coast” fault are clearly present on the data and additional faulting is apparent. Such minor faulting is a typical feature of shale diapir related structures and can create a very complex geologic setting. This structural complexity, combined with the erratic stratigraphy of the middle portion of the Frio section, will likely require drilling a significant number of development wells to fully develop the reserve potential of the prospect acreage. Assuming potential recoverable reserves of 5-10 Bcf of gas and 500,000-1 million (MM) BO, six to twelve wells are expected to be required.

Three successful wells, the Lake Placedo #1-3 were drilled in 2009. A fourth well will be drilled in April and at least one more well is scheduled for 2010. Total monthly production exceeds 1900 BO and 27 MMcf per month.