East Ganado Field - Jackson County

Pipeline Resources, Inc. has recently acquired several leases covering a total of 722.96 acres located in the East Ganado Field area of Jackson County, Texas. The East Ganado Field is located within a portion of the Frio Trend that is unequaled for its prolific oil and gas production. Structurally, the area is situated within the Sam Fordyce-Vanderbilt Fault zone that has created abundant structural traps that range from large anticlines to very subtle fault closures. Depositionally, this portion of the Frio Trend is commonly referred to as Greta-Caranchua Barrier Strantdplain System and is characterized by the extensive deposition of highly porous and permeable sands that serve as excellent quality reservoirs. This combination of structural and depositional elements has made this portion of the Frio trend a premier producing area for over 60 years that remains one of the most attractive areas for additional development along the Texas Gulf Coast.

Previous exploration in the East Ganado Field has delineated a geologic setting that is considered to be ideal for additional drilling. The field has an excellent structural setting and has produced a total of more than 346,000 barrels of oil and 27 Bcf of gas from more than 15 separate reservoirs within the Frio section. Most of the production has occurred from several intervals within the Frio which are extremely complex stratigraphically. Detailed mapping and a review of the production records suggest that many of the reservoirs were not efficiently drained due to this stratigraphic complexity and indicate that substantial infield reserve growth potential exists.

The planned infield development program is expected to encounter some combination of new reservoirs, thin bypassed reservoirs, incompletely drained pressure depletion reservoirs and water drive reservoirs with additional “attic” reserves or untapped compartments. This expectation is based, in part, on the results of an infield development program that has been conducted by Pipeline on the LaSalle Field Prospect in Jackson County. This lease is situated approximately ten (10) miles directly along trend to the southwest and the geologic characteristics of the two (2) fields are very similar. Since its acquisition in 2006, two (2) very successful new infield development wells have been drilled on the project with several additional wells planned. The attached appendix contains several examples of productive zones encountered in the course of this development.

The economics of developing the remaining reserve potential of the East Ganado Field should be excellent particularly at the current level of oil and gas prices. With the assumption that the previous exploration in the field was successful in exploiting approximately 80% of the recoverable reserves present in the field, additional recoverable reserves of about 86,500 barrels of oil and 6.75 Bcf of gas can be attributed to the field. Because the reservoirs are typically highly permeable sands, flow rates of 500-1000 Mcf per day for gas and 75-100 Bbls. per day for oil are common. The available data indicates that six (6) to ten (10) additional wells may be necessary to develop the reserve potential of the leases. However, it is not uncommon to find much greater reserve potential especially from new reservoirs.

An aggressive drilling program has been planned to develop the remaining reserve potential of the East Ganado Field. An initial test well is scheduled for the fourth quarter of 2007 with plans to drill an additional well every 60/120 days until the project has been completed.