SALE OF OPERATED PROPERTY AND LEASEHOLD
COALBED METHANE PLAY

LOCATED IN WASHINGTON COUNTY, OKLAHOMA

• Asset Overview:
  • Washington County, OK Coalbed Methane Play
  • 11,000+ contiguous gross/net acres
  • 108 operated wells:
    • 90 producing wells, 16 shut-in wells, 2 WOCU
  • Six active, operated disposal wells (1 shut-in, 1 WOCU, 1 contracted)
  • 100% WI , Average NRI= 81.68%
  • 97%+ of net acreage held by production
  • Panoak-owned pipeline and gathering system with 8+ miles of lines
  • Multiple sellers, with operator owning >48% in all wells
  • Bid will allocate between reserves, operations and pipeline
     
• Producing Value:
  • Gross daily production of 2,200 MCFED (projected 11/2008)
  • Monthly net cash flow of $227,700 (projected 11/2008)
  • Net PDP reserves of 4.47 BCF, 12.3 MBO
  • PDP Present Value at 10%: $9.50 MM
     
• Undeveloped Value:
  • 68 Proved Undeveloped Drilling Locations targeting multiple coal
    intervals
  • Infill current field spacing from 160 acres to 80 acres
  • Net PUD reserves of 5.80 BCF
  • PUD Future Net Cash Flow of $10.02MM
  • Net Capital Requirements of $10.54MM
  • Net F&D Cost of $1.70/MCFE
     
• Behind-Pipe Value:
  • Proved Non-Producing opportunities in most existing wellbores
  • Net PDNP Reserves of 0.67 BCF (top ten target wells)
  • PDNP Present Value at 10% of $1.12MM
  • Net Capital Requirements of $0.22MM
  • Net F&D Cost of $0.33/MCFE
     
• Additional Considerations:
  • Unquantified upside in multiple conventional zones including Burgess,
    Skinner & Prue
  • Horizontal development potential in multiple coal formations
  • Very low geologic risk with up to 27 potential target zones