Giddings Field
Following the closing of our Delhi Farmout, we initiated a project within our Conventional Redevelopment of Bypassed Resources initiative. Bypassed resources are primary and secondary oil and gas resources in fields that matured prior to current commodity prices and technology. These fields fell out of favor by industry for many reasons, including declining economics at times when oil and gas prices were below $25/bbl and $2.50/MMBTU and when drilling and completion technologies were less developed than today. To these resources, we apply our expertise in horizontal drilling, artificial lift and innovative completions. The EPM team has more than 40 years of combined experience in these areas, including the Giddings Field.

Our Giddings Field project targets proved undeveloped horizontal drilling locations in the Austin Chalk, Georgetown and Buda formations in the Giddings Field. These locations are offset locations to existing commercial wells. The targeted reservoirs are generally at a vertical depth of 9,000' – 13,000' and horizontal drilling ranges from single 1200' laterals to dual 4,000' laterals. The locations include both re-entries within existing wells at a cost of $1 – 1.7 million, and new, grassroots wells at a cost of $2 – 3.8 million. EPM owns 100% of the working interests in these leases that total approximately 18,000 net acres.

Through early 2009, EPM has drilled 8 wells and added 2 more wells to production through work-overs. Early drilling results led us to highgrade our portfolio of drilling locations in the area of our best successes and downgrade locations in one area. The drilling success achieved in the last 2 wells drilled, which averaged 450 boepd per well during their first 8 days of production, indicates that the highgrading was effective.

As of June 30, 2009, we have fully leased 21 proved and 2 probable drilling locations in addition to the wells that we have drilled and put on production. Another 12 grassroots drilling locations are fully leased that would be assigned as proved or probable reserves subject to natural gas prices returning to at least $5.60 per MMBTU.
 
The Austin Chalk and Georgetown formations are naturally fractured, dual porosity reservoirs containing either lean gas or rich gas with oil. Successful wells generally have high initial production rates and rapid initial declines. Typically, half of a well’s reserves may be produced in the first two years, following which the decline rate slows substantially. This type of development can generate substantial net value and income.

Neptune Project – South Texas Oil
Late in fiscal 2008, we initiated a new project, Neptune, in south Texas to apply what we learned about producing moderately heavy oil associated with water in the Tullos Urania Field in Louisiana, since divested. In such reservoirs that have oil “floating” on top of water, wells can reach their economic limit prematurely due to water “coning” in which the water is preferentially produced.

Leasing has been completed in the first project with a total of 1502 net acres in the Lopez Field. The first test well has been permitted and drilling should commence later in calendar 2009. The project potentially comprises up to 100 infill locations patterned after historical infill drilling in the field, and our independent reservoir engineer has assigned 47 MBO net proved reserves to four re-entry locations and 494 MBO of probable and possible net reserves to our first 21 infill drilling locations.

Artificial Lift Technology
We developed a proprietary technology, for which a patent is pending, to provide artificial lift in horizontal wells in which oil and gas reserves are left behind due to the inability of industry to extend conventional rod pumps into the horizontal section of a well bore. This technology was installed in our first well in the Giddings Field and, to date, has been successful in restoring commercial production to an otherwise temporarily abandoned noncommercial well.  While we believe that this technology may be extended to most horizontal wells in which production includes oil and/or water, additional field testing will be required to commercialize the technology. Our capital budget for Fiscal 2010 includes funds to conduct additional field tests (see Corporate Presentation for additional information).