1. Storm Water Permitting

2. Oil And Gas Operator Concerns  Impacts of Storm Water Permitting on Operators who do business primarily – On Privately Owned Lands Lost Leases Lost Access to Rigs Compliance Issues Lost Production and Reserves

3. Oil And Gas Operator Concerns:  Leasing – The following illustrates leasing complexities along with a current and live example of a typical exploration project:

4. Complex Leasing Issues – Split Estate Mrs. Barksdale has  20 Grandchildren  30 Great-grandchildren  55 G-G-grandchildren  19 G-G-G- grandchildren Numerous individually negotiated leases on tracts of land with numerous undivided interest owners Numerous individually negotiated leases on tracts of land with numerous undivided interest owners

5. Small Operator Leasing for an Exploration Prospect 3 Year Prospect (320 Acres)  Leased  Partial Leased  Held by Production

6. Tract 1 Lease Program 12 12 Leases expire by 6-16-06 Unless prior commencement of drilling

7. Tract 1 Continued Researching title & locating heirs. Leasing for Tract 1 has taken years. (Bottom 8 owners are heirs of the estate of James S. who were located from cousin Irene living in Chicago. Heirs live in N & S Carolina. Now attempting to lease.)

8. Tract 2 Lease Program  No Will (Intestate)  Heirs Determined by Probate Court (3-5 Mos) James T. died intestate (James T. had no will). Attempting to find all known heirs. Will then offer leases. May need to go through court for receivership (3-5 Mos) (If permitting delays cause receivership leases to expire, additional court proceedings required)

9. Tracts 3-a & 3-b Lease Program Leases on Tracts 3a&b held by production from outside operator. To obtain this kind of lease, a farmout is required. Typical farmouts have 6 month (or less) drilling requirements. Company approval process may take 2-5 months or longer. Storm Water Permitting delays may cause loss of farmout.

10. All Tracts  Drill site, if known, is kept confidential until leasing is finalized due to – Outside competition for leases – Compromising mineral owner negotiations  Estimated completion of leasing close to 6-16-06 expiration date.  NO TIME FOR PERMITTING DELAYS. – Drilling and permitting must commence after leasing/farmouts acquired and prior to their expiration.

11. Oil And Gas Operator Concerns:  Risk Of Losing Leases – Exploration projects have numerous individually negotiated leases with short timelines that may easily be derailed by delays – If leases are lost, then reserves and production are lost due to abandoned exploration project Costs Lost Forever - geological, seismic, exploration, engineering, project financing, lease acquisition, title work, legal work, permitting, and environmental workCosts Lost Forever - geological, seismic, exploration, engineering, project financing, lease acquisition, title work, legal work, permitting, and environmental work

12. Oil And Gas Operator Concerns: (con’t)  Risk Of Losing Rig – Rig will commit to other jobs if Operator cannot keep on schedule – once the rig is lost, the risk of losing leases and abandoning the exploration project is compounded – 4 to 6 months to acquire or re-acquire a rig – Rig mobilization costs $70,000 to $100,000 (depending upon rig size) – Drilling is required after final lease acquisition and prior to lease terminations – Lease clauses require continuous drilling to hold additional acreage (60 – 90 day)

13. Oil And Gas Operator Concerns: (con’t)  PROPOSED STORM WATER PERMITTING COMPLIANCE ISSUES – COMPLIANCE ISSUES FOR ALL OPERATORS Timing - On the ground compliance cannot begin until lease acquisition is finalized due to confidentiality concernsTiming - On the ground compliance cannot begin until lease acquisition is finalized due to confidentiality concerns Substantial delays associated with proposed permitting processSubstantial delays associated with proposed permitting process Leases on privately owned land do not allow for permitting delayLeases on privately owned land do not allow for permitting delay Need for user friendly guidelines such as RAPPSNeed for user friendly guidelines such as RAPPS – COMPLIANCE ISSUES FOR ALL OPERATORS, BUT ESPECIALLY SMALLER OPERATORS Storm Water Permitting CostsStorm Water Permitting Costs 3 rd party consultants3 rd party consultants – COMPLIANCE ISSUES MAINLY FOR SMALLER OPERATORS Due to financial constraints, unable to compete on Federal landDue to financial constraints, unable to compete on Federal land Unlike Federal leases, leases on privately held land do not allow for permitting delayUnlike Federal leases, leases on privately held land do not allow for permitting delay

14. Conclusion  Proposed Storm Water permitting requirements will cause delays, lost opportunities, and lost production Delays cause lost leases and rigsDelays cause lost leases and rigs Lost leases and rigs cause abandoned exploration projectsLost leases and rigs cause abandoned exploration projects Abandoned exploration projects cause lost reserves and production for the USAbandoned exploration projects cause lost reserves and production for the US  Lost US reserves and production will result in: – Lost Jobs – More Imports – Larger US Trade Imbalance – More Energy Dependency on Foreign Countries – Higher Consumer Prices – Less Federal, State, and Local Tax Revenue – Less Clean Burning Natural Gas (87% of US drilling for nat. gas)  Implementation of the RAPPS document is a better alternative as compared to the proposed storm water permitting requirements – RAPPS is user friendly & addresses storm water runoff concerns – RAPPS avoids delays and cost impact issues