Storm Cat Energy (fka SCUEF)

[Golden Cross]

Storm Cat Energy Corp (SCU)
http://www.stormcatenergy.com/

Overview:

Storm Cat Energy is a rapidly growing exploration company focusing on developing unconventional natural gas reserves globally. Our mission is to create value for our shareholders by applying strong technical expertise to strategies that will unlock substantial natural gas resources in areas where production can be achieved quickly and efficiently.

Projects:

United States Projects

North East Spotted Horse Field

The North East Spotted Horse Field is a producing coal bed methane project located in the Powder River Basin of Wyoming. The property contains 71 producing wells (69 operated) and production is approximately 2.6 million cubic feet per day.

How Acquired

Under an agreement dated January 18, 2005, the Company, through its 100% owned subsidiary, Storm Cat Energy (USA) Corporation, acquired 100% of Palo's interest in the field and Palo's gas gathering subsidiary, Paso Gaso Pipeline, LLC. The purchase price for the acquisition was US $8,500,000 cash, and the acquisition was completed on February 28, 2005.

Description of Project

The project consists of 6,320 gross contiguous acres located in the eastern portion of the Powder River Basin, 35 miles northwest of Gillette, Wyoming. There are currently 71 producing wells on the project (69 operated by the Company). Production is from various Fort Union coal seams and daily production is approximately 2.6 million cubic feet per day.

The majority current production from the project is contained within less than 20% of the project acreage. The remaining 80% of the project is undeveloped or under developed.

Effective April 2005, the Company entered a hedging agreement by selling forward 1 mmcf/d of production from the project to Enserco at a price of US$6.95/mcf. The agreement ends in March 2006.

Anticipated Exploration

The Company plans to begin drilling the undeveloped acreage in July 2005. The initial drill program will consist of up to 20 wells on State lands. For the remainder, the Company intends to file a Federal Plans of Development which is required to receive Federal Applications to Drill (“APD”). Once the APD is received, the Company intends to drill up to 64 additional wells. The APD is anticipated to be received in the 3rd quarter of 2005 for drilling during the 4th quarter of 2005.

Jamison/North Twenty Mile Fields

The Jamison/North Twenty Mile Fields are producing coal bed methane projects located in the Powder River Basin in Wyoming. The Company has a 100% Working Interest (81.5 Net Interest) in the project.



How Acquired

The Company acquired a 100% Working Interest (81.5% Net Interest) in the Jamison/North Twenty Mile Fields for US$1.25 million cash. The purchase was completed as of December 1, 2004.

Description of Project

The Jamison/North Twenty Mile Fields are located on the eastern flank of the Powder River Basin coal bed methane natural gas region in Campbell County, Wyoming. The projects are 1,481 acres and currently contain 28 producing wells which were originally placed into production in early 2002. Current production is approximately 1.0 million cubic feet per day.

The current production is from the Anderson and Canyon coal seams, which are 2 of the 6 coal seams known to exist in the area. The Company believes two of the lower seams, the Cook and the Wall, are of sufficient thickness to warrant testing and, if positive, development through the drilling of new wells. In addition, the Smith coal seam is a candidate development through the recompletion of certain existing wells.

Project Reserves

Sproule Associates Inc. (“Sproule”) of Denver, Colorado, prepared an estimate of reserves on the Jamison/North Twenty Mile Fields for the Company as of December 31, 2004. The estimates using a constant price are as follows:

Reserves Category Gross
(MMcf) Net
(MMcf)

Proved Developed Producing 301.145 225.799
Proved Developed Non-Producing 0.000 0.000
Proved Undeveloped 327.558 245.603

Total Proved 628.703 471.402


Anticipated Exploration

During the first quarter of 2005, the Company initiated a comprehensive recompletion and rework program on the project. This program consists of pulling and reinstalling bottomhole pumps, re-perforating currently producing formations and deepening of some wells to test new zones. A second program, consisting primarily of drilling of new wells, is planned for the third quarter of 2005. This program is designed to test the Smith, Cook and Wall coal seams.

Alaska Exploration Licenses

The Company has a 100% working interest in three five-year Petroleum and Natural Gas exploration leases located in the Cook Inlet region of Alaska.

How Acquired

The Company acquired two leases totaling 18,359 acres through the high bid at the Alaska Mental Health Trust 2004 (the owner of the acreage) Oil and Gas lease sale held on November 9, 2004. The leases run for a period of 5 years, and consideration for the 2 leases is a US$203,901. The Company's Interest is a 100% Working Interest.

The Company acquired a third 5 year lease in the area totaling 3,757 acres in December 2004. US$9,395 was paid for lease rentals. The Company's interest is a 100% Working Interest (84.8% Net Revenue Interest).

Description of Project

The leases are all located in the Cook Inlet region of Alaska, approximately 45 kilometers from Anchorage. There is no history of production from any of these leases, and all are prospective for both conventional natural gas and for coal bed natural gas.

Storm Cat Energy has also acquired extensive Petroleum and Natural Gas leases in the Cook Inlet region of Alaska. Approximately 45 kms from Anchorage, the Company has acquired 18,369 acres comprising two five-year leases on two claims. These lands are considered prospective for both coal bed natural gas as well as conventional natural gas.

Mongolia Coal Bed Methane Gas Exploration Projects (Noyon West and Tsaidam)



Under an agreement dated April 5, 2004 on a production sharing contract for Coal Bed Methane hydrocarbons in the South Gobi region of Mongolia. The agreement grants the Company has the right to explore for, and produce, natural gas from coal within an area of 49,101 square kilometers (12,127,947 acres) located in the South Gobi area of the country known as the “Noyon West” project.

Under the Agreement, the Company has a minimum work commitment on the project of US$4,800,000 over 5 years under the following schedule:

Exploration Phase Exploration Year
Number Minimum Work Commitment (US$) Annual Surface Rental Fees
(per Square Kilometer in US$)

1 1 $ 820,000 $1.00
2 2 $1,280,000 $2.00
3 3-5 $2,700,000 $4.00

Total $4,800,000

Any excess expenditures spent in any given period may be credited against the work commitments of the next year.

The 5-year exploration period is divided into 3 phases. The first phase is one year long and 30 days from its expiration, the Company must relinquish from 25-50% of the original Contract Area. The second phase is also one year long, and 30 days from its expiration, the Company must relinquish an additional 20-30% of the original Contract Area. The third phase is three years long, and at the expiration of the third phase, the Company may relinquish all remaining portions or the original Contract Area except those areas which are being appraised or are under development. Upon mutual agreement of the Company and the Government, the period of the agreement may be extended up to 2 times, with each extension being up to 2 years in duration.

If a well is determined to be a Discovery Well, the area of the well will be classified as an “Appraisal Area”, and the company will have 180 days under an appraisal program to determine if a commercial reserve exists. If a Commercial Discovery is made, the area of the discovery to be developed will be reclassified as a “Development Area”, and the Company will have the right to develop the discovery for a “Development Period” of 20 years. The Development Period may be extended, upon mutual agreement of the Company and the Government of Mongolia, 2 times for a period of up to 5 years each time.

The Company must bear all costs for exploration and/or production of coal bed methane (“CBM”) from the project area. The Company is allowed to recover its costs from a portion of the CBM produced. Production will be subject to a royalty of 7.5% to the Government of Mongolia. After deducting the royalty and the cost-recovery, the remaining production will be allocated between Storm Cat and the Government of Mongolia based upon the average daily production for a given month under the following formula:



Total Average Daily Production
(in cubic meters) Production Allocation

Less than 1,000,000 Government of Mongolia
Storm Cat Energy - 20%
- 80%

1,000,001 to 2,000,000 Government of Mongolia
Storm Cat Energy - 25%
- 75%

2,000,001 to 3,000,000 Government of Mongolia
Storm Cat Energy - 30%
- 70%

3,000,001 to 4,000,000 Government of Mongolia
Storm Cat Energy - 35%
- 65%

Equal to or greater than 4,000,001 Government of Mongolia
Storm Cat Energy - 40%
- 60%

The Company will also pay the Government of Mongolia various cash payments as certain milestones are reached, under the following schedule:


Milestone Payment Amount
(in US Dollars)

Upon signing of the Agreement $ 60,000
First sale of Contract CBM $ 250,000
After average daily production exceeds 1,000,000 cubic meters for a calendar month
$ 500,000
After average daily production exceeds 2,000,000 cubic meters for a calendar month
$ 750,000
After average daily production exceeds 3,000,000 cubic meters for a calendar month
$1,000,000
After average daily production exceeds 4,000,000 cubic meters for a calendar month
$1,250,000
Beginning of each year the contract is in effect $ 40,000

The agreement was ratified by the government of Mongolia in May 2004.

In December 2004, the Company entered into a second agreement with the Petroleum Authority of Mongolia on a second coal bed methane exploration project. This exploration block, named the Tsaidam Block, covers approximately 22,407 square kilometers (5,536,893 acres) near Ulaanbaatar, the capital of Mongolia.

This agreement requires the Company to spend US$300,000 on exploration work by December 31, 2005 in order to obtain the exclusive right and privilege to apply to the Petroleum Authority for a Production Sharing Contract (“PSC”) for all or part of the project area until June 30, 2006. If a PSC is granted, the funds expended on exploration under the agreement will be credited to exploration expended under the PSC
Summary of the Projects:

Highlights

Powder River Basin:

Current production of 3.5 million cubic feet per day
Spotted house has 120 drillable locations
Low risk investment

Elk Valley

Brought to this project by Encana (see more on them in key element section)
The capital of coal in Canada
Encana has two producing properties there
The property is over 77,000 acres and has 3 to 7 trillion cubic feet of resources (see link for source)

Saskatchewan

Drilled one well
Found gas in three different formations from drilling

Alaska

Acquired eight blocks
Owns over 35,000 acres
Zimmerman has previously explored these areas with Evergreen Resources

Mongolia

Borders China
Largest owned area (size of Rhode Island)
High risk investment
.



Plan of Exploration

The projects lie in the southern Gobi Desert near the Chinese border. The region has undergone little modern exploration and there is almost no detailed geological information available. However, there has been historic coal mining in several areas, and nine high rank coal seams were known within the Noyon West project area, while 500,000 acres of the Tsaidam Block contain geologically mapped coal deposits.

Upon the approval of the PSC by the government, the Company's exploration team began surface and geological mapping and stratigraphic exploration of known coal seams. During the summer of 2004, the initial work was followed-up with the drilling of 8 shallow (150 meter depth) exploration holes in the Nariin Sukhait region. These holes were drilled along the 70 kilometer length of the Nariin Sukhait thrust fault where surface expressions or outcrops of coal suggested the likelihood of correlative subsurface coal deposits. 7 of the 8 holes encountered significant thicknesses of coal, including intersections exceeding 41 meters in total thickness occurring in as many as 10 separate seams. The drilling was limited by the mechanical constraints of the Mongolian drill rig. A larger drill rig was contracted to drill 3 new holes to test possible deeper coal seam intervals down to a depth of 900 meters. The drill cores from these deeper holes will be used in gas desorption tests designed to test the methane gas content of the coals as well as to document the existence of coal cleating, or fractures, which are necessary for providing pathways for the methane gas production. Entrada GeoSciences (formerly Hampton, Waechter & Associates) of Englewood, Colorado, has been engaged to provide data collection and measurement of the gas content.

On the Tsaidam Block, the Company intends to conduct geological and geophysical as well as drilling of 3 exploration wells of 600 meters depth to test the known shallow coal beds within the block. It is anticipated that the cost of work will meet the Company's exploration expenditure requirement of US$300,000 before December 31, 2005.


Currently looking of JV partner


Outlook/Industry Insights/Important Terms:

The natural gas which can be extracted from Coal Bed Methane is one of the most current technologies which will help alleviate natural gas shortages.
Described as "sweet gas", CBM contains up to 90% methane. This high level of methane makes it directly available for consumption. At the end of the 80's CBM gas was almost nonexistent. However, by last year the production of CBM has grown to 9% of the total US gas production. The new technology you see pictured here, which uses water pressure to extract natural gas from ancient coal beds has changed the entire dynamic of CBM exploration.
The new CBM extraction technology has led to an explosion of CBM related exploration and production. Despite being only 9% of the total US Production, the table indicates the number of CBM wells in the lower 48 states has grown for virtually zero in the late '80's to a robust 10,000 plus wells in production by the turn of the century.

The natural gas shortage is a function of the regulatory mandates combined with regulatory restrictions on exploration. The demand side reveals 300 plus new power plants in the US that run only and natural gas, yielding a market environment which leaves us above $6 per MCF for the foreseeable future.


China's West-East Natural Gas Pipeline
Source: BusinessWeek

Adsorption/adsorbed – Absorption refers to the molecular bonding of a gas to the surface of a solid (for example coal).
Anthracite Coal – The highest rank of coal, anthracite is used primarily for residential and commercial space heating. It is a hard, brittle and black lustrous coal. Unlike bituminous coals, anthracite contains a high percentage of fixed carbon and a low percentage of volatile matter. The heat content of anthracite ranges from 22-28 million BTU (British Thermal Units) per ton.
Bituminous Coal – A dense black or dark brown coal, bituminous coal is used as a fuel, primarily in steam/electric power generation. It is also used in manufacturing and in producing coke. Bituminous coal is the most abundant coal in active B.C. mines. Its heat content ranges from 21-30 million BTU per ton.
Coal – Coal is readily combustible, black or brownish-black rock comprised of more than 50 per cent carbonaceous material by weight and more than 70 per cent by volume, including inherent moisture. Coal is formed from plant remains that have been compacted, hardened, chemically altered, and metamorphosed by heat and pressure over geologic time.
Coal Rank – Coals are classified according to their progressive alteration from lignite (lowest rank) to anthracite (highest). The standard ranks of coal include lignite, sub-bituminous coal, bituminous coal and anthracite, and are based on fixed carbon, volatile matter, heating value, and coking (see coke and coking coal properties).
Coal Seam – A coal seam refers to a bed of coal lying between a roof and floor. It is also called a "bed" in the coal industry.
Coke (Coal) – A solid carbonaceous residue derived from low-ash, low-sulphur bituminous coal. The volatile constituents are driven off by baking at temperatures as high as 2,000 degrees Fahrenheit. Coke is used as a fuel and as a reducing agent in smelting iron ore in a blast furnace. It is grey, hard and porous and has a heating value of 24.8 million BTU per ton.
Coking Coal – Coking coal refers to bituminous coal suitable for making coke.
Conventional Natural Gas – Natural gas consists of mixture of hydrocarbon compounds, primarily methane, and small quantities of various non-hydrocarbons that exist in gaseous phase or in solution with crude oil in natural underground reservoirs.
De-watering – The process of removing water from a coal seam in the vicinity of a producing gas well. The water in the coal is pumped to the surface and an appropriate disposal method is determined based on water quality and quantity. De-watering is required to reduce pressure within the coal seam which in turn allows the methane gas to be released from the coal.
Directional Drilling – An international deviation of the well bore from its natural path. This method can be used when local topography (e.g. river banks or other water bodies) prevents vertical drilling. Under normal conditions, vertical drilling is used (i.e. the bottom of the hole is located beneath the drill rig).
Flaring – Flaring is the burning of natural gas as a means of disposal. It is restricted primarily to short-term testing, well workovers or exceedingly rare emergency situations.
Fracturing – Hydraulic fracturing is conducted to increase well productivity by injecting fluids at high pressure to create a more fractured and therefore permeable area. It is maintained by propping with sand to hold the fractures open.
Lignite – The lowest rank of coal, often referred to as brown coal, lignite is used almost exclusively as fuel for steam-electric power generation. It has a heat content ranging from 9-17 million BTU per ton.
Multi-seam well completion technology allows gas to be extracted from multiple coal seams through a single wellbore. (Storm Cat excels in executing this type of technology)
Sub-bituminous Coal – Sub-bituminous coal’s properties range from those of lignite to those of bituminous coal. The heat content of sub-bituminous coal ranges from 17-24 million BTU per ton.
Spacing and Target Area – They are required for, or allocated by regulation to, a well for producing petroleum or natural gas.
Workover – CBM wells may require additional work, or a workover, to maintain or improve production levels. Examples include well-bore flow stimulation by perforating or fracturing, installing water pumps in BCM wells, or cleaning. These activities require temporary rig setup on the well.
Current Natural Gas Hedges:

"Due to recent strength in the price of natural gas, Storm Cat has entered into a hedging arrangement by selling forward 1mmcf/d from the Spotted Horse Field at US $6.95/mcf for one year."
As far as I know, this is the only hedging that Storm Cat is currently doing. The rest of the gas is probably being sold at the spot price. The hedge will be over by the end of first quarter of 2006.

Key Element:


Joint Venture with Encana brings huge credibility for Storm Cat. It interesting to note that a company with 40 billion market cap comes to Strom Cat for help. Encana is looking for partners who have excellent technical expertise and they acknowledged through the joint venture that Storm Cat management is one of the best in the business. Farther this joint venture will help Storm Cat develop its properties more quickly and efficiently as they will have the past knowledge from Encana and we can assume that Encana has ton of information they will share with Storm Cat as they are the largest natural gas producer in North America and the largest company in Canada.
Storm Cat has assembled one of the very best technical team there is. The team has over 145 years of geo-technical experience exploring and developing large resource-rich, and unconventional, natural gas projects.

Ask yourself why was Storm Cat the “ONLY” small exploration company invited to speak at the EnerCom, Inc. EnerCom, Inc. announced today the lineup for The Tenth Oil & Gas Conference(TM), www.theoilandgasconference.com. The Conference, held in Denver Aug. 7-11, 2005, is the largest energy investment conference hosted in Denver, showcasing more than 90 companies with a combined enterprise value of more than $227 billion. This premier forum offers institutional investors, energy research analysts, retail brokers, investment bankers, energy industry professionals and high-net-worth individual investors a unique opportunity to meet and discuss important topics concerning the global oil and gas industry over five days. Participating industry leaders and key management from micro-cap to billion-dollar-plus companies in the global energy exploration, production and service sectors will discuss their future plans, opportunities and industry trends.