Choice Resources (fka CZEKF)

[Bobwins]

nutsaboutgolf2001.... called Choice CFO Steve Austin. Had a nice talk.

1. Total costs of well will likely come to over $9 million C$
2. Formula at 30% will likely last for about a year.
Gross revs on 3,000mcfpd X $10 less 18% royalty, less $1/mcf in operating costs = approx C$8.5million/yr
3. They picked the lowest risk site in the group. Had nearby offset well that has produced for 40 years. Shot 3D seismic and took a lot of time to decide best way to drill this well. Future wells will need more seismic. Partners in this well, may or may not be involved in future wells. They have options on specific sites but are not guaranteed participation. The entity that bought 25% of the Pincher Creek Unit would be included in all future drilling as well as any improvements that might come from recompletions.
4. He acknowledged that the production was less than they had hoped for. He said they got the reserves and the pressure to ensure long life and production but it will come out slower than they hoped. He said they didn't get the rock fractures they had hoped for. The reserves are important in terms of long term valuation for Choice.
5. The recompletions will likely involve horizontal drilling from existing well bores. This will be significantly less expensive than a new well. He estimated that if this had been a vertical well to 3800 meters, the cost would have been 3 million. The 600 meter horizontal added the additional 5 to 6 million in costs. They can improve production to the 3 to 4 million mcfpd at $5 million instead of 9. There are several wells currently operated by Choice in the Pincher Creek area that are recompletion candidates. The cheaper cost and higher percentages are very appealing here. On a recompletion, their only partner right now would be their 25% partner and Choice would be retain 75% working interest.

6. Initial net production to Choice will be 140-150boepd including NGL. After payout, that would increase to 200boepd. Their last reported production level was 1360boepd so the new well will add about 10% to production.

Overall, I was very pleased with the call. The recompletions look very interesting to me and should make 2006-7 good years for Choice along with the aggressive winter drilling program that could involve up to 24 wells in other core areas.

Bobwins