GEOLOGIC REPORTS

This exceptional lease is located in northwestern Weld County, on the western side of the Denver-Julesburg (D-J) Basin. This foreland (in front of the Rocky Mountains) structural basin includes most of the high plains of northwestern Colorado, and is one of the most important oil provinces in the United States. Weld County, one of the larger counties in the State, contains the "heart" of the Basin, and has long been the top oil-producing counties in the State. Over 105 million barrels of oil were produced last year (2017) in the county. The giant Wattenberg gas/oil field south of the subject lease is one of the major onshore fields of the country. The county was a focus of drilling in the previous century in the vertical era, and, while vertical exploration and production continue, it is now a hotbed of horizontal drilling in the same producing formations. Rocks of the lower part of the Cretaceous era are the major producing horizons in the Basin, The "D" and "J" sandstones, the southern equivalent of the highly productive Muddy sandstone in Wyoming, were the original pay zones in the vertical era; while these formations continue to produce and are being drilled, the big new drilling targets in the era of horizontal technology are the Niobrara shaly limestone and the underlying clayey Codell sandstone. These formations are somewhat younger and shallower than the "D" and "J". Although these rocks are often saturated with oil, they were a tough nut to crack in the vertical era. Limestones typically have a low permeability, it is a thin unit, and does not present much surface to a vertical hole. The amazing new horizontal technology, which can drill horizontal "legs" up close to two miles, paired with improved fracking technology, has solved these problems. With fracking, we can create artificial permeability in the Niobrara, and with horizontal drilling, we can set a production casing one to two miles long in the Codell.

The small "Longs Peak" oilfield, discovered in 1995, is 2-3 miles north-northwest of the subject lease. This vertically-drilled field produces from the "J" sand. Total oil production in 2017 was 1,768 barrels. However, this lease was acquired because it is on the western edge of an expanding Niobrara/Codell horizontal play which straddles the Wyoming/Colorado state line. This play has been steadily extending westward in the past few years. In the township adjoining to the northeast (12N-65W), Longs Peak Resources (no connection to the mentioned field of the same name) brought in a horizontal Codell well in 2017, their first well completed in the Basin. This well initially flowed (no pump needed) 487 barrels/day along with significant gas. By the end of 2017, the well had produced 92,800 barrels of oil; an 80-acre State lease which we bought for our client Tom Reed just happens to be included in the drilling unit of this well, and he is receiving regular royalty checks. Longs Peak Resources seems to be well-funded, and they have drilled or permitted numerous other wells in this vicinity; last year they completed a horizontal Codell well in section 35 of the township (12N-66W) directly north of your lease. AND, most significantly of all, earlier this month they permitted seven horizontals—three to the Codell and four to the Niobrara—in section 13 of your township, about five miles northeast of your lease. These seven wells will likely be drilled in northerly and southerly directions from the same well pad. As essentially the same geology underlies your lease, it is reasonable to anticipate that Longs Peak Resources—or perhaps a competitor—will be interested in acquiring your lease.

This lease comprises 160 acres approximately seven miles south of the city of Cheyenne, and three miles north of the Colorado state line. It lies within the northern extension of the Denver Basin into Wyoming, and is in the most active area of the Basin. Weld County, Colorado, bordering to the south, is one of the major onshore oil-producing counties in the United States, and Laramie County, Wyoming is one of the most active counties in Wyoming.

The Denver Basin is a broad foreland (in front of the Rocky Mountains) structural basin. The formations that comprise the Basin dip very steeply eastward toward the deep axis on the basin’s western flank, where they abut the Rocky Mountain uplift, but beds in the wide eastern flank, which extends into the Nebraska panhandle, dip very gently westward. Therefore, although the lease is not far from the Laramie Range of the Rocky Mountains, it is in the deepest part of the Basin.

Three formations of Cretaceous age are the prime exploration targets in this area. The Niobrara shaly limestone and the immediately underlying Codell shaly sandstone are the hot new play for horizontal drilling in Laramie and Weld counties. Drilling depth to these formations at the lease is about 7,000 feet. The deeper muddy sandstone, the original and still active play in this area, (known as the "J" sandstone in Colorado) is at about 10,000 feet. The Niobrara/Codell would be about 2,000 feet shallower.

Drilling activity is closing in on this part of the Basin on several sides. Two townships to the south-southeast, in Weld County, Longs Peak Resources permitted eighteen horizontal wells to the Niobrara/Codell at the end of October. Three townships due east, EOG Resources is drilling a horizontal Codell well, and has permitted two more horizontals, one to the Codell and one to the Niobrara. And, in the township adjoining the parcel to the west, is the "Borie" oilfield, vertically drilled to the Muddy/J sandstone on an anticlinal structure. This old technology field has yielded over 6 million barrels of oil and 2.2 Billion cubic feet of gas. There was a small, now abandoned oil field in the Muddy just one mile south of the subject parcel known as the "Terry Peak" field, drilled in the 1950’s. I could find no production records for this now-abandoned field, but it shows that the Muddy has oil in the immediate area of the lease which could be opened up by horizontal drilling, as this technology is now beginning to be applied to the Muddy/J. (Note that the three dry holes on the map 2 miles southeast of the lease are very shallow and are at least fifty years old.)