The Powder River Basin is located in northeastern Wyoming and southeastern Montana. The Powder River Basin is rich in natural resources with significant reserves of oil and gas as well as some of the world’s thickest coal seams. The Powder River Basin holds the distinction of being the leading coal-producing area in the United States, and in recent years, has become one of the most active areas for oil and gas drilling. Our CBM development in the Powder River Basin is a relatively predictable natural gas exploitation and development process compared to the exploitation of many types of natural gas.

We expect that many of our wells will be completed to more than one coal seam. As of December 31, 2006 we had identified over 5,000 CBM drilling locations on 80-acre spacing, targeting an average of three coal seams per location. The coal seams that we target are part of the Fort Union formation and include the Canyon, Cook, Wall, Pawnee and Flowers-Goodale (the Roberts equivalent) coals, which are found at depths ranging from 200 to 1,500 feet and are each approximately 15 to 60 feet thick. We plan to drill 200 to 400 wells annually.

Powder River CBM wells are drilled with small truck mounted water well rigs and are completed as either single or multiple zone producers. Our general production profile for a CBM well shows production of water for 30 to 90 days prior to initial gas production. The lowering of the static water level reduces the coal formation pressure and allows the gas to desorb from the coal and migrate to the well bore. Gas production typically inclines steeply for an average of nine months, peaking at an average of over 100 Mcf per day. A period of relatively flat production at peak continues for three to four months and then declines over a five to seven year period. Produced water is handled by discharging it through one or more of several regulatory-approved methods.