East Texas Austin Chalk Meridian is on track with its plans to develop this growing core area. The Company originally acquired an interest in this play as a 50% working interest owner in approximately 7,600 acres during mid-year 2005. The original plan was to develop the Woodbine sand section offsetting the prolific Double A Wells field. Additional objectives were the Austin Chalk and Buda formations. Meridian was granted operatorship of the play and has since developed a current gross acreage position of approximately 83,000 contiguous acres in this play area. This will provide enough acreage for a drilling inventory of up to 80 possible dual lateral well locations. Since initial drilling starting in 2006, the Company has drilled or participated in the drilling of eight Austin Chalk wells (six are producing, one is drilling, one is currently completing and about to be tested). The aggregate gross proved reserves discovered as a result of the completed wells, including PUD locations, equal over 50 Bcfe (12 Bcfe net to Meridian). Average wells in the area reportedly recover approximately 3.8 Bcfe, with the best wells recovering as much as 15 Bcfe. This play’s contribution to the Company’s net proven reserve base has grown from 0% to approximately 11% over the course of the past 18 months and is projected to be one of the top four cash flow producing fields in the Company. Scheduled wells for 2008 are in the thicker, shallower chalk areas that are expected to produce higher oil ratios than the Company’s initial wells that were primarily focused on the original Woodbine test locations. As stated above, two wells are currently being drilled and completed in this area. The BSM No. 5 well (65% WI), has drilled two horizontal laterals with approximate lengths of 5,000 and 5,500 feet measured depth (“MD”), respectively. Currently a liner is being run in the second lateral and is expected to be completed and tested in the coming weeks. The Freeman No. 1 well (84% WI) has completed its first lateral at approximately 5,000 feet MD. The second lateral is currently at a length of approximately 1,400 feet MD, going to a targeted 6,000 feet MD in length. The vertical depth of the Austin Chalk formation in this area is approximately 13,500 feet. Additionally, Meridian participated in the outside operated BSM A-917 No. 1H, which was a single lateral well that reached a total depth of 18,800 MD. The well was recently tested at 2.8 Mmcf/d with 700 barrels of oil per day. Meridian holds approximately 9% working interest in this well. The key to this project is management of the cost of drilling and completing dual laterals within estimated cost levels and leveraging the large acreage position to increase production and reserves with continual drilling. We have achieved these goals in a relatively short cycle and, in doing so, believe that with the addition of our recently acquired and constructed new drilling rig, we will be able to maintain a continuous drilling program within this region. Levering off the knowledge and experience of the Company in this play, the Company has expanded beyond its currently established boundaries to explore and test acreage located in two separate south-central Texas areas. Meridian is building leasehold positions and has budgeted four test wells in these areas for calendar year 2008. It is anticipated that in these areas, the production will have a higher liquid (oil) content than its current production in the initial wells in east Texas. The expanded play areas are unproven and in the early stage, therefore, as they are tested, the Company will release additional details on these opportunities as they develop.
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