UPDATE – 25 MAY 2009Paradox Basin #2 well, Grand County, Utah...

UPDATE – 25 MAY 2009
Paradox Basin #2 well, Grand County, Utah
 In light of the excellent confirmed large gas resources discovered in
the upper zones of the well, the Company has made a commercial
decision to proceed directly to testing of five established gas pay
zones for commercialisation rather than continuing drilling operations
to deeper exploration targets.
 Paradox Basin #2 is being prepared for immediate testing and
completion of gas zones in the Pennsylvanian Ismay, Chimney Rock
and Barker Creek formations within the Golden Eagle gas field.
 The confirmed shallower gas zones represent a larger discovered
resource (P50: 78.9 Bscf) and are more commercially attractive for
exploitation than the deeper zones in the Pinkerton Trail Formation
and Mississippian Leadville Limestone.
 Testing operations are being organised to commence during June.
Preparation and planning for tests has been progressing since setting
the 7” casing.
 Drilling operations have been suspended at 14,216’ in the Alkali Gulch
Formation.
 The six inch hole from 12,956’ to 14,216’ will be logged and drilling
suspended in such a manner that the deeper section can be re‐entered
at a later date.
 Paradox Basin #2 is a successful well that has discovered further gas
resources in the Golden Eagle Field. A revised reserves report will be
prepared by RPS Energy after testing is completed. Based on the
results reserves are expected to increase.
In light of the excellent well results the directors of Golden State Resources have made a
commercial decision to proceed to production testing of the discovered gas zones in the
Ismay, Chimney Creek and Barker Creek formations, rather than to continue with
expensive exploratory drilling to the Pinkerton Trail and Leadville Limestone. Drilling
operations were stopped over the weekend in the Alkali Gulch Formation at 14,216’.
2
The shallower zones contain high quality gas that is readily developed. The discovered gas
in the upper zones of Golden Eagle Field has been independently estimated by RPS
Energy at 78.9 Bscf (P50) gas initially in place (GIIP). The lower zones in the Pinkerton Trail
and Leadville Limestone have a potential 39.7 Bscf (P50) GIIP. As drilling is the major
development cost, the shallower targets are more commercially attractive and will be
exploited first to develop cash flows and minimise costs. Deeper objectives will be subject
to future appraisal once sustained commercial production and revenues and cash flows
are established from the shallower and more commercially attractive zones.
Successful commercialization of the shallower zones has the added benefit of the gas
being free of inerts. The produced gas will require minimal treatment prior to delivery to
the Williams gas pipeline which is six miles from Paradox Basin #2. The Williams gas
pipelines transport 12 per cent of daily US gas consumption.
Petrophysical evaluation indicates Paradox Basin #2 has discovered over 95 feet of gas
pay in the upper zones of the Pennsylvanian, appreciably increasing the discovered gas
for Golden Eagle gas field. The upper zones were initially considered secondary objectives
in the Paradox Basin #2 well due to their structural position, whereas the deeper zones
initially were more favourable structurally. Paradox Basin #2 will be completed for
testing of the Ismay, Chimney Rock and Barker Creek formations. Production tests have
been recommended over five intervals:
Zone Interval Show Zone Net Pay (Ft) Porosity (%)
1. Upper Ismay 10,344’ ‐ 10,384’ 3 & 4 14’ 7.8
2. Chimney Rock 11,152’ ‐ 11,212’ 5 14’+ 11.0
3. Barker Creek 1 12,214’ ‐ 12,350’ No shows 18’ 6.0
4. Barker Creek 2 12,404’ ‐ 12,450’ 9 12 6.0
5. Barker Creek 3 12,550’ ‐ 12,582’ No shows 22 6.0
The zones will be sequentially tested and a completion will be run over the best zone.
Due to the extent of the gas zones and likelihood they represent different accumulations,
it is not possible to complete all zones in one well at the same time.
Completion designs were a factor in the decision not to continue exploratory drilling to
deeper objectives at this time. Other considerations were that the well has experienced
slower than expected drilling in the Alkali Gulch Formation with numerous bit changes in
thick dolomite cemented sandstone. Drilling improved once massive salt was
encountered. Minor bentonite clays were observed below 13,912’ and on several
instances the string became temporarily stuck. A thick bentonite clay horizon is present at
14,202’ and persisted to 14,216’. The drill string became stuck and a fishing operation
was required. The lower section of the well will be suspended in such a manner that it can
be re‐entered for a future test of the Pinkerton Trail and Leadville Limestone.
The results of both Paradox Basin wells, in particular the discovery of gas in the Ismay and
Chimney Rock formation in Paradox Basin #2, shifts the commercial focus to the
shallower gas bearing zones which represent the larger and more readily developed gas
resources in the Golden Eagle field. The Leadville Limestone, Pinkerton Trail and Alkali
Gulch formations were initially considered major objectives primarily due to their
structural positions.
3
Continuing to drill to the deeper objectives, which are volumetrically less significant and
still carry exploration risk, is not a prudent way forward for the Company in
commercialising the Golden Eagle Field.
WELL SUMMARY
Formation Geological Age
Paradox Basin #1 Paradox Basin #2
Depth
(feet)
Result
Depth
(feet)
Result
Paradox U. Pennsylvanian 9,040 No shows 9,740 Gas shows
Upper Ismay U. Pennsylvanian 9,744 Production Interval 10,270 14’ gas pay
Gothic U. Pennsylvanian 10,006 Minor gas show 10,560 1’ gas pay
Chimney Rock U. Pennsylvanian 10,279 Minor gas shows 10,986 14’ gas pay
Akah U. Pennsylvanian 10,528 Gas shows 11,500 4.5’ gas pay
Barker Creek L. Pennsylvanian 11,016 Suspended gas zones 12,360 61’ gas pay
Alkali Gulch L. Pennsylvanian 12,960 Major gas shows 13,220 Total Depth
14,216’
Pinkerton Trail L. Pennsylvanian 15,280 Major gas shows 14,875
Leadville
Limestone
Mississippian 15,573 Gas shows 15,168
Richard Sciano
Executive Director
25 May 2009