Magnum Hunter Resources Inc., whose oil and gas activities have focused on traditional exploration in the heart of the U.S. oil patch and offshore in the Gulf of Mexico, has established a new core area in the San Juan Basin, with plans to exploit an area of nearly 6 million acres through a joint coalbed methane (CBM) venture.

The independent plans to concentrate its exploration efforts on the Upper and Lower Menefee coals of the Mesaverde Group. To “immediately” begin exploration of the new acreage, Magnum Hunter has formed a joint venture arrangement with Dallas-based CDX LLC and CDX Frontier LLC that will cover the acreage’s area of mutual interest. CDX, a private exploration company formed in 1991, specializes in CBM drilling and production.

Magnum Hunter estimates recoverable gas-in-place to be 1.13 Tcf in the Menefee coals, with 107 feet of net pay thickness and a 60% recovery factor over 167,089 acres.

“This is one of the most exciting projects that I have ever been involved [in] in my over 18-year tenure here at Magnum Hunter,” said Gary C. Evans, CEO of Magnum Hunter. “The reserve potential of this unexplored region significantly exceeds our company’s current proved reserve base.” Evans said that by attracting CDX as the drilling partner, “Magnum Hunter is able to immediately exploit this new asset with minimal capital outlay.”

Magnum Hunter exercised options on mineral leasehold acreage located in McKinley, Sandoval and San Juan counties, NM that covers about 554,000 acres. Additionally, the company is in the process of exercising exclusive option rights on an incremental 922,000 mineral acres located in Bernillo, Catron, Cibola and Socorro counties, NM.

CDX’s contribution to the joint venture is approximately 14,000 mineral acres more commonly referred to as the Southeast Cabrito Project, Rio Puerco Project and Zed Project. Also, the joint venture has recently acquired new mineral leases covering approximately 8,000 acres from the State of New Mexico.

The joint venture is structured as a three-phase drilling program, which was initiated earlier this month. Phase I, to cost $3 million, calls for the drilling of 25 wells at depths up to 3,500 feet, which will be managed by CDX and its affiliate. All of the Phase I work is expected to be completed by Feb. 15, 2004.

Phase II, also to cost $3 million, will be comprised of drilling an additional 25 wells (15 stratagraphic tests and 10 core tests). This phase is scheduled for completion by July 1, 2004. And Phase III, to cost $5 million, will consist of drilling several pilot projects, both vertical and horizontal.

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