American Exploration Corp.


U.S. Interior Gulf Coast

In the last ten years, a number of basin analysis studies and resource assessments commissioned by the United States Geological Survey and the Department of Energy have examined the deep gas potential of the interior basins fringing the Gulf Coast from east Texas to Mississippi. All report that the deeper Upper Jurassic through Lower Cretaceous succession consists of favorable exploration targets with very significant resources yet to be discovered.

In the North Louisiana Salt Basin, a very recent unconventional deep gas play formation (shale) has developed in the Haynesville Shale (deep gas section) of Upper Jurassic age. Major oil and gas companies including Chesapeake Energy, Petrohawk Energy, Encana and Goodrich Petroleum have created what is now projected to be the largest onshore gas field in the United States. Using new recovery methods, the fairway has emerged as an enormous gas resource with productive zones in the Haynesville, Hosston/Cotton Valley and more recently, the Bossier formations. Estimated ultimate reserves are roughly nine to eleven billion cubit feet (Bcf) per well, characterized by high initial production, quick production of reserves, and high returns on investment due to the quick monetization of reserves.

U.S. INTERIOR GULF COAST SALT BASINS

American Exploration Corp. is engaged in the acquisition and development of oil and gas prospects. Its initial property acquisition is in an undisclosed target region within Mississippi. The historically prolific Hosston and Cotton Valley formations will be targeted as well as the newly recognized Haynesville Formation, the giant shale gas reservoir of northeastern Louisiana.

Potential For Haynesville Shale Type Gas Accumulations

American Exploration’s exploration land base lies within the prolific Haynesville shale trend. Recognizing the enormous upside within this evolving play, principals of the company began early negotiation for a premier 5000-acre land position, having identified a unique gas opportunity at a fraction of current lease level costs. An exploration well was drilled within the area through the Haynesville shale in the early 1980s prior to the technology existing, which could have enabled gas production from the zone. Data from that early well not only demonstrates the presence and quality of the zone, but also the inherent rock characteristics sought after in a commercial shale gas well.

The Company believes that development of this enormous resource requires the drilling of new wells with the implementation of modern completion techniques.

The Company has assessed proprietary existing data and has evaluated the deep gas potential of this acreage, including the unconventional widespread Haynesville Shale play. This geotechnical work confirms enormous upside from the Hosston, Cotton Valley and potentially the Haynesville formations.

Historical

The regional setting of the onshore interior salt basins of the Gulf coast plain of the United States is illustrated in Figure 1-1. These basins were major Mesozoic depocenters separated by a number of structural uplifts and ridges. Deposition in these basins was associated with the extensional rift tectonics of the passive continental margin of the Gulf of Mexico.

During the Late Jurassic to Early Cretaceous, a large amount of accommodation space for sediment accumulation was generated by basement cooling and subsidence. Much of this deep gas-bearing stratigraphic succession from Late Jurassic to Early Cretaceous age still remains extensively unexplored in these interior basins. These include the clastic reservoirs of the Norphlet, Haynesville, Cotton Valley and Hosston formations deposited in continental, coastal and marine siliciclastic environments as well as the underlying carbonate reservoirs of the Smackover Formation deposited in nearshore marine carbonate environments.

The organic rich lime mudstone facies of the lower to middle sections of the Smackover Formation has been identified as an important regional source rock in the North Louisiana and Mississippi Interior salt basins. Basin analysis modeling indicates that the generation of hydrocarbons from the Smackover source beds began when they were first buried to a depth of 8,000 to 11,000 feet during the Early Cretaceous to Tertiary. Most of the petroleum traps in these interior basins are associated with salt related structural features. Movement of the Jurassic Louann Salt has produced a complex of salt-related traps associated with pillows, diapirs, extensional faults, turtle structures and half-graben systems.

In 2002, the United States Geological Survey published a detailed assessment of the prospective resources of the Lower Cretaceous Hosston Formation in these interior basins. The Hosston Formation consists of prodelta and fluvial-deltaic deposits and marks the second major influx of terrigenous clastic sediments into the Gulf of Mexico. There are also two Hosston fluvial-deltaic depocenters consisting of the ancestral Red River in east Texas and the ancestral Mississippi River to the east. Major clusters of Hosston gas pools are associated with the depocenter of the ancestral Red River while a smaller cluster is associated with the ancestral Mississippi River. The Target Prospect acreage is located within this productive fairway with a productive Hosston gas pool adjoining the acreage held by the Company.