Pantego – Arlington Carrizo Project – Update

February  2011

Drill Site Activity: It has been a long period (since June/July) since an update has been provided. The fact is, there has been virtually no activity worth reporting from that time until just this last week.

To refresh your memory, at the time of the last report Carrizo was drilling three more wells in unit B, and two more wells for Unit A west of Bowen. That process was completed, but the final steps to fracture the wells were deferred until just three weeks ago. The reasons are myriad: extremely poor market for the gas, issues of pipeline capacity, availability of water from Pantego during the summer, etc.

Since January 7^th, the drill site has been active with the completion process necessary to bring the wells on line (fracturing, etc.). All five of the wells that were drilled last summer have now been, or are being frac’d. Because the laterals are longer than usual, they used as many as 13 frac stages. After the final frac operation, a “workover” rig will come back in and drill out the plugs that are currently restraining the product under pressure. This is the step that releases the gas to move to the marketing pipeline. Hopefully, by the end of February, or early March, the gas will be going to market, and the people in our project should begin to see more frequent royalty checks.

Future additional wells for either area will depend on factors such as the performance of the existing wells, and the market climate and pricing. While we all would like to see more production, we should recognize that no one wants to bring that about more than Carrizo. They have invested multiple millions in our neighborhood in bonuses, and in drilling expenses. We share the same interest as Carrizo so far as maximizing revenue is concerned.

Division Order: We answered a number of calls from lessors concerning the downward revision of the decimal shares in both pools. These were valid, and were dictated by a requirement in the lease that Carrizo had to include Pantego properties south of Pioneer even if they did not plan to drill there. It took some dialogue within Carrizo and its attorneys, and with the lease committee, to address this matter. Eventually, the right action was taken by Carrizo, and they were required by statute to modify the Division Order to accurately represent the pool. That is why the revised documents were sent to you, and we hope you have signed and returned them, or will do so now.

Offers to Buy: Once again there are a couple of firms offering to buy mineral rights, and we are being asked our opinion. We can’t give you advice. All I can say is that, if the three wells in Unit A produce as indicted by the first pilot well we had, the royalties I would receive would  equal the amount the companies offered me in only twelve months. There is no way I would sell a production stream likely to last decades for the equivalent of one year’s royalty income. In fact, if there are any of you who do still feel you would like to sell your mineral rights, I can refer you to fellow royalty owners who would be willing to buy them at considerably better prices than the offers now circulating. But, each individual needs to address this question with your own financial and legal professionals.

Bob Griffin

Lease Committee

info@pantego-arlingtonoilandgas.com