A significant work program has been implemented in the East Binger Unit (''EBU'') miscible nitrogen injection project in an effort to reduce gas cycling and economically increase ultimate oil recovery. This work includes the drilling of new wells, both horizontal and vertical, as well as pattern realignment through producer-to-injector conversions. Monitoring of overall performance of the pilot area continues. Response to the various projects continues to be very favorable. Injection into the pilot area has nearly doubled, while gas production and nitrogen content of produced gas have both decreased. Nitrogen recycle within the pilot area has increased to 23% in recent months, but this is still far below the 58% recycle prior to initiation of the project. Two additional wells--EBU 65-2 and EBU 67-2--were brought on line during this reporting period. EBU 65-2 was successfully sidetracked after encountering thin pay on the edge of the reservoir, and is awaiting conversion to nitrogen injection service. The early performance of EBU 67-2 has been as predicted.

Budget Period 2 of the East Binger Unit (''EBU'') DOE Project has been. Recent activities included additional data gathering and project monitoring, plus initiation of work on an SPE paper on the modeling efforts of the project. Early production performance suggests horizontal wells do not provide sufficient additional production over vertical wells to justify their incremental cost. It will take more time to evaluate the impact of the horizontal wells on sweep and ultimate recovery, but it is unlikely that an improvement in recovery will be sufficient to make the overall economic value of horizontal wells greater than the economic value of vertical wells. Monitoring of overall performance of the pilot area continues. Overall response to the various projects continues to be very favorable. Injection into the pilot area has nearly doubled, while gas production and nitrogen content of produced gas have both decreased. Nitrogen recycle within the pilot area has dropped from 60% to 20%. Efforts to further disseminate knowledge gained through this project, by means of technical paper presentations to industry groups, are underway. Project monitoring and technology transfer will be focus areas of Budget Period 3.

Implementation of the work program of Budget Period 2 of the East Binger Unit (''EBU'') DOE Project is complete. Two additional vertical infill wells were drilled, completed, and brought on production during the reporting period. These were the last two of five wells to be drilled in the pilot area. Additional drilling is planned for Budget Period 3. Overall response to the various projects continues to be very favorable. Nitrogen injection into the pilot area had doubled prior to unrelated nitrogen supply problems, while gas production and nitrogen content of produced gas have both decreased. Nitrogen recycle within the pilot area has dropped from 60% to 20%. Meanwhile, pilot area oil production has increased from 300 bpd prior to development to an average of 435 bpd for January through March 2004. March production was the highest at 542 bpd due to the addition of the two new vertical wells. Production performances of the new wells continue to support the current opinion that horizontal wells do not provide sufficient additional production over vertical wells to justify their incremental cost.

Implementation of the work program of Budget Period 2 of the East Binger Unit (''EBU'') DOE Project is progressing and nearing completion. Two of three planned horizontal wells have been drilled and completed. The third horizontal well will be replaced by two vertical wells, both of which will be drilled in early 2004. Based on costs and performances of all new wells, it is believed that, in the setting of the East Binger Unit, the benefits of horizontal wells do not justify the additional cost. In addition to the drilling of new wells, the project also includes conversions of producing wells to injection service. Four wells have now been converted, and injection in the pilot area has doubled. A fifth planned conversion has been removed from the project. Overall response to the various projects continues to be very favorable. Gas injection into the pilot area has increased from 4.0 MMscf/d prior to development to 8.0 MMscf/d in November, while gas production has decreased from 4.1 MMscf/d to 3.0 MMscf/d. The nitrogen content of produced gas has dropped from 58% to 45%. This has reduced the nitrogen recycle within the pilot area from 60% to under 20%. Meanwhile, pilot area oil …

Implementation of the work program of Budget Period 2 of the East Binger Unit (''EBU'') DOE Project is progressing and nearing completion. EBU 63-2H has been drilled, completed, and brought on line. This is the second of three horizontal wells planned for this Budget Period, but based on the costs and performances to date of all new wells, could be the last. It will take some time to evaluate their impact on sweep and ultimate recovery. In addition to the drilling of new wells, the project also includes conversions of five wells from producers to injectors. Three wells were previously converted, and a fourth, EBU 37-3H, was prepared for conversion at the end of this reporting period. The fifth will require an expensive workover and will be re-evaluated. Project response to the various projects continues to be very favorable. Gas injection into the pilot area has increased from 4.0 MMscf/d prior to development to an average 7.3 MMscf/d in this reporting period, while gas production has actually decreased from 4.1 MMscf/d to 3.9 MMscf/d. The nitrogen content of produced gas has dropped from 58% to 52%. This has reduced the nitrogen recycle within the pilot area from 60% to 27%. …

Implementation of the work program of Budget Period 2 of the East Binger Unit (''EBU'') DOE Project continues. The drilling of new horizontal well EBU 63-2H, scheduled for this reporting period, was delayed due to a lack of rig availability. This well was spud near the end of the reporting period. EBU 59-1 was converted to injection service, and injection capacity at the plant was increased from 19 MMscf/d to 22 MMscf/d. Although other factors have temporarily limited the field's ability to fully utilize the increased capacity, injection in the pilot area has been increased over 2 MMscf/d since the start of the project. Nitrogen recycle within the pilot area has been reduced with the projects implemented to date. Prior to pilot development, nitrogen production was 56% of nitrogen injected. Currently, nitrogen production is only 26% of injection. Pilot area oil production has increased 90 bpd or 30%, with 160 bpd from new wells offset by a loss of 70 bpd from wells converted to injection.

Implementation of the work program of Budget Period 2 of the East Binger Unit (''EBU'') DOE Project continues. Significant advances with the reservoir simulation model have led to changes in the program. One planned horizontal well location, EBU 44-3H, has been eliminated from the program, and another, EBU 45-3H, has been deferred, and may be replaced by a vertical well or completely eliminated at a future date. A new horizontal well location, EBU 63-2H, has been added. EBU 74G-2, the one new injection well planned for the project, was completed and brought on production. It will be produced for a period of time before converting it to injection. Performance is exceeding expectations. Work also continued on projects aimed at increasing injection in the pilot area. EBU 65-1 was converted to injection service. The project to add compression and increase injection capacity at the nitrogen management facility is nearing completion. Additional producer-to-injector conversions will follow.

Implementation of the work program of Budget Period 2 of the East Binger Unit (''EBU'') DOE Project continues. Major development work planned for the project includes the drilling of three horizontal production and one vertical injection wells, the conversion of five wells from production to injection service, and the expansion of injection capacity at the nitrogen management facility. Other work items include initiation of project monitoring and continued reservoir simulation. EBU 74G-2, the injection well planned to support the production of EBU 64-3H, has been drilled. Completion was underway at the time of this report. EBU 64-3H was fracture-stimulated during the period, further increasing production from this new horizontal well. Drilling of the final two wells of the pilot project is planned for 2003. Both are planned as horizontal producing wells. Work also began on projects aimed at increasing injection in the pilot area. The project to add compression and increase injection capacity at the nitrogen management facility was initiated, with completion targeted for March 2003. Additional producer-to-injector conversions are expected to be implemented around the same time. The revised history match of the simulation model has been completed, and work has begun to evaluate options with forecast simulations. The …

Work associated with Budget Period 1 of the East Binger (Marchand) Unit project is nearing completion. A major aspect of this project is accurate modeling of the performance of horizontal wells. Well EBU 37-3H, the first horizontal well drilled in the unit, was drilled in the second quarter of 2001. After much difficulty establishing economic production from the well, the well was hydraulically fractured in November 2001. Post-treatment production has been very encouraging and is significantly better than a vertical well drilled in a similar setting. International Reservoir Technologies, Inc. has completed the final history match of the pilot area reservoir simulation model, including tuning to the performance of the horizontal well. The model's predicted reservoir pressure gradient between injection and production wells accurately matches observed data from the field, a significant improvement from prior model predictions. The model's predicted gas injection profiles now also more accurately match field data. Work has begun toward evaluating the optimum development scenario with the pilot model. Initially, four scenarios will be evaluated--two involving all horizontal infill wells, one involving all vertical infill wells, and one involving a combination of vertical and horizontal infill wells. The model cases for these scenarios have been defined, …

Progress on the East Binger Unit (EBU) project has slowed as difficulties have been encountered with obtaining satisfactory production from well EBU 37G-3H, the new horizontal well. Remedial operations have been conducted and stimulation operations were about to get under way at the end of the reporting period. International Reservoir Technologies, Inc. has made additional progress on the pilot area simulation model, reaching a point with the history match that we are awaiting more definitive production data from the horizontal well. Planning future development of the EBU hinges on evaluating the results of well EBU 37G-3H. Performance of this well must be understood in order to evaluate development scenarios involving horizontal wells and compare them with development scenarios involving vertical wells.

The first horizontal well ever in the Marchand sandstone has been drilled. Although major difficulties arose with certain aspects of the drilling operation, a horizontal section of approximately 1300 was drilled. The section was left open hole as planned. The shales just above and between the Marchand sands appear to be very water-sensitive, requiring careful drilling practices. These shales were encountered in the middle part of the curve (45{sup o}-60{sup o}), which can be the most difficult part of a directional well to clean. Difficulties with these shales and cleaning this section led to a parted drill string, requiring a sidetrack. There were no major geologic ''surprises'', such as formation tops coming in much shallower or deeper than expected, or unexpected faults. Thin kaolinite beds were encountered in the horizontal section of the well. Previous descriptions of the mineralogy of this formation did not mention any kaolinite. The lateral extent of these beds is unknown. Completion of the well is under way. One additional injection profile was gathered during the quarter. Results are consistent with other recently profiles that show gas within the C Sand is overriding the oil and failing to sweep the deeper parts of the reservoir. International …