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	New Mexico and Arizona Oil Prospects

	Oil on NZ's lands was widely rumored as early as 1912, but was not produced until 1986, and then as a follow up to a random oil show found in a uranium research core hole drilled for the Department of Energy back in 1982. The resulting "Nose Rock Oil Pool" produced about 60,000 barrels of light, sweet crude before its depletion. Geologically similar small oil pools are possible in the same general vicinity, but exploration costs are difficult to justify for such small oil pools. Elsewhere, all of NZ's other potential petroleum prospects must be classified as rank new basin wildcat. In Cibola County, New Mexico previous wildcat wells contained prolific porosity or permeability. NZ's large mineral holdings in Northeastern Arizona have shown little petroleum promise to date, based upon rather sparse drilling done without the benefit of even two dimensional seismic. Overall, the prospects for new petroleum discovery on NZ's land is considered difficult at best.

	Oklahoma Oil Prospects

	Holds royalty earning, mineral interests in Blaine, Roger Mills and Caddo County, Oklahoma. The major portion of the current production is natural gas as 70% and crude oil at 30%.

	The following companies lease minerals from NZ Oil and Gas, LLC and either intend or actively pump oil and natural gas from wells leasing NZ's mineral rights:
	Carl E. Gungoll Exploration Chesapeake Operating Coalition Finance Dominion EOTT Energy Halpin, Cobb & Morey Holbrook Energy, LLC Kaiser-Francis Marathon Oil Newfield Exploration Samson Resources Sanguine TEPPCO Crude Oil

	The NZ fee mineral acreage was acquired in nine purchases from 1985-1990. The intention was to provide NZ with some long life gas reserves. The Anadarko Basin was targeted because of the availability of acreage, the long life reserves associated with the deep wells found there, and because of the extraordinary potential for additional development in new pay zones among tens-of-thousand of feet of prospective geologic section found out in the Anadarko Deep.



	The Anadarko Basin is the most prolific of the natural gas producing basins of the continental 48-states with ultimate gas production in excess of 100 TCF. It is the deepest structural sedimentary basin in the United States with over 40,000 feet of sedimentary rocks (compared, for example, to 15,000 feet in the San Juan Basin). The Anadarko contains the deepest well ever drilled for commercial purposes.

	Through 1985, the Oklahoma portion of the Anadarko had produced 28 TCF and 3.2 Bbo (gas/oil ratio of about 9). As a result, the infrastructure for the petroleum industry is highly developed including gas transportation.

	The surface is basically used for row drop farming, generally irrigated, or for cattle grazing. The mineral rights are typically in private ownership owned by local farmers; however, there has been a thriving market in severed mineral rights for a long time. Accordingly, speculators and petroleum industry players own considerable fee mineral acreage in this basin.

	Well spacing, or proration, for the deep wells is on 640 acres, which gives more geologic coverage to smaller individual tracts. Wells commonly have 20-30, or more, royalty interest owners and several working interest partners.

	The Anadarko Basin

	As now defined by geologists, the Anadarko Basin (60,000 square miles) did not take form until about 300 million years ago with the uplift of the Wichita Mountains and other surrounding positive features in earliest Pennsylvanian time. This new configuration was at the expense of the predecessor Oklahoma Basin where extensive deposits of carbonates, for example the Arbuckle dolomites and organic rich shales, and the Woodford black shales (2+% TOC), had been accumulating for millions of years. There is evidence of an even more ancient down warp where 20,000 feet of underlying and layered igneous rocks, including metasediments, accumulated before the sediments of the Oklahoma Basin.

	After incipient formation, the Anadarko Basin continued as a marine basin where the new and defining uplifts began to shed classic sediments (sands). Later, Permian seas became restricted and many layers of evaporates were deposited. This provided a good seal over the already "cooking" older organic rich source rocks and reservoir rocks. Research now indicates that even the distant Hugoton gas in southwest Kansas was sourced from the deeper Oklahoma rocks hundreds of miles away.

	Based upon the mapping of Permian redbeds at the surface, the actual outline of the Anadarko Basin was first proposed in 1924. Commercial petroleum had already been discovered back in 1917 what became known as the Cement Field. This prolific petroleum discovery in Caddo County was found by drilling an anticlinal structure expressed in surface rocks. Recent new drilling on the Cement structure has benefited NZ's holdings - the two Mattie Mae wells. The first significant deep gas discovery in the Oklahoma portion of the Anadarko Deep was the Reydon Field in Roger Mills County in 1962.

	The name Anadarko Deep is somewhat arbitrarily assigned to the part of the basin below 15,000 foot (below sea level) contour. It traces the edge of the severe down warping which developed into a rift valley by Pennsylvanian time. Paleozoic sediments accumulated to as much as 43,000 feet here with the deepest part being right adjacent to the uplifts on the southwest. In some places the Springer-Morrows rocks alone accumulated to 4,000 feet. For the petroleum business, this geologic event provided multiple sandstone stringers and lenses which have been the principal target for most deep wells. Which much of the petroleum in the Anadarko if structurally trapped, the Morrow play in the Deep and much of the shallow Hugoton is based on stratigraphic and porosity trapping of natural gas.

	The first hole ever drilled below 30,000 was in Beckham County in 1972. It was soon followed in 1974 by the Lonestar #1 Bertha Rogers in Washita County, which went to 31,441 feet to become and remain the deepest commercial test in the world. This wildcat (a dry hole!) was lost with sulphur entry. It encountered pressures of 24, 835 psi.

	The economic potential of super-deep and ultra-deep drilling in the Anadarko Deep has been curtailed for the most part by the decline of natural gas prices after 1985. However, two relatively new wells near Sayre in Beckham County were successfully completed in Hunton strata at a depth of about 24, 500 feet in Hunton carbonates. IPs were about 20 million cubic feet of gas per day. (Exxon, TD at 25,260 feet and Unocal at 25,825. An older well, Chevron-Freeport's #1 Ruth Ledbetter, in Wheeler County Texas, produces gas from the stratigraphically lower Arbuckle at 26,536 feet and is the world's deepest producing well.)

	Multi-Pays. With such thick and prospective sediments available, there are numerous producing horizons across the greater Anadarko Basin. A host of names has been coined for pay zones. Some, like the Morrow, are time stratigraphic, and others are of local usage. They include the following: Tonkawa, Cottage Grove, Oswego, Red Fork, Chester, Hunton, Atoka, Springer, Woodford, Bromide, Viola, Wade, Medrano, Hoxbar, Arbuckle (Cook Creek, Brown, West Spring Creek). The most typical target out in the deep of the Roger Mills County is the "Morrow sands", (including the Puryear and Shaw). Deeper carbonates are the target of the future because of their ability to retain porosity under pressure (similarly of course, pressure compresses more gas into less pore space).

	Multi-Players. All of the majors and a host of minor oil companies play the Anadarko: Apache, Dyco, CNG (Consolidated O&G), Hawkings, Dominion, Anson, Sanguine, Samson, Kaiser-Francis, Washita, Merrico, Geodyne, GHK, Arkla, TXO, Louisiana Land, Oryx, Unocal, Burlington, Amarex, Avalon, Anson and many more. NZ's biggest player is Marathon Oil Company. Pipelines are similarly well represented: NGPC, ANR, Arkla, El Paso, etc.

	Drilling Economics. It has been at least verbal legend in the Anadarko that the mark for drilling-up reserves should be no more than 75 cents per mcf. At present, it costs about $203 million to drill an 18,000 foot well and another $1 million to complete it. This means that wells need to have reserves of 10 bcf to provide the 3:1 incentive needed in view of the risks involved. Indeed, the good wells in the Anadarko Deep do have ultimate reserves in excess of 10 bcf.

	Acreage Economics. NZ has tried to buy all of its acreage under wells providing at least ultimately recoverable reserves priced at less than 75 cents per mcf. Pay out of no more than 5 years at gas prices prevailing at the time of purchase was a higher order criteria. The earlier wells did not meet this pay out criteria because production has been less than projected. With better technical advise, lower utilized prevailing prices, and some help earlier wells may benefit from additional stimulation when natural gas prices warrant, and of course, new in-fill drilling is a distinct possibility.

	NARO

	The National Association of Royalty Owners (NARO) offers a membership and support for oil and gas royalty owners. NARO provides a monthly newsletter to each member. In the June 2004 issue of the Royalty Owners Action Report (ROAR), Richard Chapman, CEO of NARO, wrote the following article regarding the concern in crude pricing:

	Fear Premium Built Into Crude Prices

	Energy analysts have confirmed that tight crude supplies, growing demand and refiners struggling to produce enough product have added dramatically to gasoline price surges. However, there has risen a great unknown. The 'fear premium' that includes global terrorism and the bottleneck points of both crude and gasoline production and delivery.

	Recent attacks in Saudi Arabia have caused concern throughout the region. While the attacks did not target specific oil-producing regions or refining centers, the psychological effects have proven tangible.

	"Increasing terrorist activities around the world and the uncertainty and instability have driven oil prices over the last six months," said Fadel Gheit, an energy strategist for Oppenheimer and Co. in New York.

	Estimates from the energy sector rate the 'fear premium' as high as $15 per barrel, but the most common range is between $5 and $12 per barrel.

	In the short term, OPEC meets June 5th and is promising 2.5 million additional BOPD on the market. The hawkish countries may wish to keep prices high. OPEC can be unpredictable and now is the time to watch the policies of oil prices.


	Oil Drilling In the Anadarko Basin In Oklahoma