DOWNHOLE GAS AND WATER SEPARATION AND RE-INJECTION SYSTEM
EERG has access to a proprietary and patented down-hole gas/water separation and re-injection process that has the potential to extract significant stranded gas reserves in Canada. A substantial number of gas wells suspended or abandoned in the Western Sedimentary Basin of Canada may be amenable to the use of this technology.
To confirm the economic viability of the DGWS technology for natural gas production, EERG, through its newly formed, wholly owned Canadian subsidiary, EERG Energy ULC, has committed to drill two gas wells in conjunction with Heritage Natural Gas in 2008 and 2009. EERG has agreed to pay to HNG $250,000 (in cash or in shares of EERG’s common stock) on December 31, 2008 and on December 31, 2009, to guarantee EERG exclusive access and supply of needed tools for HNG’s proprietary down-hole gas/water separation and re-injection process for the two gas wells. EERG has also obtained the contractual right to drill an additional eight wells with HNG prior to December 31, 2010.
EERG believes that the economic potential of the HNG transaction may be material for its stockholders. EERG assumes that at a drilling and completion cost of $525,000 per well, coupled with average production volumes of 375 mcfpd (thousand cubic feet per day), would result in a return of $574,000 annually per well. The company would expect that payout would occur in less than one year and the production life of these wells could run for up to 9 years.