Hi Steve, Thanks for taking time from your busy schedule!

1-Would you tell our readers what your company does?

Well Enhancement Services increases production by creating horizontal laterals in oil and gas wells. Our laterals extend from the wellbore out 300 ft into the producing formation. We create these horizontal laterals in all directions and at multiple operating depths with typically three or fours laterals per depth. In other words, we open up the well in order to allow oil and gas to move more freely to the wellbore, thus increasing the drainage radius. We believe that we can allow wells to drain an addition 15% of the oil that is in place.

2-Is this proprietary technology, if not how do you differentiate yourself from your competition?

This is a proprietary technology that was first patented in 1995. We hold a US license of the technology and operate only in the US.

3-What type of properties or wells work best with your process?

We look for producing properties with tight or fractured formations. In other words, any well would be a viable candidate for our procedure if it could benefit from increased permeability, i.e. the ability to allow fluids to flow more easily through rock, or where extending a drain hole out a couple hundred feet would allow a well to reach an untapped reservoir. We work particularly well in water floods since the water drive pushes the oil to the wellbore nicely. Lastly, we can operate in wells with a casing size as small as 4.5”.

4-Could you ever use acid with your jets as your pulling your laterals out of the formation?

That’s a good idea and one that we have already tried. However, we learned that our nozzle doesn’t have enough flow rate to place sufficient acid in the laterals to make a difference. It only takes about 3 GPM at high pressure to cut rock. Besides, the acid in the wellbore had the added effect of damaging our down-hole equipment, so we recommend a separate acid treatment after we are done with the well.

5-Any fear of hitting the “Ocean” with your laterals?

There is always a fear of hitting the “ocean” down below; however, we have never had that unfortunate experience. We have operated as little as 25 ft above the ocean and have never had a problem. The jetting hose is very rigid at pressure, so the nozzle will want to continue straight unless it hits something hard at a sharply oblique angle.

6-How many completions have you done?

We have done about 50 wells over the last 1 ½ years.

7-What is the average increase in production? How long does it last?

The typical increase in production is 3 to 5-fold. We have seen as much as a 10-fold increase in production. Large percentage increases in production usually are due to jetting past wellbore damage. Increases in production usually also have a direct correlation to the quality of the well. In other words, a 10 BOPD well will usually provide a much better net increase than a ½ BOPD well.

8-Cost Analysis?

We base our pricing on the depth of the well and on the number of laterals created. A typical price range will be $25,000 to $35,000 ranging from 4 laterals to 8 laterals. We can jet as many laterals in as many zones as desired. The operator will need to provide the workover rig and should also budget in appropriate post-lateral treatment such as an acid treatment or frac job.

9-Does your company also lease property and jet laterals for production dollars?

Our primary business model is to purchase wells for our own account and then enhancement them for the increased production value. We put our money where our mouth is since we apply the technology to our own wells. Since we don’t have enough wells to be dedicated to our own account, we will do fee for service on third-party properties.

10-Biggest Success? Wells you don’t like to work on?

Our best successes are those 10-fold increases. The best successes are on newly drilled wells, wells participating in a water flood, and wellbore damage cases. I don’t like to work on wells that are not suitable for the technology. Wells of that nature are those that are highly depleted with no down-hole pressure and no potential for increased drive away from the wellbore.

11-Any future improvements slated for the technology?

Our near term plan is to go deeper. Our current equipment will work nicely to 4,500 ft. We can easily operate at 9,000 ft with a larger unit sized appropriately.

Thanks, and good luck in your drilling this year!

Thanks Mitch for taking the time out of your busy schedule, would you mind telling our readers a little bit about your practice and background?

I am an associate with the law firm of Scheef & Stone, LLP in Dallas, Texas. I practice commercial litigation, and a large part of my practice is devoted to oil and gas and securities fraud. I graduated from Harvard University with Bachelor’s degree in Government and received my law degree from the University of Texas. I have first-chair trial experience and have a good track record of obtaining rescission for oil and gas investors.

2- I heard you played Defensive End on the Harvard football team, what’s more difficult sacking a quarterback or sacking an unscrupolous operator/promoter? Which one is more enjoyable?

Sacking a quarterback is more difficult. Taking down a promoter is more rewarding. Quarterbacks get up. If I’m doing my job right, sometimes a promoter won’t get up.

3- With respect to oil/gas fraud, it appears people do not understand that many promoters do not structure their deals correctly. Please Explain.

There’s really no “right” or “wrong” way to structure a deal as a promoter. “Fair” or “unfair” is probably a better comparison. As an investor in oil and gas, you have to know going in that there is a giant risk of losing your entire investment. Oil and gas is extremely risky, and you shouldn’t invest money you can’t afford to lose. Most investors want a fighting chance to make money; unfortunately, many promoted oil and gas investments do not provide the investor with that fighting chance. If you understand the industry—and you can think like a crook—you can tell the difference.

4- What is a Reg D offering?

That’s a very big question that I’ll try to condense into a small answer. “Reg D” refers to Regulation D to the Securities Act of 1933, an important piece of federal legislation. Regulation D covers private offerings. When Google has an “IPO,” that’s obviously a public offering for which registration is required under the ’33 Act. Most oil and gas deals are offered privately under an exemption to registration—Regulation D. The issuer of the security cannot use public solicitation and must take in only accredited investors. There are many other restrictions, but that’s generally what a Reg D offering is.

5- What is a rescission and how does it work?

Good question. I’ll make reference to the Texas Securities Act for ease of reference. An interest in an oil and gas lease (i.e. working interest) is a security. As a result, the types of investments we’re discussing fall under the rubric of the Texas Securities Act and Federal securities law.
In basic terms, a rescission is getting your money back with interest and attorney’s fees. Under Texas law, there are a couple of things that trigger a rescission:
(1) Offering an unregistered security publicly (telephone cold-calling, internet, etc.), and
Offering an unregistered security by means of a misstatement or omission of material fact.
Here’s the key message: there’s nothing wrong with selling unregistered securities as long as you have an exemption. If you do something to violate the exemption, like offering it publicly or just out-and-out fraud, the investors get their money back.

6- Are they difficult to get?

That depends on the financial wherewithal of the issuer of the security and, in my experience, the depth of the fraud. I have obtained rescissions for clients with demand letters, and I have had securities fraud litigation drag out for two and three years. The answer to your question is probably “Sometimes.”

7- What are some tell tale signs an investor has been wronged?

Some of the hallmarks of oil and gas fraud include:
(1) Lack of communication with the investor;
(2) Significant action being taken on the project without the investor’s consent or acknowledgement;
(3) Returns that fall far short of pro forma projections;
(4) Having your interest “rolled over” into another project;
Significant unexplained drilling delays; and
(6) Reduction in the investor’s working interest.

8- What is a cease & desist order?

A cease and desist order (“C&D”) is an order that is typically issued by a governmental agency, like a state securities board or the SEC, that directs an issuer of securities to immediately “cease and desist” from selling securities in a certain state or selling securities altogether. I would encourage any investor to do some research online to determine whether the company trying to sell you has been C&D’ed and get a reasonable explanation from the company. You’ve got to make sure you’re getting the whole story before you invest.

9-Can you speak to liability associated with owning working interest in a field? Any asset protection strategies to employ before purchasing such as buying them in an llc or other form?

The liability is virtually limitless; you have to understand going in that this is an investment in which you can lose your entire investment and then some. When you purchase working interest, you’ve got to understand that you’re liable for your pro rata share of costs associated with the drilling and completion of an oil or gas well, which doesn’t come cheaply these days.
The oil and gas promoter has many tools to hedge your bet, the most common of which is the “turnkey offering.” The promoter promises to make you a hole to x feet at y dollars. If the hole is drilled for less than y dollars, he keeps the difference. If it costs more, he eats the difference.

What the investor doesn’t know is that the well can be drilled for ½ y or even 1/10 y. It’s the biggest scam going right now.

10- Have you seen a marked increase in investor fraud cases with the recent rise in oil?

Absolutely. It’s rampant. Please, please be careful in Texas.

11- Any state or federal agencies we can contact for information on companies offering units?

Yes, absolutely. Before you make an investment in a Reg D, Rule 506 oil and gas offering, make sure that the issuer has filed a Form D with the Securities Exchange Commission and with the Secretary of State or Securities Commission of the state in which you reside.

Issuers of private offerings are required to make these filings when claiming an exemption. If there’s no Form D already on file or on file within 15 days after your investment is made, that should be a major red flag.

12- Any independent forums or other resources you would recommend to our readers.

If you’re curious about oil and gas investments, you should check out a site run by Bernie Bicoy called Venture Research Info and its message boards. You can find it at http://www.vcresearch.info.

13- How can we contact you and how do you work? Hourly rate or contingency?

You can contact me via e-mail at mitch.little@solidcounsel.com or by telephone in the Dallas area at 214.472.2140. I work on both an hourly rate and contingent fee basis; I typically leave that up to the investor.

Each political party is strong in one direction or the other, but Democrats are certainly better known for their environmental “programs”. They have consistently bashed the Republicans and big oil for the recent highs in oil prices and subsequent record profits. In a political year, I can’t say I blame them, but the storm clouds are gathering and I believe oil prices will be higher under a Democratic Congress and potential future president than under the current administration. My conclusion stems from the son of a blacksmith in Iran.

The current president of Iran, Mahmoud Ahmadinejad, is leading a chorus of supporters in the Middle East that would like nothing more than to banish the “infidels” from Iraq and Israel. The Shia majority that was suppressed under Saddam is know getting their payback, and full fledged civil war is on the horizon. Saudi Arabia, a majority Sunni country and the largest petroleum source in the world, is now flanked by Shia on both sides. There is no love lose between Shia and Sunnis. Iran, in concert with Syria, and Hezbollah will seek to consolidate power and thus control of oil in the Middle East.

Our enemies know how oil can have a grip on our economy and have no incentive to keep prices low. High oil prices fuel terrorism and their world view, which does not include Israel surviving as a country. Without commenting on whether we should have gone in to begin with, that is water under the bridge, the question now is do we leave or stay.

The Democrat bias seems to be less aggressive than the Republican stay the course mantra. The country has registered frustration over Iraq with the recent Democrat takeover in the House and Senate. If the forces of the left that favor a quick exit from Iraq prevail, the region will be in turmoil and oil prices will move significantly higher.

Imagine a world in which a fundamentalist theocracy controls the most productive oil assets on the planet. Oh, and we haven’t begun to talk about Al Qaeda, Nigerian rebels, Hugo Chavez, China/India Growth, and a multitude of other negative influences on oil supply/demand.

I believe the next twenty years will be a great time to be positioned in oil/gas investments. Markets move in cycles and the past twenty years have not been friendly to oil investors. Most domestic oil in the USA is produced by small independents. They suffered for years to keep their leases productive and those that have survived deserve to be rewarded. Accredited Investors can position a portion of their investable assets into oil/gas direct participation deals and enjoy substantial tax benefits, as well as cash flow.

The stats are compelling with respect to the amount of oil left in the ground after primary recovery. Some say, up to eighty percent of the oil is still left in the ground after the old pump jack moves up and down over many years. So are old fields worth taking a look at or are you better off just drilling a new well?
My experiences thus far in Kentucky and Illinois have been positive. The benefits of picking up an old well that is producing a small amount or a field with many shut in wells is that it often can be a value proposition. The problem with old wells is that you never know what the true conditions are down hole until you start cleaning it out. Buying a shut in well reminds me of purchasing a used car. Everything goes great until the transmission falls out and you have to decide what to do.
For example, I recently started converting a well to a waste water injection well. After purchasing new tubing and a special size packer, we determined that there was a hole in the casing. We had budgeted a certain amount for this project and this will take us over budget by $5-7K. As the operator of old wells, this is often the case and you can not allow it to get your spirits down.
On the flip side, we have stimulated wells within budget and the subsequent production was a multiple of what our expectations were. Many old wells did not have good records recorded, especially in KY, therefore positive surprises can pop up often. Remember, many old stripper wells were shut in during times when oil was in the basement and not worth producing.
It comes down to expectations when looking at a recompletion or work over oil deal. Do not be fooled by the promoters using big production numbers in their proforma projections. Research local production averages and understand the geology of the formations before investing. Also, make sure the operator has a track record with respect to working with old wells in the area.

Hi Dr. Schmidt, thanks for taking the time out of your busy day! I know the GasGun® is in high demand these days, would you mind telling our readers a little bit about your company?

It is my pleasure to speak with you today!

J Integral Engineering was formed in 1992. In 1994, we won a Small Business Innovation Research grant from the Department of Energy to develop, test, optimize, and commercialize the use of progressively burning solid propellants for the economical stimulation of oil and gas wells. The concept, initially conceived from a research study I helped conduct at Sandia National Laboratories in the early 1970’s, was field-tested and a practical design was optimized.

The GasGun became commercial in July 1998. We have conducted over 2000 stimulations to date throughout the U.S., Canada, and Europe. In 2004, we introduced our third generation GasGun device that solved the problems of earlier designs, and the industry has responded with a phenomenal increase in demand for this innovative and economical stimulation method.

How does your technology differentiate itself from other similar devices?

The GasGun is several times more powerful than other stimulation tools using solid propellant. The GasGun is also significantly more effective in producing fractures since it is the only device available that uses multi-perforated grains that are progressively burning. This means that the rate at which the propellant burns increases with time, producing gas faster as the material is consumed.

Progressive burning is much more effective in driving fractures deep into the formation by advancing the fractures late in the process when crack volumes are the greatest. Independent research bears this out. In a study conducted by Sandia National Laboratories, a multi-perforated propellant was 300 times more effective in enhancing formation permeability than a standard solid propellant in a direct side-by-side comparison.

Three of our customers have made direct comparisons for themselves, trying the GasGun and a competing product in neighboring wells. In each case the GasGun was determined to be more effective and less expensive. All three have said they expect to use the GasGun exclusively in the future.

Please tell our readers about the type of results that are typical with the GasGun? What type of formations it works in? Reports from our customers indicate production improvements in approximately 80% of the wells treated. Typical increases range from two to five times the original production with a few being a great deal larger than that. These results involve a wide variety of lithologies including sandstone, limestone, dolomite, chert, shale, and coal. Put simply, the GasGun fractures rock – of any type. If the formation in question has oil or gas present at sufficient pressure and there is some impediment to the flow of these fluids to the wellbore, then a GasGun stimulation may be indicated. The impediment could be either low matrix permeability or formation damage of some kind. But, regardless of the rock type, the GasGun will create multiple fractures and improve the ability of the formation to move fluids through it.

Are there areas or conditions where the gun doesn’t work as well? We have treated some wells where there was no improvement in production. We performed some careful analyses on some of these wells back when we had our government grant to determine the cause for lack of improvement. In every case it was determined that the well already had adequate permeability and little or no skin (i.e. near wellbore damage). These wells were simply depleted reservoirs, and no amount of stimulation would improve production.

Many operators are concerned about “Hitting the Ocean”, would you mind explaining how your technology overcomes the disadvantages of the typical frac job? That is an excellent question. In fact, the ability to stimulate formations with a close water contact is one of the biggest advantages of a GasGun stimulation over a typical frac job. Based on research conducted by Sandia National Laboratories, GasGun fractures are expected to grow radially from 10 to 50 feet out into the formation, but no more than 2 to 5 feet above or below the zone treated. GasGun stimulations are not like hydraulic fracturing which is conducted so slowly that the treatment has time to find the path of least resistance. The time of pressurization for the GasGun is only tens of milliseconds and the pressures reached overpower the earth’s internal stresses. This forces the fracturing to be confined to within a few feet vertically of the zone in question. The best field evidence supporting this claim comes from the many GasGun treatments we have performed in the Arbuckle dolomite in Kansas. These wells are known to have close water contact and frequently water out when even a mild acid job is attempted. Many operators now routinely frac the formation with the GasGun and follow with an acid job that goes in on vacuum.

I noticed you have done a tremendous amount of completions in the Arbuckle formation, any reason? See above.

I also read one of your operators has a process of using the gun and acidizing immediately, please elaborate? In carbonate reservoirs, it can be very advantageous to create a confined fracture system with the GasGun prior to using acid. The fracture network helps the acid to do its job and to stay in the formation of interest.

What are the costs? Turnaround time? The GasGun is a very economical alternative to other stimulation methods. We also pride ourselves in turnaround time. In order to provide a quick response to well operators, we have arrangements with ten wireline companies in the U.S. and Canada that have and inventory of tools available on short notice. We have also designed the tool itself to be very easy to field. A typical job will only take and hour or two to complete, and the well can be put back on production immediately.

Do you have any new improvements slated for future GasGuns? Do you devote much of your time to R & D? We are always looking for improvements. In fact, it was the introduction of our third generation tool design two years ago that finally solved previous design problems and gave us wide industry acceptance. We currently offer only one tool diameter (3 3/8”) that is used in any casing 4.5” and larger. But we expect to be introducing a 4” diameter GasGun to the market soon. We have also begun design work on smaller diameters that can be used in slimhole completions. We have also worked out the details and acquired the necessary equipment to offer a tubing-conveyed GasGun stimulation. This will be especially useful in horizontal wells.

Can the gun be used in horizontal wellbores? See above.

Is the bulk of the success from the GasGun from removing near wellbore damage? Most of the wells we treat are marginal stripper wells that have very little data on wellbore and reservoir conditions. As a result, it is difficult to know for certain the primary reason for our success. However, what information we do have strongly suggests that near wellbore damage is the biggest cause of limited production in the wells we treat.

My company will be implementing the GasGun on 5-7 wells in the Knox formation of Kentucky, any advice for our first treatment? Since the Knox formation is a dolomite, you might want to consider a GasGun treatment followed with a small acid job. However, with 5-7 wells to treat, it may be worth putting the well on test after the GasGun treatment alone and then test again after the acid job. That way you can determine if the acid treatment is really providing adequate additional benefit to be worth the investment in the succeeding wells. Let your logs guide your selection of the interval to be treated, and perforate the zone adequately with 6 shots per foot with a large entry hole. Match the size of the GasGun tool requested to the size of the perforated interval. I would also suggest being careful on selecting the height of the fluid column used over the tool. The GasGun needs a minimum of a 300 foot fluid column, and we tend to recommend 1000 feet or greater if possible. However, some operators err on the side of too much fluid, which may make the treatment overbalanced. As a result you may have excessive fluid entry after the GasGun is shot, and the well may take a long time to clean itself up.

Thanks, and we appreciate your time & expertise! I appreciate the opportunity to provide this information. The more the oil and gas industry knows about this exciting stimulation method, the quicker we can increase the flow of oil and gas from many old tired wells and to solve difficult stimulation problems in new wells. Thank you.

Interview with Dr. Richard Schmidt from J Integral Engineering, Inc. 165 SW Tualatin Loop West Linn, OR 97068 Phone: (503) 557-1370 http://www.TheGasGun.com