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Nighthawk holds an 80% interest in the Cliffs Shale Gas project, covering 15,591 acres and located in Clark, Cumberland, Jasper and Crawford Counties, Illinois.

The Cliffs project is located within the Illinois Basin, which is a significant producer of hydrocarbons that has yielded in excess of four billion barrels of oil from numerous reservoirs at less than 2,900 feet. Production has been derived from conventional reservoirs such as the Devonian and Silurian carbonates and the Rosiclare, Aux Vases, Benoist and St. Genevieve sandstones. The original source of over 90% of this production is the Devonian New Albany Shale at less than 4,000 feet which is in the gas window and is the primary target of the Cliffs project.

Gas was first produced commercially from the New Albany Shale with the drilling of the Moreman well near Brandenburg, Meade County, Kentucky, in 1863. By 1925, seven fields were producing gas from this horizon in Harrison County. This early phase of New Albany Shale gas exploration and production ended due to significant regional competition from an abundant supply of conventional natural gas produced from Mississippian carbonate reservoirs in eastern Kentucky. Since that time, there has been a resurgence in development and gas has been discovered in the New Albany Shale in at least 40 fields in Kentucky and 19 fields in Indiana. Exploration was extended to Illinois in 1989 and there are now a number of fields in production. Drilling and development activity has increased dramatically in recent years.

Shale gas is seen as a long-term energy resource that will help to replace conventional US hydrocarbon reserves as they are depleted. Shale gas production tends to yield modest to high flow rates and is long lasting with well production duration of up to 30 years.

The Cliffs project primarily targets the New Albany Shale, which has been the subject of successful exploitation in recent years. Vertical shale gas wells are generally low volume producers, therefore the key to economic success is usually determined by the number of wells drilled making the project a statistical operation where every well produces hydrocarbons. However, with the recent trend towards horizontal drilling, substantially increased production rates have been seen.

Running Foxes has identified a major structural flexure within the project acreage that is believed, from subsurface geology and seismic data, to enhance production from the naturally fractured New Albany Shale. An ideal development strategy would be to drill a test well to collect gas content data and initiate a horizontal leg in the same borehole to evaluate potential production rates.

The estimated gas in place, based on published data and in-house petrophysical analyses, is between 6 to 12 billion cubic feet per 640 acres. The Cliffs project offers a potential of in excess of 150 billion cubic feet from the current acreage position.

Geology

The New Albany Shale is part of the Devonian period and is equivalent to the Antrim, Bakken, Ohio, Chattanooga and Kinderhook shales, all prolific producers of hydrocarbons since the 1920s, in similar producing basins.

The New Albany Shale is present throughout much of the subsurface in the Illinois Basin. The formation reaches a maximum thickness in excess of 460 feet in Hardin County, Illinois and in the adjacent Union and Crittendon Counties of western Kentucky. This region is considered the southern depocentre and the dominant lithology is thick laminated shale.