Cascade Resources Corporation
911 N. Shore Drive
Clear Lake Shores, Texas 77565
phone 281-334-3992, fax 281-535-3020
email: ajc@wt.net

August 16, 2001

Enron Gas Services
1400 Smith, EB 3578B
Houston, Texas 77002

Att: Mr. Paul Bieniawski, Director of Origination Services

Dear Mr. Bieniawski,

The following is a confidential outline of a business plan for implementation of commercial underground natural gas storage in association with an electrical generation facility located in close proximity to the underground reservoirs to be utilized at Mist field, Columbia County, Oregon. Mist field is located about 40 miles northwest of Portland, with the subject reservoirs about six (6) miles south of the Columbia River. The plan envisions connecting the storage facility to Northwest Pipeline, and potentially incorporating one or more power generation facilities, and ultimately purchasing the oil & gas rights from Enerfin/Bellwether (Bellwether is now called Mission Resources).

Summary and Overview

Cascade Resources Corporation has acquired underground natural gas storage leases from the surface owners within the Mist Field in Columbia County, Oregon, as well as some leases from mineral interest owners, for the purpose of developing stage I of a commercial underground natural gas storage facility. This provides a unique opportunity to develop commercial underground natural gas storage in an extremely high demand market, with a lack of suitable depleted natural gas reservoirs, in an area previously monopolized by Northwest Natural Gas Corporation. The storage leases acquired will allow for the development of up to 6 Bcf of working gas in two, as yet, un-depleted natural gas reservoirs containing low Btu natural gas (approx. 500 Btu/scf). Additionally, there is one undrilled prospect located within the leased area.

There are three aspects to the project .

Phase I is development of underground natural gas storage, for which the leases from the surface owners are in place.  Preparing the reservoirs for storage of pipeline quality natural gas involves the installation of field electrical generation facilities, which is the only economic methodology for producing the low Btu natural gas (composed of methane and nitrogen). 

Phase II involves the purchase of all the right, title and interest of the oil and gas operations from Enerfin/Bellwether. By purchasing the Mist field working interest, the operator of the field can explore for and develop natural gas reservoirs as dictated by the demand for storage reservoirs.  

Phase III of the project involves the installation of a large (500 Mw or greater) power plant located in close proximity to the storage reservoirs, most likely on the Columbia River, some six miles to the north. Utilizing the storage facilities should allow this power generation facility to have the highest margins of any non-hydro generation plant in the Northwest.

The ultimate arbitrage is created when the same entity owns the natural gas in the ground, the storage reservoirs, and a power generation facility. Thus the daily decision evolves around one of many options; produce gas in the ground and sell produced gas into the market, produce gas in the ground and put it into storage, take gas from storage (either produced gas or purchased gas) and sell it into the gas market, or produce electricity from either produced gas in the ground or from purchased gas in storage depending upon cost, and generate electricity as base load or as peaking.

Cascade has acquired underground storage leases from the surface owners in Mist field consisting of 2,413 acres. These underground storage leases are comprised of 3 basic parcels. Two parcels cover Apatosaur pool, Raptor pool, and one undrilled prospective reservoir. One parcel covers part of the Enerfin Resources Northwest Limited Partnership (Enerfin) Second Paul reservoir. Additionally, Cascade has acquired the storage rights for 280 acres from the mineral interest owner for a portion of the NNG designated “Adams Pool”, slated for additional rate base storage development by NNG in the future and Cascade has acquired an oil and gas lease on the 280 acre tract encompassing the Raptor well based on a potential title dispute. These two tracts have been acquired to encourage negotiations with Northwest Natural Gas.

We estimate that the major tasks required to build and operate the initial phase of the underground storage facility and commence natural gas injection could be accomplished by the spring of 2004, approximately 27 months from January 2002, the projected start date. The overall underground gas storage project, without the acquisition of natural gas reserves at Mist field, is expected to cost in excess of $50,000,000. A portion of which would be recovered during depletion of the reservoirs by electrical generation. 

Regarding the subject reservoirs, it has been variously estimated that the Raptor reservoir has 2 Bcf of gas in place at a bottom hole pressure of 700 pounds, and the Apatosaur reservoir has 6 Bcf of gas in place with a bottom hole pressure of 700 pounds. Both reservoirs are underpressured for the depth of burial (+/- 2,500’) and could be subjected to “delta pressuring”. Delta pressuring is the methodology of increasing the bottom hole pressure by injecting gas to a pressure approaching 50% above the existing reservoir pressure, subject to testing or verification of the cap rock integrity (the reservoir sealing mechanism). With the advent of delta pressuring, the working gas volume, assuming gas withdrawal to no lower than 40% of original bottom hole pressure, should yield a working gas volume in excess of 6 Bcf. This being the case, it is estimated that 6 horizontal wells would be optimal and would be able to deliver in excess of 500,000 MMBtu of gas per day. Permeability for the Clark and Wilson sands is between 200 millidarcies and 1 darcy, with porosity in excess of 30%. Reservoirs are depletion drive, fault traps and geographically compact. 

As you are not doubt aware, the northwest United States is short of underground natural gas storage reservoirs. The Mist field is the only known field in the northwest and to date the opportunity for storage has been monopolized by Northwest Natural Gas. Some 60 miles to the north in Washington State is the Jackson Prairie storage facility operated by Avista Corporation. Jackson Prairie has about 18 Bcf of working gas with no opportunity for expansion. Northwest Pipeline is located about 22 miles from the subject reservoirs, the closest existing tie-in point on the west side of the Columbia River. The initial market for storage would be peak shaving, and it has been estimated that developed storage could be leased for in excess of $2 per mcf per year. Additionally, offtake agreements should be available to provide for up to 75% project financing.

The above summary is a very ruff sketch of a fairly complex project with significant upside potential. If there is any interest in discussing the project, I can be reached at the above numbers. Thanks for your time and consideration.

Very Truly Yours, 

Sent by email, 081601, ajc 

Al J. Curry, President