How Pinnergy fits in to the Process for Drilling an Oil or Gas Well

Pinnergy provides drilling services, rental services, liquid services and oil & gas waste disposal services to the energy industry including: shallow oil & gas drilling, conductor drilling, surface casing drilling, cellar, rat & mouse hole drilling, water-well drilling, generator, frac tank, water-line and pump rental, fluid hauling, vacuum trucks, and oil & gas waste disposal.

Drilling Services

Conductor Drilling

Before an oil or gas well is drilled, the well site is leveled, access roads are installed and a rectangular shallow pit is dug to accommodate flow-back of drilling materials during the drilling process. At this point, Pinnergy is called in to drill several holes to prepare the site to accommodate the large drilling rig that will be brought in to drill the oil or gas well. Pinnergy has a fleet of truck-mounted drilling rigs ("conductor rigs") that are used to drill the cellar, conductor, rat and mouse holes. Each of these holes requires the use of auger (drill) bits of varying sizes.

Cellar Drilling The initial hole is called the "cellar" and is five to ten feet wide and five to ten feet deep. This hole is lined with steel corrugated pipe. The cellar is used to capture drilling fluids and drainage water during the drilling process and to accommodate the blow-out preventer and ultimately the wellhead equipment if the well is successful.

Surface Casing

Surface casing is a long section of pipe that is lowered into the well bore and cemented. The pipe joints are typically 40 feet in length, male threaded on each end and connected with short lengths of double female threaded pipe called couplings. Casing is run to protect or isolate formations adjacent to the well bore. The following are the most common reasons for running casing in the well:

1. protect fresh-water aquifers (surface casing)
2. provide strength for installation of wellhead equipment, including BOPs
3. provide pressure integrity so that wellhead equipment, including BOPs, may be closed
4. seal off leaky or fractured formations into which drilling fluids are lost
5. seal off low-strength formations so that higher strength (and generally higher pressure) formations may be penetrated safely
6. seal off high pressure zones so that lower pressure formations may be drilled with lower drilling fluid densities
7. seal off troublesome formations, such as flowing salt
8. comply with regulatory requirements (usually related to one of the factors above).

As the diagram shows, the conductor pipe and the surface casing are sequential components of an oil or gas well; therefore, the performance of these services by the same company is logical and practical. By drilling and pre-setting the surface casing for the customer, a job that was previously performed by the larger drilling rigs, Pinnergy is able to reduce the amount of time it takes the customer to drill a well [with a larger rig] by approximately two or more (2+) days.

Therefore, Pinnergy's expansion into this service offering enables the customer to:

• more effectively use the larger, more expensive drilling rigs,
  
• drill more wells in a shorter period of time
  
• significantly reduce costs and streamline operations and
  
• maintain a safer drilling operation

Water Well Drilling

A significant amount of fresh water is required in the oil-and-gas well drilling and completion process. This water is most often supplied by water wells drilled specifically for that purpose. Although water wells have many uses, Pinnergy currently focuses on the oilfield-related applications. The Company is qualified to drill these wells for other applications, however, should the need arise.

Water-well jobs typically occur in conjunction with conductor and related services and take one day to complete. Pinnergy has a fleet of truck mounted water well drilling rigs used specifically for this purpose. Using a water well drilling rig, a seven-and-seven-eights-inch hole is drilled until fresh-water sands are located that can provide the required quantity and flow rate. Once sufficient sands are located, sections of four-inch PVC pipe (with perforated sections at the appropriate fresh-water sand levels, to allow the water to flow in) are lowered into the well. A gravel-filter medium is then poured around the outside of the pipe to the level of the highest water sand, to reduce the tendency of the perforated pipe to clog with sand. The top ten feet of water-well pipe are cemented with concrete to comply with regulatory requirements for water wells. To produce the water, a submersible pump is placed inside the wellbore near the bottom. Other ancillary services include down-hole pump rentals, generator rentals, waterline hook-ups and water-well plugging.

Fluid Services

During the drilling, well completion, and production phases of an oil and or gas well, vacuum trucks are often needed to deliver or remove fluids.

In the drilling process, additional fresh water and drilling fluids may be required and can be transported to the site by vacuum trucks. Drilling return fluids may also need to be hauled from the drill site. During the well completion/fractionation phase, large volumes of fresh water and completion fluids are used and are transported to the locations by vacuum trucks. Immediately after fractionation, water and other products used in the process flow back up the well bore and must be hauled away for proper disposal.

Produced salt water is a common by-product of oil or gas production and has to be separated and properly disposed of during the life of the well. Vacuum trucks usually haul this waste product from the well locations to a permitted disposal site.

Frac tanks - temporary storage tanks with wheels on one end for easy relocation - are often brought in to handle the temporary storage of liquids during the drilling and completion stages of the well. Each tank usually holds 500 barrels of fluid and the tanks can be connected by use of hoses to allow for larger storage applications.

Oil and Gas Waste Disposal

As mentioned under Fluid Services above, salt water is produced as a by-product of oil-and-gas production and has to be disposed of on a continuous basis for the life of the well. The disposal of produced salt water, as well as other defined oil and gas wastes, is regulated by the Railroad Commission of Texas. The most common disposal method is to inject the produced salt water and other oil and gas wastes into suitable, naturally occuring formations. These injection zones are required to be adequately isolated by relatively impermeable strata to confine the injected fluids to the permitted zone. These injection zones may be accessed through the wellbore of depleted oil-and-gas wells converted for this purpose, or through wells drilled specifically to these zones. Using permanent surface tanks to accumulate the oil and gas wastes and separate contaminants, a high pressure pump is used to inject the waste back into the permitted injection zone using the disposal well.

Rental Services

For the convenience of its customers, the company offers frac tanks, submersible pumps, temporary water lines, and generators for rent.

Frac tanks are temporary storage tanks with wheels on one end for easy relocation. They are often used for temporary storage of liquids during the drilling and completion stages of the well. Each tank usually holds 500 barrels of fluid and the tanks can be connected by use of hoses to allow for larger storage applications.

Submersible pumps are mechanically lowered in a water well to pump water for all uses on the well sites. Temporary water lines made of plastic pipe can be fused together for transporting the water as needed on the well sites.

Generators are used to produce electricity at remote well locations where conventional electrical providers do not provide service. These generators are used to power submersible pumps in water wells as well as all other electrical needs.