South Rangely well successfully flow tested

Steven Ralston, CFA

Dejour Energy ( DEJ ) has successfully drilled, cased, fracture stimulated and flow tested its first natural gas well at South Rangely in Colorado. Late yesterday, Dejour announced the results of the flow test: 315 MCF per day for more than 10 days with zero decline in production or pressure, confirming the presence of commercial quantities of trapped hydrocarbons. Now the company will test for an oil leg that is typically found down dip from similar gas accumulations in the Mancos "C" area. The action plan is expected to be announced during the second quarter of 2012. Given the positive results so far, Dejour will also most likely follow-on with a horizontal well program.

Also, management is focused on developing Gibson Gulch, Dejour’s Kokopelli field development project located over the Williams Fork structure, a liquid rich gas area in the Piceance Basin. After filing a Master Development Plan with the Bureau of Land Management, drilling permits were received in the fourth quarter for four initial wells on leased Federal lands. Construction commenced on the first of two drilling pads. Having chosen eight PUD (Proved UnDeveloped reserves) sites in close proximity to proven wells drilled by Barrett Corp. (BBG) or Williams Companies (WMB), the first eight wells should be drilled during the first quarter this year, after which all eight wells should be fracture stimulated and completed in the following quarter. Production from Dejour’s Kokopelli field development project is expected to commence during the third quarter of 2012. Management plans on drilling 16 wells annually, with the drilling program becoming self-funding in 2014. Williams Companies is extending a pipeline from its Grand Valley gathering system to the Kokopelli Field, where Dejour’s wells will be located, providing an efficient method to transport Dejour’s natural gas into a large-scale, high-volume distribution system.

Finally, Dejour Energy continues to further develop and enhance production from the Woodrush property in northeastern British Columbia. In the first quarter of 2011, a waterflood project was successfully implemented on the Halfway E oil pool located at Woodrush allowing production to be managed by a Voidage Replacement Scheme instead of by the Daily Oil Allowable method. In November, Dejour Energy drilled a third well into the Halfway E oil pool. Eight feet of porous oil bearing sands were encountered. Management expects net production from the new well to reach at least 200 barrels of oil per day during the first quarter of 2012. We expect net production from the Woodrush property to reach 800 BOE/D by the end of 2012.

We reiterate our Outperform rating and price target of $1.00.

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