BPI Industries Leads The Way In The Development
of Vast U.S. Coalbed Methane Gas Reserves

By Marc Davis, Managing Editor
January, 2003

As the looming showdown with Iraq continues to strain America's fragile relations with the Saudi-dominated OPEC oil cartel, the U.S. Department of Energy is stepping up its mandate for less reliance of foreign oil. In turn, this is presaging the need to find alternative fossil fuels on the American continent. Such a scenario is promising to make 2003 a very good year for companies like BPI Industries Inc. The company trades on the TSX Venture Exchange under the symbol BPR.

Indeed, this Canadian-based junior natural gas exploration and development company is already established as a front-runner in the development of America's immense, largely untapped coalbed methane gas reserves. Specifically, BPI is involved in the development of two highly prospective coalbed methane gas projects in the natural gas-rich region known as the Illinois Basin. This represents one of the last American frontiers for the exploitation of a vast unconventional energy resource.

And the timing could not be better. First, natural gas prices are at a two-year high at around U.S. $5 per MCF. Furthermore, prices have more than doubled over the past several years, while a sustained price up-trend shows no signs of abating. Secondly, technical advances in the last decade have now made coalbed methane extraction of natural gas an economic reality. Notably, recent successes with the development of a dozen other significant coalbed methane basins in the U.S. have paved the way for the development of the Illinois Basin. However, BPI has hardly been waiting on the sidelines. The company has been hard at work in the Illinois Basin since 1996. Not only has it made great strides in developing its inaugural project, but BPI has also mapped out the geological trends of many of the region's other economically prospective coal seams. Now BPI is on an aggressive acquisition drive to control these large acreage blocks before they are either snapped up by rival companies or become prohibitively expensive.

Thirdly, the Illinois Basin also offers expansive virgin exploration territory. And published estimates place gross reserves for the Illinois Basin at approximately 21 trillion cubic feet (TCF) of gas, valued in excess of $100 billion. Last but not least, the U.S. government is moving towards major tax credits for coalbed methane gas extraction companies. And this promises to greatly bolster BPI's bottom line as the company expands production.

These compelling realities are all music to the ears of James Azlein, the most recently appointed president of BPI. An internationally successful entrepreneur and financier for over 20 years, Azlein is not a man to do things half-heartedly. And now, after taking a year to reorganize the company from its former incarnation as a holding company, he is resolutely committed to amassing a strategically dominant land position within the next several months. This is a bold tactical maneuver which is the main thrust of his new corporate vision for BPI. Further, BPI has appointed oil and gas services firm Halliburton Energy as its engineering consultant and project manager.

"From day one, our focus has been to quantify the assets that we have and then aggressively embark upon the growth of that asset base. We have already reached one of our initial key milestones by becoming the largest coalbed methane gas exploration and development company in the Illinois Basis. And we're primed to become much bigger in the coming months," Azlein says.

But between 1996 and 2001 and under previous management, BPI was content to focus exclusively on its sole venture at that time, the 43,000-acre Illinois Basin Project. However, Azlein's mission to amass a land position of up to 250,000 acres in 2003 is already well on its way to becoming a reality. In January 2003, BPI signed an option for an additional 94,000 acres. Indeed, this initiative has been spurred on by the fact that BPI's initial 43,000-acre gas rich property has demonstrated strong economic potential. Specifically, a U.S. $4 million exploration program, including the drilling of 19 gas wells, has indicated a minimum recoverable resource of 120 billion cubic feet (BCF) of coalbed methane gas. This translates into a potential value that exceeds $500 million. In fact, a review of a research report dated November 20, 2001 by the U.S. investment firm Torch Capital (see BPI's web site at www.bpi-industries.com) would suggest that the company is significantly undervalued based on the company's initial Illinois Basin Project, alone.

This point is further underscored by BPI's recent signing of a strategic joint venture partnership with another company called Pulse Energy near Sullivan, Indiana. Still located in the Illinois Basin but 80 miles to the northeast of its original 43,000-acre land position, this new similarly sized property (in which BPI is now a minority partner) constitutes a significant hard asset. Indeed, Azlein believes this joint venture, known as the Jericho Project, will be the catalyst to building considerable value into many of BPI's newly acquired acreage blocks in the Illinois Basin.

To date, the Jericho Project consists of 33 wells, of which 23 are already in production. This production is being compressed and delivered by Pulse Energy to an interstate pipeline. A reserves audit has also been prepared by Sproule Engineering, one of the most respected companies in the field of geological and petroleum engineering consulting. It has focused on delineating the proven, probable and potential reserves of the one coal seam that is currently in early-stage production. This coal seam, alone, hosts an estimated 47 billion cubic feet of gas, according to Sproule. In terms of recoverable reserves, this represents a gross value of between $150 and $200 million. Moreover, there are seven additional coal seams that have the potential to provide significant additional commercial production. The next phase of development calls for 60 new wells to be drilled to tap into these potentially highly lucrative pay zones. To this end, Pulse Energy is currently negotiating for a major commercial financing to underwrite the cost of this ambitious drill program.

Additionally, the Jericho Project gives BPI access to vital information and data related to coalbed methane production in the Illinois Basin. The 'basin specific' geological modeling of this project will provide invaluable insights that will also help expedite the development of BPI's other current and proposed developmental projects in this region. And to ensure BPI's continued success on the exploration front, the president of Pulse Energy, Tom Hite, will be joining the company's management team. He brings to the company 15 years of coalbed methane exploration and development experience in the Illinois Basin. Indeed, he had been the driving force behind the Jericho Project since its inception and has been key to its economic success to date. Further to the announcement of this strategic joint venture, BPI will become the technical manager of the Jericho Project.

As a continued expression of his confidence in company's future success, company president Azlein continues to invest in the company as he recently demonstrated by literally 'putting his money where his mouth is.' The company recently completed a private placement that consisted of about 1.78 million units at $0.60 a unit with gross proceeds of $1,068,430. Notably, Mr. Azlein personally subscribed for 790,000 units of the financing, while other company insiders bought a further 100,000 units.

With his wealth of experience in developing major projects internationally, Azlein sees many factors converging to bolster the future success of BPI's current and upcoming gas projects. Not the least of which is the fact that they are located within several hundred miles of major gas markets in the Midwest and northeast United States. Just as significantly, there is excellent infrastructure servicing them. For instance, two major pipelines cross both the Illinois Basin Project and the Jericho Project - pipelines belonging to the Texas Eastern Transmission Corp. and the Trunkline Gas Co. This will allow BPI to cost-effectively tie-in to these pipelines, offering easy access to markets for future gas production. In addition, if the company chooses to utilize the gas in the co-generation of electricity, there is also a major electric power grid running through the acreage.

And the demand for coalbed methane extracted gas is only going to grow. After all, it is practical, abundant, and is one of the cleanest burning fuels in the world. This explains why much of U.S. industry and power generation is being converted from coal to gas because of its environmentally-friendly nature. Moreover, as many nations seek alternatives to imported fuels or 'dirty' fuels, the attractiveness of natural gas is providing a catalyst for changes in government policy. And the advent of the Kyoto Protocol's impact on reducing airborne pollutants will no doubt add to natural gas' desirability.

Hence, SmallCapMedia believes that the upside for BPI's share price over the next six months is very encouraging. A proven, dynamic management team, matched the prospect of a fast-growing portfolio of gas-rich projects, stands to make BPI a force to be reckoned with in the energy sector in 2003. And SmallCapMedia will be covering the company's progress as it implements a number of key near-term initiatives aimed at building considerable value into its share price.