Canary Resources Inc - The Company

Canary Resources Inc. is a coalbed methane (CBM) company which is developing leased acreage in the Eastern Forest City Basin in Kansas and Missouri.

Coalbed methane is methane gas that occurs in coal beds and has been generated during the conversion of plant material to coal. Although minor differences in geologic conditions alter production methods, coalbed methane is transported, sold, and used in a similar way to natural gas produced from conventional gas and petroleum fields.

Corporate History

In December 2004, Canary Resources concluded a 75,000 acre Farm-out Agreement in the Eastern Forest City Basin with a private company, Osborn Energy, LLC. The agreement enabled Canary Resources, as operator, to build upon the experience that Osborn Energy developed over 8 years of operation. Canary Resources had a 65.6% net revenue interest in the farm-out leases in exchange for funding all drilling activity. Canary and Osborn Energy, LLC were, however, unable to craft a successful working relationship and litigation ensued. In December, 2006 Canary and Osborn Energy, LLC entered into a Settlement Agreement whereby Canary and Osborn released each other from all litigation and effectively dissolved the farm-out. In consideration, Osborn assigned Canary a 100% working interest in 11 gas wells and the leases on which they are located.

Beginning in late-2005, Canary had begun acquire its own leases and to re-focus its operations away from farm-out acreage. On its wholly-owned leases in the Eastern Forest City Basin, Canary typically had a net revenue interest of 87.5%.

By late 2006, Canary had acquired not only its own lease acreage, but had built its own geological and field operations team, acquired a drilling rig and well service units, and was completing its own tap into a major pipeline. By so doing, Canary had transformed itself from being a farmee at inception, into a fully-integrated and self-sufficient gas exploration and development company.

Negotiations between Canary Resources and Osborn Energy commenced in 2003, to allow Canary Resources to provide capital to accelerate development of Osborn Energy's significant acreage base. In December 2004, Canary Resources entered into Farm-out, Exploration and Contract Operating Agreements with Osborn Energy. Canary Resources became the operator and owner of a 75% working interest in Osborn Energy's entire undeveloped land position of over 75,000 acres, in exchange for funding all drilling activity. A 25% working interest is retained by Osborn Energy in exchange for its land position.