GeoPetro Resources Company (NYSE-Amex: GPR) Focuses on Madisonville in 2009, So Far So Good

We were first introduced to GeoPetro Resources Company (NYSE-Amex: GPR) more than a year and a half ago at an IPAA Oil & Gas Investment Symposium in Hollywood, Florida. Our interest in GeoPetro at the time was based in part on the Company's producing assets in Madisonville, but also on the Company's projects in Alaska, Indonesia, Alberta, and California.

Two years ago, oil prices soared to more than $140 per barrel and natural gas at the time was trading above $13.00 per mcf. At these prices, GeoPetro's assets in Madisonville were profitable and cash flow positive and each of its other projects around the world were destined to become "Company Makers."

Late last summer, GeoPetro was preparing to raise capital when the global recession hit. The prices of oil and natural gas dropped significantly, although have shown mild support recently. At the time and as a result of falling commodity prices, the Company sought to initiate a new strategic plan, to focus on Madisonville in 2009.

GeoPetro's Madisonville project, which is located in Madison County, Texas approximately 100 miles north of Houston, is made up of four wells, Fannin #1, Magness #1, Mitchell #1, and Wilson #1. At the beginning of 2009, Fannin #1 and Magness #1 were producing 6 mmcf/day, which rate increased to 11 mmcf/day beginning in June 2009 due to the lowering of inlet pressure at these two wells. 2009 plans for the Mitchell well include the installation of a submersible pump, which is expected to result in production of an additional 10 mmcf/day beginning in November 2009. Frac plans for the Wilson well in the fourth quarter of 2009 are expected to result in production of an additional 9 mmcf/day beginning in Q1 2010. Based on the Company's completed and planned improvements at Madisonville in 2009, total production from all four wells is expected to increase from 6 mmcf/day in Q1 2009 to an estimated 30 mmcf/day in Q1 2010. This would result in an increase in production of 24 mmcf/day or 400% over a one-year period.

To accommodate the Company's planned increase in production, GeoPetro acquired a gas treatment plant in December 2008 in exchange for shares of GeoPetro´s common stock, assumption of certain debt, and a cash payment which valued the transaction at approximately $10 million. The Company was familiar with the plant because it was the same plant which was already treating the Company's gas. The plant was acquired from Madisonville Gas Processing LP, which invested more than $25 million on the original 18 mmcf/day capacity and another estimated $50 million during 2006 and 2007 to increase capacity to roughly 68 mmcf/day. GeoPetro expects to complete this capacity expansion by the end of 2009.

The effect of the recession has slowed development for many junior energy companies, but not for GeoPetro, whose Madisonville project has expanded nicely. In addition to Madisonville, the Company plans to (i) in Q4 2009, drill an 18,000 foot exploratory well at Madisonville to test 6 prospective formations below where other operators are producing today; (ii) in Q2 2010, operational activity in Alaska on 11,500 acres to a depth of 8,000 feet; (iii) in 2010 or 2011, drill a 15,000 foot test well in California, not too far from a recent Occidental Petroleum discovery; (iv) in 2009, 2010, and 2011, continue operations in Indonesia where the Company's joint venture partner has committed up to $41.3 million for development purposes; and (v) in Q1 2010, begin drilling at the Swan Hills Project in Alberta, Canada.

The operational enhancements made by GeoPetro this year have not gone unnoticed as the Company's share price rebounded from a low of $0.21 in March to a high of $0.74 in June. As a result of what we believe was some profit taking, the stock has pulled back from those highs and established a new floor price in the mid 40 cent range. With 36.75 million shares outstanding, 25% of which is held by beneficial owners and management, the Company has effectively managed its capital structure.

As we begin the second half of 2009, news stories to watch for include the impact on revenue, cash flow, and profitability resulting from increased production and the expansion of the gas treatment plant. In 2010, we look for continued development of GeoPetro's other "Company Maker" opportunities throughout the world.

With everything that GeoPetro has accomplished over the last 12 months, including the acquisition of the gas treatment plant and the increase in production, the Company is better positioned today than it was when we first started following it. A little more than a year ago, the stock traded as high as $4.29, a return to which would provide investors with a return of nearly 800%. 800% may be too much to ask for in today's market, but for patient investors, GeoPetro is a stock which could provide a solid return.

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