GeoMet, Inc. (NASDAQ: GMET) has announced an increase in its year-end 2010 estimated proved reserves from year-end 2009 and provided preliminary information on 2010 net gas sales volumes, gas price realizations and capital spending activity.

Estimated Proved Reserves

Estimated proved natural gas reserves as of December 31, 2010 prepared by DeGolyer and MacNaughton, independent petroleum engineers, totaled approximately 216 billion cubic feet (Bcf), a 7 Bcf (3%) increase over year-end 2009 reserves. The company replaced approximately 200% of its net gas sales volumes for the year. GeoMet’s estimated proved reserves at December 31, 2010 are 100% coalbed methane and 76% developed.

Approximately 64% of total year-end 2010 proved reserves are in the Pond Creek and Lasher fields in West Virginia and Virginia, and 36% are in the Gurnee field in Alabama. The reserve increase resulted primarily from development drilling in the Pond Creek field and the higher natural gas price used in the year-end 2010 estimate and, to a small extent, improved recovery factors in six Gurnee field wells where a new hydraulic fracturing technique was used to complete a behind pipe coal group during the last two years.

2010 Operational Update

Fourth quarter 2010 net gas sales volumes averaged approximately 20.3 million cubic feet (MMcf) per day, an increase of approximately 1% as compared to both the fourth quarter of 2009 and the third quarter of 2010. For the full year 2010, net gas sales volumes averaged approximately 20.2 MMcf/d, a decline of approximately 2.5% from the prior year. Fourth quarter 2010 net gas sales volumes were adversely impacted by a leak in the company's low pressure gathering system in the Pond Creek field which is estimated to have resulted in approximately 0.3 MMcf/d of lost sales volumes for the quarter. This leak was repaired in late December. Current net gas sales volumes are approximately 20.7 MMcf/d.

Pond Creek

During 2010, 19 new wells were added to sales, with 16 wells added in the last half of the year. All of these new wells were drilled in the Virginia portion of the Pond Creek field. These wells are currently producing at rates approximately equal to the current field wide average production rate and are expected to continue to incline to peak rates significantly higher than the current field wide average production rate.

Gurnee Field

In our Gurnee field, a behind pipe coal group was completed in 4 wells using a new fracturing technique that the GeoMet has been testing since late 2009. The results yielded incremental new production from this single coal group of about 218 Mcf/d, a 130% increase from the pre-fracture production rates from the 4 wells. A similar fracturing technique was also used to complete a deep coal group in a new well drilled in late 2010. The initial daily water production from this coal group is encouraging but without significant gas production to date, it is too early to quantify the economic results of the completion at this time. Fracturing of the remaining coal groups in the well will be conducted in the first quarter of 2011.

2011 Expenditure Plans

The company has established a capital expenditure budget of approximately $14 million for 2011 (including capitalized overhead and certain other non-cash charges).

In 2010, the company spent approximately $10.7 million to drill 20 new wells in the Virginia portion of its Pond Creek field. GeoMet has allocated approximately $9.5 million of its 2011 capital budget to drill another 20 wells in this area. In 2010, the company spent approximately $1.8 million to test its new hydraulic fracturing technique in the Gurnee field in Alabama, drilling one new well and fracing previously uncompleted coal seams in 4 existing wells. The company intends to spend approximately $2.7 million in the Gurnee field in 2011 to drill and complete 4 new wells in order to continue testing this new hydraulic fracturing technique.

GeoMet’s 2011 capital expenditures are expected to be funded from internally generated cash flows.