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CWCB Loan Narrative Overview 6 <br />NEW PRODUCED WATER Recently, coal bed methane production (CBM) operations west of Walsenburg have begun in the same locations and from the same coal fields from the same Vermejo geologic formation that generated Produced Water as last century’s coal mining operations in Huerfano County. This is a new source of water for HCIC System and farming. On September 30, 2010, Two Rivers signed a Memorandum of Understanding with Petroglyph Energy, Inc. (Petroglyph) for the purpose of developing such a treatment regimen for the produced water coming from Petroglyph’s CBM operations west of Walsenburg. Petroglyph expects to produce 9,500 acre feet of water annually for a period of at least 50 years. Two Rivers expects a formal agreement to be adopted by Two Rivers and Petroglyph within 90 days. HCIC has engaged Bishop Brogden & Associates to independently verify Petroglyph’s estimate of annual discharge of Produced Water and reservoir volumes. HCIC has engaged Wright Water Engineers to assess water quality issues and develop a viable organic treatment system utilizing, in part, the HCIC System. HCIC has engaged Connie King to assist in Produced Water discharge permitting. If the agreement is adopted as anticipated, Two Rivers will implement a treatment system and will pay HCIC monthly payments of $50 per acre foot for the use of the HCIC System in the treatment process and obtain the right to store the Produced Water from Petroglyph’s CBM operations within the HCIC System including at the Cucharas Reservoir. <br />