U-Gas N ews R epor t Unconventional Gas Activities in the Wor ld

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1 U-Gas N ews R epor t Unconventional Gas Activities in the Wor ld Published by Cedigaz Edited by Thierry Rouaud N 50 October 2010 oooooooooooooooooooooooooooooooooooooooooooooooooooooo COALBED METHANE & COAL SEAM GAS PRODUCTION AUSTRALIA: Toxic chemicals may be banned from use in CSG fracturing operations. UG50-1 Proposed new laws to ban toxic chemicals from use in coal seam gas operations were recently introduced to Queensland parliament. Natural Resources Minister Stephen Robertson introduced the bill, which bans the CSG industry from using BTEX in fracking. BTEX is an acronym for the toxic group of petroleum chemicals benzene, toluene, ethyl benzene, and xylenes. (AAP, October 5, 2010) AUSTRALIA: Minister delays approval on CSG Project. UG50-2 Environment minister recently delayed a decision on approving coal-seam gas projects in Queensland State. Minister Tony Burke said he expected to stick to a deadline for a decision on environmental approval for the projects by October 11, Burke signed extension notices on the projects, involving Santos and BG Group and now had until October 22 to decide on environmental approval. Although most industry watchers expect projects to get approval, the government is likely to set some conditions including additional research on and monitoring of coal seam gas extraction impact on water supplies. Protracted delays in environmental approval could also delay final investment decisions on Santos's 7.2 million tonne per annum Gladstone LNG project and BG Group's 8.5 Mtpa Curtis Island project. (Reuters, October 4, 2010) CHINA: TerraWest Energy receives approval for the 2010 field program of Liuhuanggou CBM Project. UG50-3 The board of directors of Petromin Resources Ltd. announced recently that TerraWest Energy Corp. reported approval of the 2010 field program and the initiation of work for the Liuhuanggou Project. The Liuhuanggou Project covers 653 square kilometers in the southern Junggar basin of Xinjiang. The 2010 Program involves drilling and production testing of up to ten pilot production wells. The wells are planned to produce coalbed methane from target coal seams as well as natural gas from shale. TWE has completed the engineering design for well completions and expects to perforate and fracture target formations as part of the program. TWE will also initiate pilot testing at two locations drilled previously. The LHG and wells are ready for testing. Pilot production will test large-scale production rates en route to full commercial development of the PSC area. The 2010 Program will be the first CBM pilot production under a production-sharing contract in western China. The joint management committee includes executives from both TWE and PetroChina Coalbed Methane Company Ltd. TWE operates and PCCBM administers the PSC. (Petromin Resources press release, September 27, 2010) 1

2 CHINA: Far East Energy announces CBM drilling program in the Shouyang Block. UG50-4 Far East Energy Corporation announced recently that its second-half 2010 drilling program for the Shouyang Block commenced with three wells, the 34D, 40V, and the 11D having been spudded in the past week. The drilling program is planned to consist of approximately 60 wells drilled during the remainder of 2010 through the summer of Currently, 51 of these wells are planned to be drilled in the 1H Pilot Area to accelerate gas production and maximize gas sales, projected to begin by year-end In addition to these pilot area wells, 9 parameter wells will be drilled to continue to extend the testing of the #3, #9 and #15 coal seams across a broad area of the northern half (approximately 242,000 acres or 980 square kilometers) of the Shouyang Block with primary exploration in the #15 coal seam. Far East also confirmed that the construction of the Shouyang gas gathering system is underway and is currently on schedule to be completed and commissioned by yearend At that time flaring will cease, and gas can be delivered for sale. Shanxi Gas Gathering, a subsidiary of Shanxi Provincial Guoxin Energy Development Group Co., Ltd., is managing the gathering system's completion. Far East Energy will soon commence the process of obtaining Chinese reserve certification with the objective of completing this process in the second quarter of Far East Energy has already started the process of evaluating resources and SEC reserves. (Far East Energy press release, October 4, 2010) INDONESIA: CBM could account for 15% of gas supply. UG50-5 According to a recent report released by Wood Mackenzie, Indonesia's coal bed methane industry has significant potential. Though development of the industry is riddled with near term challenges, CBM could eventually account for 15% of Indonesia's gas supply and the country could prove to be the largest source of unconventional gas in Southeast Asia. Indonesia could be producing 22,000 Mcf/d of CBM by 2013, ramping up to almost 900,000 Mcf/d by 2020 and 1.3 Bcf/d by 2025, Jamie Taylor, upstream analyst at Wood Mackenzie, said. Graham Tyler, head of South East Asia Gas & Power service, said. "Sumatra CBM has access to a range of markets, with pipeline access to West Java, Batam and Singapore. West Java and Singapore are particularly attractive, given their dependency on LNG supply in the long-term. Exporting CBM as LNG is an option from the Kutei Basin, given the capacity expected to be available at the Bontang liquefaction plant," Tyler said. "In the short-term, CBM drilling is scheduled based on the requirements of sales contracts, and development will be constrained by limited pipeline infrastructure and competition from other supply sources," Tyler said. There are now 20 active CBM production sharing contracts across four main areas in Sumatra and Kalimantan. (Chemnet, September 16, 2010) RUSSIA: Gazprom reviews CBM utilization strategy. UG50-6 Gazprom Management Committee recently reviewed the strategy on coalbed methane utilization. The specialized subdivisions were tasked to put forward proposals on the toppriority CBM consuming facilities in the Kemerovo Oblast. In 2009 pilot operation of seven exploratory wells was started at the first pilot production area of the Talda field. Gazprom dobycha Kuznetsk, a wholly-owned subsidiary of Gazprom, is the license owner. In February 2010 Gazprom launched Russia s first CBM production project at the Talda field. At present, Gazprom is performing geological exploration in another prospect of Kuzbass the Naryksko-Ostashkinskaya area. During the plateau period, annual CBM production in Kuzbass is planned to reach some 4 billion cubic meters, with a subsequent increase to billion cubic meters in the long term. 2

3 In May 2010 Gazprom submitted proposals to the Russian Federation Government on the measures to boost CBM production. It was noted in the document that the regulatory framework had to be improved in order to raise investment attractiveness of the CBM projects featured by high capital intensity. According to Gazprom, the top-priority measure was to categorize CBM as a new kind of natural resource through adding the Coalbed Gas (Methane) entry in the Russian Classified Index of Natural Resources and Underground Waters. Tax incentives in the form of a zero tax rate for this natural resource production could become the next stage of the regulatory framework improvement and the basic means of state support. (Gazprom press release, October 14, 2010) SUPPLIES IMPORTS - EXPORTS CHINA: Green Dragon to expand its downstream gas and retail sales network. UG50-7 Green Dragon Gas recently agreed to buy a 33.3pc stake in gas infrastructure company Sinoenergy Corporation. The proposed acquisition will enable Green Dragon to expand its downstream gas and retail sales network, the company said. Sinoenergy operates three wholesale gas distribution facilities in Wuhan, Hubei and in Xuancheng City, Anhui province with a total capacity of about 8.8bn f3/yr. Sinoenergy also operates 13 compressed natural gas retail locations. Green Dragon plans to boost the number of CNG fuelling locations it operates to over 100 by 2012 and expand its sales capacity to 509mn m3/yr over the same period. (Argus, October 6, 2010) SHALE GAS EXPLORATION - DISCOVERIES CANADA: Authorities announce tightened rules on shale gas exploration. UG50-8 The Quebec government is tightening the rules on shale gas exploration as public hearings into the controversial method of harvesting natural gas get underway. Environment Minister Pierre Arcand said recently that any company that wants to do exploratory drilling from now on will have to get a new certificate and pass a more rigorous inspection. Arcand said "Before anybody gets a certificate of authorization, we need to make sure that they will follow the proper guidelines." The new certificate will cover both the exploration and commercialization of shale gas, said Arcand. He said companies that already have permits will not have to get the extra certificate but will undergo thorough inspection. "We only have 10 wells that are being explored right now in the province of Quebec. But in the future, there will be many more. I think it's very important that in the meantime we have the best practices," said Arcand. The province has ordered its environmental protection agency, the Bureau d audiences publiques sur l environnement (BAPE), to review the practice and to report to government officials by February (CBC News, October 4, 2010) EUROPE: Shale gas may be hard to recover. UG50-9 Andrew F. Gould, the chief executive of the company, Schlumberger, said recently that shale gas could be much harder to recover in Europe than in the United States, because of concerns about environmental damage and other issues. "The drilling and producing of shale gas wells in Central Europe will be very different from doing so in the southern United States for financial and logistical, social and regulatory reasons," Mr. Gould said. 3

4 He said new tools should be developed to identify "sweet spots" in rocks where the most shale gas could be extracted. That would reduce costs and water use, but "technologically this is still very early in the game". Wolf E. Regener, the chief executive of BNK Petroleum, that is testing the viability of producing shale gas in Poland and Germany, said "We re more convinced than ever that shale gas should work in Europe". According to the U.S. Energy Information Administration, shale gas will represent 7 percent of global natural gas supplies by But the picture of total reserves of shale gas in Europe and the potential for extraction remain unclear. For one thing, there is a strong possibility that parts of Europe might have the "wrong rocks, " when compared with the United States, according to Paul Stevens, a senior research fellow at Chatham House. Replicating the success of shale gas in the United States is likely to be difficult as "the shale plays tend to be smaller, deeper, and less material" in Western Europe and "tend to have a fairly high clay content, which is not necessarily good news for hydraulic fracturing," Mr. Stevens said. The comparatively dense population density of Europe means that shale production could run into local opposition because of the way drilling could disrupt communities, and the way that pollution associated with drilling might face prohibitions, Mr. Stevens added. (New York Times, October 13, 2010) UNITED STATES: Gastar Exploration announces shale joint venture with Atinum Marcellus. UG50-10 Gastar Exploration Ltd. announced recently that it has entered into a joint venture agreement with Atinum Marcellus I LLC, an affiliate of Atinum Partners Co., Ltd., an investment firm located in the Republic of Korea. Pursuant to the agreement, Gastar will assign an initial 21.43% interest to Atinum in all of its existing Marcellus Shale assets in West Virginia and Pennsylvania, approximately 34,200 net acres. Under the terms of the transaction, Atinum will pay Gastar $30 million in cash upon closing and an additional $40 million in the form of a drilling carry. Upon the completion of the funding of the drilling carry, Atinum will own a 50% interest in the 34,200 net acres of Marcellus Shale rights currently owned by Gastar. Gastar will continue to serve as operator of all of the Marcellus Shale interests in the JV. Gastar and Atinum are pursuing an initial three-year development program that calls for the partners to drill one horizontal Marcellus Shale well during the remainder of 2010 and a minimum of 12 horizontal wells in 2011 and 24 horizontal wells in each of 2012 and (PRNewswire, September 22, 2010) UNITED STATES: General Electric plans mobile boilers to recycle water used in hydraulic fracturing. UG50-11 General Electric Co. recently launched a mobile device aimed at helping natural gas drillers recycle water used in hydraulic fracturing. The truck-sized, transportable device would cut down on both the amount of fresh water used and wastewater currently trucked long distances for disposal. The company said its mobile evaporator will cut the volume of wastewater and fresh water needed by between 50 percent and 90 percent by recycling water directly at the well site. That will also lower producers' transportation and disposal costs. The machine boils the used water, turning it into steam which then condenses into distilled water. That water can be reused for fracking and results in a much smaller volume of contaminated water for disposal. GE's mobile evaporator will be available in (General Electric press release; September 30, 2010) 4

5 Visit the website and get your copy of the full programme today. 30 November - 2 December, Hyatt Regency, Warsaw, Poland Hear from Chris Hopkins Vice President, Unconventional Resources Schlumberger Edward Cohen Chairman of the Board, Chief Executive Officer Atlas Energy John Buggenhagen Vice President of Exploration San Leon Energy Steinar Eikaas Vice President Commercial, Global Unconventional Gas Statoil Martin Schuepbach Chairman and CEO Schuepbach Energy Brian Horsfield Project Leader GASH Foot on the gas Strategy, opportunity & technology for governments, operators and their partners Learn how the world's leading operators have achieved success in shale gas development Multiple case studies from global operators including: Lane Energy Poland, Schuepbach, Questerre Energy, Sonatrach and Atlas Energy. Access the latest geological and technical research on shale gas potential in Europe Leading research projects and geological surveys including the US Geological Survey, the British Geological Survey and GASH will share their research findings. Leverage knowledge and technology from North America Learn from the pioneers in E&P and drilling technology including microseismic monitoring, fracking, directional drilling and completion and production methods. Find out how you can apply their experiences in Europe. 3 days to learn and do business Don Gautier World Petroleum Project Chief US Geological Survey TECHNICAL WORKSHOP 30 November Kamlesh Parmar Country Manager Lane Energy Poland MAXIMISING THE SHALE GAS OPPORTUNITY 1 December OPERATOR CASE STUDIES 2 December Sponsored by: Wolfgang Rauball Managing Director Eurogas, Inc Mike Stephenson Head of Energy British Geological Survey Produced by: BOOK NOW! online sarah.pegden@terrapinn.com phone +44 (0) fax +44 (0)

6 PRODUCTION UNITED STATES: Talisman Energy acquires properties in the Eagle Ford shale play. UG50-12 Talisman Energy Inc. announced recently that it has reached an agreement to acquire additional properties in the Eagle Ford shale play in south Texas. Talisman and Statoil have agreed on a joint-venture to acquire 97,000 net acres of high-quality, liquids rich Eagle Ford shale properties from Enduring Resources. Talisman and Statoil have agreed to create a 50/50 joint-venture across the Eagle Ford shale play, with Talisman as the initial operator. Talisman and Statoil have agreed that Statoil will operate approximately 50% of the joint assets within three years. The transaction is expected to close by end There is currently 5,500 boe/d of production, including six Eagle Ford wells which are on-stream. An additional eight wells have been drilled; three wells are drilling, with nine additional wells planned by end Initial production rates on the two most recent wells have averaged 3,700 boe/d (including 1,000 bbl/d of liquids) and 2,300 boe/d (including 425 bbl/d of liquids). The company believes there is an estimated 800 million boe of net contingent resource on the acquired properties, of which approximately 50% is expected to be condensate or natural gas liquids. Shale gas and liquids development is an important part of Talisman's strategy for longterm, profitable growth. (Marketwire, October 10, 2010) UNITED STATES: Chesapeake and CNOOC announce Eagle Ford Shale project cooperation agreement. UG50-13 Chesapeake Energy Corporation and expected to be drilled by year-end CNOOC Limited announced recently the Currently Chesapeake has 10 horizontal execution of an agreement whereby Eagle Ford wells in production with initial CNOOC International Limited, a whollyowned subsidiary of CNOOC Limited, will and 0.4 mmcf of natural gas per day in the production rates of up to 1,160 barrels of oil purchase a 33.3% undivided interest in oil window and 4.0 mmcf of natural gas and Chesapeake's 600,000 net oil and natural gas 1,200 barrels of oil per day in the wet gas leasehold acres in the Eagle Ford Shale window. Chesapeake anticipates the project project in South Texas. Closing of the will reach its peak production of 400,000- transaction is anticipated in the 2010 fourth 500,000 barrels of oil equivalent per day in quarter. As operator of the project, the next decade. The assets are located Chesapeake will conduct all leasing, drilling, principally in the counties of Webb, completion, operations and marketing Dimmitt, LaSalle, Zavala, Frio and McMullen, activities for the project. Over the next and are located primarily in the oil window several decades, the companies plan to (~85%) and the wet gas window (~15%) of develop net unrisked unproved resource the Eagle Ford Shale and in the dry gas potential up to 4 billion barrels of oil window of the Pearsall Shale. (Business equivalent. Approximately 900 wells are Wire, October 10, 2010) TIGHT GAS EXPLORATION - DISCOVERIES POLAND: Aurelian confirms potential of the Siekierki tight gas deposits. UG50-14 Aurelian Oil & Gas discovered recently a deposit of tight gas at a depth of 3752 m in the Siekierki Tight Gas project, the Trzek-2 well, in mid-western Poland. The horizontal well is to be connected with the older Trzek-1 well, where a 90 m tight gas reservoir was found. (Polish Market, October 1, 2010) 5

7 In association with: Register Today & Save 200 energy Theenergy European Unconventional Gas Exploration Conference 18-19th November Berlin, Germany Your Roadmap to Profitable, Productive & Cost Efficient Unconventional Gas Exploration in Europe The only conference focusing on maximising efficiency and profitability of unconventional gas exploration strategies Benchmark your strategies against our EXPERT SPEAKERS: IDENTIFYING THE MOST PROFITABLE RESERVES IN EUROPE: Your roadmap to maximising productivity and income from shale, tight sands, CBM and other unconventional gas reservoirs Leading operator case studies: Hear from a host of leading unconventional gas operators and discover key impediments to a profitable, productive and cost efficient unconventional gas exploration strategy Serbian national gas company Cutting-edge technology breakthroughs: Discover the very latest technology breakthroughs in unconventional gas exploration that will significantly reduce your costs and increase your productivity The business case for unconventional exploration: Evaluate the best commercial opportunities for exploration in Europe and how unconventional gas will shape the markets in coming years Regulations, Licensing and the Enivronment: Maximise your exploration efficiency with the most up-to-date information on water use and disposal, licence acquisition and European policy 7 Great Reasons for you to attend 1 With over 20 expert speakers addressing today s challenges, technologies and opportunities, you ll walk away with a productive exploration strategy to maximise profit and efficiency 4 You ll learn the specifics of exploratory play geology, how to access it, and how to convert that knowledge into economically viable resources 5 The show will study the geo-spatial technologies which will enhance and improve your reservoir quantification 2 Over 150 leading decision-makers set to attend, including operators, regulators, suppliers and geologists 3 You ll get over 8 hours of networking at the event and 4 weeks of networking with our unique e-networker with leading industry professionals Supported By: 6 Case-studies from experienced operators working on plays in Europe and knowledge transfer from the USA 7 All the key regulatory bodies and national surveys will present, giving you the best opportunity for success Excellent venue for meeting like-minded operators and contractors BP Reserve your place today at

8 RESERVES SLOVENIA: Ascent Resources reports development potential of tight gas in the Pannonian Basin. UG50-15 Envoi Limited, specialist A and D advisors released recently information on a significant appraisal /development opportunity in the eastern Pannonian Basin (that straddles the Hungary-Slovenia border) involving the large previously discovered, but largely undeveloped Petisovsci-Lovaszi tight gas field. Only 8 Bcf has been produced to date of the substantial 300+ Bcf untapped commercial reserve potential now estimated by Ascent, is capable of being unlocked by modern technology. Ascent Resources plc has commissioned Envoi to assist in identifying potential partners to participate in the two licences that incorporate the Petisovsci-Lovaszi field complex. The main Petisovsci-Lovaszi gas reservoir is the relatively tight Miocene turbidite sandstones encountered at depths between 2,000m and 3,000m and has a stacked play of over 400 metres. Ascent first acquired an interest in the Petisovsci Permits in the Slovenian part of the project area in 2007 and now holds a 75% interest. The Slovenian partner, Geoenergo, is the concessionaire and holds the remaining 25% interest. In the Hungarian part of the project, Ascent's partner is MOL and each party holds a 50% interest. (Oilvoice, October 4, 2010) CEDIGAZ Centre International d'information sur le Gaz Naturel et tous Hydrocarbures Gazeux 1 et 4, avenue de Bois Préau, Rueil-Malmaison Cedex, France Tel Fax Editor's contact : thierry.rouaud@cedigaz.org 6