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North West Group Geological

Society

Coal Bed Methane (CBM) in the North


West – Past, Present and Future

Brent Cheshire (Executive Technical Director)


Dr. Lloyd Boardman (Consulting Geologist)
Certain statements included in this presentation contain forward-looking information
concerning IGas's strategy, operations, financial performance or condition, outlook, growth
opportunities or circumstances in the sectors or markets in which IGas operates. By their
nature, forward-looking statements involve uncertainty because they depend on future
circumstances, and relate to events, not all of which are within the Company's control or can be
produced by the company. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, no assurance can be given that such
expectations will prove to have been correct. Actual results could differ materially from those
set out in the forward-looking statements. Northing in this presentation should be construed as
a profit forecast and no part of these results constitutes, or shall be taken to constitute, an
invitation or inducement to invest in IGas, and must not be relied upon in any way in connection
with any investment decision. Except as required by law, the Company undertakes no
obligation to update any forward-looking statement.
Unconventional Gas changing the landscape....
Cambrian Alum Shale
UK CBM Shell acquired two mineral exploration
Island Gas + Nexen licences in May 2008 in Skåne, valid for
Green Park + Marathon three years
Composite Energy + BG

Silurian shale
Cuadrilla have licences Lane Energy farm-in:
(shale +tight gas) in North Conoco Phillips funding
England and in seismic
Netherlands (Graben)
San Leon

ExxonMobil farmed
awarded licences in
the Warsaw Trough
and Lublin Trough
BNKP( south of
Eurenergy Lane); RAG has
farmed-in to its shale
ExxonMobil and
acreage
MOL farmed into
European Gas CMM
Total E&P, UK Devon, Falcon Energy’s tight
and CBM Realm Energy (?)
Mouvoil SA, Bridgeoil gas plays in the
Ltd., and Diamoco Mako basin in
Energy Toreador (shale oil) Hungary

RAG (?)

Oil field centre OMV have


researched Vienna
basin shale (4,500-
Gas field centre Schuebach / Ascent 6,000m deep)

Source: U.S.
Geological Survey, Heritage Petroleum Plc and
2002 plus Barcap Vancast Explotacion SL
Independent CBM Energy have
company detail. rumoured to be seeking
Resources have completed one CBM
Locations are shale in Northern Spain
drilled one failed well
approximate (rumoured to be awaiting
CBM well at Fiume
permitting
Bruna
Unconventional Gas changing the landscape....

EU

UK
Unconventional gas is changing the landscape…

“….we are transitioning from the oil century


to the gas century…”

“… the source is larger than the leaks…”

Aubrey McClendon
Chairman of the Board and CEO
Chesapeake Energy corporation
June 2010
An Overview of Activities in the North West

• CBM development cycle

• What is CBM

• Prior CBM experience

• Geology of the coals

• Site Selection & data

• Drilling Philosophy
Shale Resource

 Extensive Shale resource


across acreage
 Known to be hydrocarbon
bearing and significantly
anticipated to be in gas
window
 Pressure regime un-known
IGas commissioned
independent study on
potential resource
 IGas will seek to core
shale in-situ when possible
Production tests being
carried out by others
elsewhere in
Bowland/Holywell shale
E&P delivery - Acreage

110/18, 19 &23 PEDL 193


PEDL145 PEDL 092-1
PEDL 116

PEDL 184

PEDL 107
PEDL 056-1

PEDL 040-1
PEDL 115-1
PEDL 78-1
PEDL 115-2
PEDL 78-2

Interests in licences range from 100% to 20%


Partner Nexen Inc.
Licences give rights to all hydrocarbons
E&P delivery - Exploration – Building on success

• Extensive pre-existing data set of boreholes and seismic


• Data set corroborated by drilling of 8 wells covering all licence areas
• 320 boreholes used to substantiate resource calculations
• 890km of pre-existing 2d Seismic being re-interpreted at Point of Ayr
• Evaluating shale and conventional potential in all areas

∆ Pre-existing seismic coverage at Point of Ayr


E&P delivery - Appraisal

• Eight wells successfully drilled at seven sites to appraise resource


• Extensive coring and logging program completed
• All wells were drilled by Nexen

∆ Willoughbridge ∆ Mostyn Quay ∆ Fox Hill Farm

∇ Doe Green ∇ Mill Farm ∇ Fradley


E&P delivery - Production pilot
Doe Green Keele
on test for On test now,
>1year, dewatering.
"commercial"
flow rates

PEDL 193
110/18, 19 &23 PEDL 092-1
PEDL 116

PEDL 184
PEDL 107
PEDL 056-1
Point of Ayr
On site by PEDL 040-1
PEDL 115-1
year end to
production PEDL 78-1
test PEDL 115-2
PEDL 78-2
E&P delivery - Full production

• Production start – Targeted for next year, from first full site
• Between 2011-2014 targeting 20-50 sites
• Each site planned to consist of 4-6 wells with 24,000 to 40,000 feet of
lateral in each well
• Each site is expected to produce between 7 and 20 Bcf over 15 years
(gross)
• Production from each site is expected to be peak at between 4 and 10
mmscfd (gross) (650 - 1,500 Boepd per site)
• Stable production curve (much flatter and longer than conventional)
• Production technology – known and demonstrated in other markets
E&P delivery - Surface access

Planning has been obtained for 13 sites to date from variety of land
owners and planning authorities
Land access:
• Peel Environmental agreement gives access to multiple sites in
core licences.
• More than 40 drilling locations identified
• Point of Ayr offshore
Planning:
• King Sturge retained to take multiple drill sites to planning
Water disposal:
• No issues to date because of quality and quantity
• Even local sewer disposal can be possible

Red areas show Peel land holding across


north west
E&P delivery - Market

• IGas operates in a high realisable gas price environment


• Direct access to many large customers
• No material pipeline infrastructure required, legal right to access both
low and high pressure gas networks
• 2011-2012 forward gas prices are ~$7.50mcf (~50p/therm)
• Pricing at National Balancing Point by discounting transportation
achievable
• Sales therefore can be direct or through Grid

Large industrial consumer


in area
What is Coal Bed Methane?

• CBM is the natural gas found in many


coal deposits
•It is used as a fuel in exactly the same
way as conventional gas
• Coal seams can hold large quantities
of gas (six to seven times more than the
equivalent volume of rock in a
conventional gas reservoir)
• Gas is stored within the molecular
structure of the coal, on the surface and
in natural fractures (cleats). Typically
water pressure keeps the gas trapped
• When the water pressure is released,
the gas flows through the fractures into
a well bore where it can be collected
What is Coal Bed Methane?

• CBM – Methane rich gas

• “Firedamp” in mining terms

• Typical composition:
• Methane 80-95%
• Ethane 0-8%
• Propane + 0-4%
• Nitrogen 2-8%
• CO2 0.2-6%

• Low porosity (0-3%)


Three Forms of Methane Extraction

• Coal Bed Methane (CBM)


•from virgin seams

• Coal Mine Methane (CMM)


• From prior workings/abandoned
mines

• Underground Coal Gasification (UCG)


• In situ combustion of virgin
seams

• IGas Energy is focussed on CBM only


Evergreen’s Sealand Wells

Sealand No.3
Evergreen’s Cronton Interactive CBM Wells

Stress, Fracture and


Bed Separation
associated with a
Longwall Panel
Geology of the Coals
Site Selection & Data

• Detailed lithological Log


from NCB Four Oaks
Borehole
Site Selection & Data
Site Selection & Data

Litholog from recent CBM well

• The British Coal (NCB) wireline logs used to locate wells


Four Oak Gamma & Density
• Data acquisition is critical, particularly in the early appraisal
Log at Florida horizon stages
• key data include logs, cores ( gas content, desorption
measurements etc)
Site selection & Data

• Coal samples from numerous


boreholes enabled contour maps of coal
seam gas to be established

• detailed structural maps were


developed by integrating the down dip
exploration with the active coal mine
data
Site Selection & Data

• The abandoned mine plans


provide further data upon
which to select potential
sites.
• This plot shows an area of
working longwall panels that
are completely free from
faulting
• The relatively undisturbed
structure suggests a
promising site to locate
extended horizontal wells
may exist in the vicinity
Typical well Completion
Measured Depth (ft)

5600
5500
5400
5300
5200
5100
5000
4900
4800
4700
4600
4500
4400
4300
4200
4100
4000
3900
3800
3700
3600
3500
3400
3300
3200
3100
3000
• The well is drilled and lined with a 2800

cemented steel casing – to provide 2840

isolation from aquifers etc


DG2Z 2880

True Vertical Depth (ft)


2920

2960
• The casing is perforated in the target 3000
coal seams DG2Y DG2W
3040

DG2V
3080

• Water and eventually methane gas are 3120


DG2 HF Perfs
Higher Florida Seam

produced through the tubing to surface 3160


- Initial w ell entry points

• Artificial lift technology is used to pump


the water/gas to surface (PCP’s, ESP’s,
Jet Pumps, Rod Pumps)
Vertical vs Horizontal Wells

• Successful CBM development is a function of


gas rate
• Historically, this required a high (vertical) well
density (see opposite)

• Such an approach is not viable in the UK


(environmental impact, land access etc)

• Alternative solutions have had to be found

• Horizontal or multi-lateral wells allow


comparable areas of coal to be accessed whilst
minimising the surface impact (as opposite)

• Commercial CBM production is attainable


through a combination of technology application
and innovative approaches to reduce the cost
base.
Doe Green: First Pilot

• IGas “test bed” to optimise CBM development



• On-site electricity generation since June 2009

• Optimising jet pump performance

• Increased production by 40%

• Planning Consent for 2 further wells applied for


Summary – Positioned for Delivery

• CBM represents a significant energy resource that can benefit the nation

• IGas Mid case sufficient to supply electricity to over 7% of all UK households for 15 years

• Pilot production ongoing with full scale commercial production targeted to start next year

• The North West region is at the forefront of CBM development in the UK

Full
Exploration Production
2005-2009 and pilots in 2011-2014
production
2009-2011
appraisal key areas roll-out

Delivering Secure Gas,


Onshore
UK’s first production facility
Glossary

BCF Billion Cubic Feet


B.E Beneficial interest
BOE Barrels of Oil Equivalent
BOEPD Barrels of Oil Equivalent per day
CBM Coal Bed Methane
CPR Competent persons report
CSG Coal Seam Gas (CBM)
D&M DeGolyer and MacNaugton
DECC Department of Energy and Climate Change
EBIT Earnings before interest and tax
EBITDA Earnings before interest, tax, depreciation and amortisation
GIIP Gas initially in place
MMSCFD thousand standard cubic feet per day (measure of production)
PEDL Petroleum exploration and development licence
Scf/tonne Standard cubic feet per tonne
TCF Trillion Cubic Feet
WI Basis Working interest basis

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