Arrow Energy CSG Development AusIMM April 2007

Agenda

• CSG in Australia and Globally

• Arrow Energy

• Technical Challenges – Drilling and Completions

• Technical Challenges– Reservoir

• Technical Challenges – Facilities and Water Mgt

• Other Development Considerations

Typical CSG Extraction

• Methane gas adsorbed into coal seams that can hold 5 times as much gas as an equivalent volume of sandstone

• Gas held in coals by hydrostatic water pressure

• Pumping water lowers the hydrostatic pressure and gas desorbs from the coals in cleats and fractures to flow to surface

Source OCA

Coal Bed Desorption

• By drawing down hydrostatic pressure (dewater) gas diffuses from the micro pores into cleats and fractures.

• As water flow rates go down – gas production initially increases.

• But water drawdown has to be managed…

CBM and Water Production

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Years of Operation

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CBM

Water

Some Global CSG Resource Estimates

Resources / TCM

• North America 25• Russia/Ukraine 20-90• China 30• Indonesia 15• Australia 15• India 8

Agenda

• CBM in Australia and Globally

• Arrow Energy

• Technical Challenges - Completions

• Technical Challenges– Reservoir

• Technical Challenges – Facilities and Water Mgt

• Other Development Considerations

Arrow Energy Snapshot

• Founded in 1998, ASX listed in August 2000

• Successful merger with CH4 in 2006

• Current Market Capitalisation approx $1.2 Billion

• Developed and Operating 4 CSG fields

• Currently producing approx 65 TJ/d

• Aim to be producing 25% of QLD’s gas supply by the end of 2007

• Over 2 TCF certified reserves and > 20 TCF of total resource

• Pioneered Surface to In-seam drilling technology and gravel packed / under-reamed completions

• Commenced International operations based in Delhi, India in 2007

• Expansion of international interests – Indonesia, China, Vietnam

Arrow Energy Tenements

• 80,000 sq. km. tenements

• Highly competitive position nearest to key markets and infrastructure

• High quality JV partners (AGL, Beach , CS Energy)

Agenda

• CBM in Australia and Globally

• Arrow Energy

• Technical Challenges – Drilling and Completions

• Technical Challenges– Reservoir

• Technical Challenges – Facilities and Water Mgt

• Other Development Considerations

Drilling and Completions

• Arrow – dual lateral in-seam drilling

– Vertical, multi-seam under-reamed & gravel packed

• Method depends on coals – thickness of seams, permeability, gas content,

depth etc

• Other methods investigated– case & frac, larger under-reaming

Arrow Under-reamed Completion

Top of P roduction Zone

TD

Ground Leve l

S urface C as ing:273.1m m OD 6.4m m W T A P I5LHole S ize: 12 1/4"

S lo tted Cas ing:168.3m m O D 6.4m m W T A P I5L w /2.5m m Slo tsHole S ize : 9 7/8 " Underream ed to 16" over coals

Tub ing:2 7/8" J55 E UE 6 .5 #/FT

P C P um p

W ell D iagram

Liner to S urface

Moranbah Surface to In-Seam Drilling

Slant Drilling– Designed with medium

radius smooth entry into the coal.

– Either single or multiple in-seam wells per vertical well.

– In-seam well lengths up to 1200m.

– Many different well patterns possible, parallel, chevron, star.

– Drilling method either under-balanced or over-balanced.

– Rig mast is set at necessary entry angle (50°to 90°from horizontal),

– Intersection with vertical well is accomplished using magnetic guidance tool

Other Drilling/Completion Issues

• Drilling fluids:– Water– Air– Foam

• Coal “don’ts”– Polymers– Cement

• Under-reamers or eccentric bits• Jetting – pressure and duration

Agenda

• CBM in Australia and Globally

• Arrow Energy

• Technical Challenges – Drilling and Completions

• Technical Challenges– Reservoir

• Technical Challenges – Facilities and Water Mgt

• Other Development Considerations

Reservoir Management –Essential Data

• Desorption curves• Isotherms• Permeability measurements• Coal thickness delineation• Proof of in-situ physical desorption and confirmation of

Critical Desorption Pressure• The rest is history matching and numerical analysis:

– Reservoir Modelling and history matching against test and production data

• Management of dewatering is critical – early gas breakthrough can decrease permeability to water and slow desorption away from wellbore – also related to well spacing

Field Layout

• Well spacing– Determined by a combination of reservoir and

economic factors– For vertical well based field (Arrow Surat) this means

a compromise between initial production rates and life of well / economics together with GSA length and gas price

– For SIS based field (Arrow Bowen) more reservoir and coal mine plan issues

Agenda

• CBM in Australia and Globally

• Arrow Energy

• Technical Challenges – Drilling and Completions

• Technical Challenges– Reservoir

• Technical Challenges – Facilities and Water Mgt

• Other Development Considerations

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Facilities – Fit for purpose but with expansion potential

Legend1 –Inlet from Kogan North Gas Field (

2 – Plant inlet water knockout3 – Vent

4 – Compressor Skid Package

4a – Drained Bund

5 – Lube Oil and TEG Coalescer Skid

5a – Drained Bund6 – Waste Separation & Storage

6a – Containment Bund

7 – TEG Dehydration Package

7a – Drained Bund

8 – Waste water sump & pump8a – Containment Bund

9 – Site Amenities

10 – Tie-in point to RBP

Water Management

Arrow is continually looking at ways to make beneficial use of the water produced in CSG extraction –particularly topical with the current extended drought

Water Management - Options

• Coal Washing– Supply to local coal mines

• Feedlots– Supply for stock watering

• Construction– Dust suppression, earthworks

• Reverse Osmosis– Supply to Braemar Power Station– Supply to Dalby Council

• Forced / Static Evaporation– Reduce size of dams

• Aquaculture– Joint trial with the QLD DPI for fish farming

Water Management - Forced Evaporation

CSG production water is forced through spray system to increase surface area and evaporation by 10 times over a static evaporation dam. Footprint reduced compared to static dam.

Water Management - Aquaculture

Agenda

• CBM in Australia and Globally

• Arrow Energy

• Technical Challenges – Drilling and Completions

• Technical Challenges– Reservoir

• Technical Challenges – Facilities and Water Disposal

• Other Development Considerations

Other Development Considerations

• Cultural Heritage– ILUA with native title claimants– Cultural Heritage Management Plan

• Environment– EMP’s– Code of Environmental Practice

• Safety– Systems and procedures– Compliance with P & G Act

• Landholders & Community– Land access agreements with compensation– Communication protocols and community relations / support

Other Development Considerations

• Overlapping tenure with Coal Mines– Coal Mines with ML under CMSH Act– Arrow with PL under P & G Act– Co-ordination agreements with clear communications

protocols and delegation of safety responsibilities is critical

– Finding balance between different business drivers• Miners driven by de-gassing immediately ahead of 5 year

mine plan, with cut-off on safety level of mining basis• Arrow driven by reservoir/GSA economics, together with

reserve-based economic well cut-off abandonment conditions

Other Development Considerations

• Resources– Competition for drilling rigs– Staffing of rigs– Engineering rates high

• Many competing large projects• Shortage of qualified and experienced people

• Material supply cost increases and delays• Value adding downstream of pure gas supply

– Near field power generation (with environmental credits)

– Alternative sales products (LNG, GTL, CNG)

Future Growth Potential ??

If we can grow our Barra this big, then we may be measuring our production in Kg, not TJ !!

Arrow Energy