unconventional shale gas & conventional opportunities in the

Unconventional Shale Gas & Conventional Opportunities

in the Quebec Lowlands, Quebec Canada

Exploration Assets Management, LLC

Wylie Texas 75098

Jim Morabito 25 October, 2011

The Leap to Quebec

Utica Shale Gas Potential

Cut teeth in Michigan Basin’s Devonian Antrim Shale Play

• Shallow drilling (less than 2,000’). Different “animal” with biogenic gas. Now have well over 10,000 wells drilled.

• Historically Hints: gas show after gas show drilling through shale for deeper Silurian Niagaran Reef Play.

• Incentive: Ten year tax credit at $0.90 to $1.00 per Mcf. Gas prices ranged from $1.65 to $3.00 per Mcf (main fairway in northern rim of Michigan Basin EUR: .48 Bcf per well). Low pressure, low volume, low BTu gas.

• EUR for play over 4 Tcf. F&D Costs were $0.50 to $0.75 / Mcf

• “Gas factory” resource play concept overlooked by Shell (Main Reef Player) made many small independents big (Quicksilver).

Opportunity - Opportunity – Opportunity EXPLORATION ASSETS MANAGEMENT

Why Quebec Utica Shale Gas Potential

Under-explored Basin with source/resource rock (Utica Shale) in “dry gas generation window” with world class reserves potential.

• Lowlands are structurally complex and may contain sizable recoverable reserves in conventional plays.

• Nearby existing major gas transmission pipeline infrastructure with capacity to deliver gas to Provincial Market or NE USA.

• Gas pricing (into sales line) indexed to NYMEX with “strong positive Basis. Marcellus gas may/will have effect

• Targeted drilling depths with multiple objectives from 500 to 3,000 meters.

• Exploration Incentives provided by Quebec Province.

EXPLORATION ASSETS MANAGEMENT

Why Quebec Exploration & Development ________________________________________________________

• Existing gas transmission Infrastructure with capacity in the Lowlands and into US markets.

• Capital and development for additional pipelines provided by Gaz Metro (franchised entity). Gas price indexed to NYMEX with a positive basis.

• Significant Tax Rebate from the Province of Quebec for exploratory expenditures.

• Provincial Royalty structured on a sliding scale from 5 to 12.5% for oil and 10 to 12.5% for natural gas

• Very low entry costs to acquire concessions

• Reasonable drilling depths for nearly all projects (objectives from 500 to 3,000 m)


Conventional Plays 1 Tcf Equivalent Potential _________________________________________________________

• Quaternary Clastics at less than 300m (analogous to Point du Lac Field 1.5 Bcf).

• Fractured Hydrothermal Trenton Carbonate Plays from 800 to 2,600 m.

• Thrust Sheet Fairway with prospective targets from 1,300 to 3,000 m (analogous to St Flavian Field 8 Bcf).

• Lower Ordovician Sandstone Structural and Stratigraphic Plays with targets from 800 to 3,000 m.

• Seismically-defined structural closures with prospective targets from 1,000 to 2,400 m.

• Antiformal Stack zone with prospective targets from 2,000 to 3,000+ m.


Why Quebec: Unconventional Plays 3 Tcf Potential

(May be grossly underestimated)

_________________________________________________________

• Fractured, biogenic Utica & Lorraine Shale Plays from 200 to 800 m (analogous to Antrim Shale). Recoverable reserves P50 = 0.25 Bcf per well

• Thermogenic Utica & Lorraine Shale Plays from 1,000 to 3,000 m (analogous to Barnett Shale). Recoverable reserves P65 = 2.75 Bcf (Roberto Aguilera take a bow).

• Tight Gas Sand and Siltstone Play from 1,000 to 2,400 m


Gas Potential in Southern Quebec

Assumptions: Potential of 4,000,000 hectres in Southern Quebec

Lowlands. A look at the potential prize is:

Thermogenic Unconventional 5.4 Tcf

Biogenic Unconventional 0.6 Tcf

Tight Gas Sands/Silts 0.6 Tcf

Conventional Plays 1.0 Tcf

TOTAL 7.6 Tcf

Provincial Royalty share could surpass $5,000,000,000. Add on

the added revenues from job creation, ….


Simplified Stratigraphy – Quebec Lowlands & Thrust Belt

• Queenston – Lorraine – Utica – Low seismic reflectivity

– Significant deformation far north & west of the outcropping thrust front/Logan’s Line

• Trenton-Black River – High impedance strong reflectivity

– modest deformation, folding & minor faulting north & west of Logan’s Line

• Chazy – Low Reflectivity, not picked individually

• Beekmantown – Strong reflectivity, modest deformation similar

to TRB but locally decoupled

• Potsdam – Thickness highly variable – generally thickens to

south & east

– Locally strong basal reflection ID’d as carbonate in St. Ours well (A166)

– Modest deformation similar to Beekmantown


Shale-Gas Test Detail (V)

Utica Upper-gas

Utica Lower-gas

MJU


Utica - Barnett Shale Comparison

Assumptions:

• Early Barnett Shale DSTs at 20 to 100 Mcfd

• Small cased-hole frac-job completions IP’d at 50 to 300 Mcfd (all uneconomic at 6,000’ and < $1/Mcf gas)

• A-173 Utica DSTs reported at 10Mcfd and 46 Mcfd with small acid-fracs resulting in 300 Mcfd and 476 Mcfd rates

• A-161 Utica tested 2.5MMcfd from an open fracture (no need to modify the rate)

• Using modern hydro-frac technology best guess of 20 times the rate for old DST versus modern IPs. Utilize 5 to 8 times for older cased-holed frac tests versus modern IPs.


Quartz/Feldspars

Carbonate Clay

Barnett Shale Play

(Wise County)

(Johnson County)

Mystery Shale

Mineral Constituents Distribution Plot

Eagle Ford Shale

Utica Shale

Bakken Shale


Mystery Shale

Utica Shale


Quebec Lowlands Utica Shale Gas Finding Costs

and Illustrative Economics:

Expected NRI: 88.5% @ 3.00 Bcf per well Reserves

Per Well Net Recoverable Reserves of 2.56 net Bcf (.885 minus shrink)

Gas Price Index: NYMEX + $0.20)

NYMEX gas price $5.00 US ( no MMBtu adjusted)

Finding & Development Costs: Illustrative Economics:

Well & $4,000,000 NYMEX Gas Price $5.00

Leasehold Cost included Basis Adjustment $0.20

Total Well Cost $4,000,000 per well (Project) Gas Price MMBtu Adjust $5.20

Net Reserves: 2.56 Bcf (88.5% NRI) LOE $0.24

First Year Prod Ave: 2,000 Mcfd G&A and Other $0.22

Finding & Dev. Cost $1.57/Mcf (DD&A) TT&M $0.25

Finding & Dev. Cost $1.57

Net Realized Gas Price (Cashflow) $2.92

Net Back Cash (per Mcf) = (NYMEX - Basis) x MMBtu Adjust - (LOE + TT&M + G&A ,Other + DD&A)

$2.92 = ( $5.00) + $0.20) - ($0.24 + $0.25 + $0.22 + $1.57)


Why Quebec Gas Exploration & Development Finding & Development Costs / IRR Sensitivities

(Range Resources Marcellus Shale Comparison July/2011)

Gross Reserves: 5.7 Bcfe Costs:$4MM

F&D Costs: $0.82 IRR: 79%

2011 Press Release

(Not Industry average for play, many other quotes much higher)

______________

Eagle Ford Shale “Wet” play in South Texas

F&D Costs: $1.20 to $2.20


2 Bcf 3 Bcf 4 Bcf 5 Bcf

$3MM $ 1.76 $ 1.17 $ 0.88 $ 0.71

43% 80% 116% 153%

Well

Costs $4MM $ 2.35 $ 1.57 $ 1.18 $ 0.94

26% 53% 80% 107%

$5MM $ 2.93 $ 1.96 $ 1.47 $ 1.18

16% 37% 58% 80%

F&D Costs in Black % IRR in Red

Why Quebec Gas Exploration & Development Finding & Development Costs / IRR Sensitivities

(Range Resources Marcellus Shale Comparison July/2011)

Gross Reserves: 5.7 Bcfe Costs:$4MM F&D Costs: $0.82 IRR: 79%


Traverse Lime

“Antrim Shale Gas”

Ellsworth

Upper Antrim

Glacial Sediments

Freshwaters carry organisms (methanogens) into the formation from the

glacial/Shale sub crop through a network of natural fractures.

Fractures are produced due 1) tectonic stresses through time 2) expulsion

due to maturation (hydrocarbons generation) of shale source rock and 3)

unloading glacial ice (melting over 5,000’ of ice) Antrim production found

basin ward of sub crop area in Lachine and Norwood Members.

Area for water and

methanogen entry


TRENTON LIMESTONE

UTICA SHALE

QUARTERNARY GLACIAL SEDIMENTS

Freshwaters carry organisms (methanogens) into the formation from the

glacial/Shale sub crop through a network of natural fractures.

Fractures are produced due 1) tectonic stresses through time 2) expulsion

due to maturation (hydrocarbons generation) of shale source rock and 3)

unloading glacial ice (melting over 5,000’ of ice)

Area for water and

methanogen entry Point du Lac


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