Palatine Energy Pty Ltd

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1 Palatine Energy Pty Ltd Australian Business Number: Geology and Resource Potential: North Perth Basin (WA STP-EPA-0127) Fig. 1 From: Western Australian Department of Mines & Petroleum letter of offer, 7 August, 2014 GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 1

2 Geology and Resource Potential: North Perth Basin Introduction Palatine Energy Pty Ltd is an unlisted Australian private company, with pending hydrocarbon exploration permit applications in: North Perth Basin (Western Australia specifically referred to as the Coolcalalaya Sub- Basin; Fig. 1); Arauco Basin (Chile); Amadeus Basin (Northern Territory); and Western Officer Basin (Western Australia 50% interest). Readers are referred to the standard disclaimer at appendix 1. This proposal seeks a farm-in partner for STP-EPA-0127, upon which a conditional offer by the WA Department of Minerals and Energy was made on 7 August, 2014 (see appendix 2). Offer of final grant is awaiting appropriate Native Title agreements. For the right, qualified partner, making an attractive offer, Palatine may be prepared to transfer operatorship. Location STP-EPA-0127 (Fig. 1) lies 420km to 600km north of Perth - the largest city in Western Australia (population almost 2 million). The Permit straddles the Northwest Shelf to Perth gas pipeline (PL 40). There is local and regional demand for energy from domestic, mining and industrial users. Perth is a major regional economic, financial, distribution and service centre. There is scope for export, if sufficient reserves are discovered. The Exploration Concession The Exploration Area ( Permit ) expected to be granted to Palatine Energy later this year, covers about 10,000 square kilometres onshore (Fig. 1). It extends from latitude 26º35 S to 28º15S about 185kms, and is about 55kms wide. This permit area lies at the northern limit of the generally prospective and partially developed Perth Basin, which is the major structural and depositional feature of SW Australia. The permit covers a local structural element described as the Coolcalalaya Sub-Basin which merges north into the southern Carnarvon Basin. The central-northern part of the Perth Basin produces conventional oil and gas. Several tight gas and shale gas fields have been discovered recently just south of the Coolcalalaya Sub-Basin. The Geology Perth Basin Coolcalalaya Sub-Basin Fig. 2 The larger Perth Basin is a 900km long north trending half-graben (Fig. 2 & Fig. 3) with a relatively simple structure, as shown on the interpretive gravity basement depth map (Fig. 4) GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 2

3 Original SPA 9 AO and cross section Fig. 5). About half of the Perth Basin is onshore, covering an area of approximately 70,000 km 2. The onshore part of the basin consists of three structural, deep sedimentary sub-basins: 1. the Coolcalalaya Sub-Basin in the far north (Fig. 3); separated from 2. the Dandaragan Trough (Fig. 3) to the south in part by the Bookara Shelf; with 3. the Bunbury Trough south of the City of Perth. The Dandaragan Trough contains the deepest and thickest sediments. The area is already producing oil and gas from conventional structures and is identified by both the WA Geological Survey and the US Energy Information Agency as prospective for shale gas. The Coolcalalaya Sub-Basin, which is almost entirely covered by Palatine s STP-EPA-0127, is almost 200 kms long and about 60 kms wide, with up to 9,000m of Neo-Proterozoic, Paleozoic and Mesozoic sediments (Devonian; possibly Silurian; to late Permian to early Triassic / Jurassic). The basin has relatively little stratigraphic control and only one seismic line. This east-west seismic line (Fig. 6) illustrates the half graben and shows the possible distribution of Permian and deeper formations. Fig. 3 Coolcalalaya Sub-Basin North Perth Basin STP-EPA-0127 The deeper stratigraphy of the Coolcalalaya Sub-Basin is not confirmed by previous petroleum drilling, but is identified in two mineral boreholes, and may be reasonably inferred from the solid geological map (WA Geological Survey; Fig. 7) and correlations between the South Carnarvon and the North Perth Basin, as shown on the interpreted stratigraphic diagram in Fig.8. Fig. 5 Fig. 4 SEEBASE simplified depth-to-basement model (FROGTECH, 2006) GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 3

4 STP-EPA-0127 Fig. 5 YURC-3 Fig. 6 Base Permian Devonian/Silurian? Basement It is therefore considered likely that the stratigraphy of the Coolcalalaya Sub-Basin has elements in common with the Dandaragan Trough, and the Byro / Merlinleigh Sub-Basins, to the north. The main sedimentary sequences of interest, though partially ill-defined, are considered as comprising five successions: a) Upper Devonian sediments of fluvial and marginal marine origin (intersected - YURC-3) b) Upper Carboniferous, of largely glacio-fluvial origin (interpolated; Devonian & Carboniferous sediments have been intersected in the Coolcalalaya Sub-Basin in mineral boreholes); c) Lower Permian argillaceous glacio-marine to deltaic rocks (including prospective Carynginia Shale); d) Upper Permian/base Triassic non-marine siliciclastics to shelf carbonates; may also include the Kockatea Shale; and e) Possible Lower Triassic, of more continental depositional environment, may be present near surface above the depocentre axis. Devonian Byro Gp Early Permian Fig. 7 showing shallow YURC boreholes GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 4

5 Fig. 8 from Mory et al., 1998 The geological map of interpreted solid geology (Geological Survey of WA; Fig. 7) shows that beneath the main Cenozoic cover across the permit area there are small outcrops of Upper, and some Lower Permian up against the Darling Fault on the east and fault controlled in the southwest. The single seismic line and the gravity model (Figs. 5 & 6) suggest that the depth to the base of the Permian is probably up to 2 kms. The area of Carynginia Formation that is at least 800m deep is therefore about 15kms east-west and about 180kms north south. The spatial transition of the geology of the North Perth Basin to that of the South Carnarvon Basin (Fig. 8) can be illustrated by comparing a typical cross section of the Dandaragan Trough (North Perth) with one through the Merlinleigh Sub-Basin (South Carnarvon). Fig. 9 shows a section through the Woodada Deep-1 well. In this case, the basal Permian sediments sit directly on undifferentiated Precambrian basement. This can be compared with Fig. 10 a typical section across the Merlinleigh Sub- Basin, in the South Carnarvon Basin. Here, Permian sits on Carboniferous sediments, that overlie Precambrian basement in the southeast, Silurian and Devonian sediments to the northwest. It is generally Fig. 9 accepted that in the Coolcalalaya Sub-Basin GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 5

6 (northern-most Perth Basin) that early Permian, Carboniferous and late Devonian sediments will be present. NW SE Fig. 10 Focussing on target source rocks, discussed below, It is expected that depths to the top of the Carynginia Shale in the Coolcalalaya Sub-Basin might range from near outcrop to 1000m in and on the near flanks of the main graben. Depths to the top of the Gneudna Formation, where present, might range from near outcrop to greater than 3000m (Fig. 6). Secondary Structures Superimposed on the main graben structure defined by the Darling Fault, are a series of fault blocks on the western graben flank. These are shown in both figures 5 and 6. This pattern is terminated against the Northampton Complex in the area of the Coolcalalaya Sub-Basin. The detailed gravity anomaly data, in part collected during the Special Prospecting Authority phase preceding STP-EPA-0127, and compiled by FrogTech for Palatine, is shown in Fig. 11. In addition to the primary graben, a series of tilted, elongated fault blocks can be seen along the western side of the main graben. Source Rocks Fig. 11 STP -EPA Fig. 8 identifies two probable source rocks in the Coolcalalaya Sub-Basin: Early Permian Carynginia Formation ( Shale ), originally defined in the Dangaragan Trough (Fig. 9) North Perth Basin) and also refered to as the Byro and Wooramel Groups in STP-EPA-0127 and to the north. Late Devonian Gneudna Formation, originally defined in the South Carnarvon Basin. It is present in the Coolcalalaya Sub-Basin, based on a ~250m intersection in boreholes YURC-1 & 3, and the interpreted presence of 3 to 5 kms of pre-permian sediments (Figs. 5 & 6), but is not identified in the Byro Sub-Basin, or south of STP-EPA GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 6

7 The Carynginia Shale is a shallow - marine deposit present over much of the northern Perth Basin (including the Coolcalalaya Sub-Basin). AWE Limited recently reported encouraging organicshale characteristics in the Dandaragan Trough for this 240 to 330 m thick unit. A deeper-water shale member occurs near the base of the Carynginia Shale, including thin interbeds of siltstone, sandstone, and limestone. Paleogeographic mapping by the WA Geological Survey (GSWA; Fig.12) suggests this marine unit is widespread from south to north, through the Coolcalalaya Sub- Basin, to the Byro Sub-Basin. Total organic carbon (TOC) in the Carynginia Shale averages 4%, with values of up to 11.4%. The kerogen is Type III, dominated by inertinite derived from land plants. The Carynginia Shale is largely gas prone, in the dry gas window, Fig. 12 Table 1. TOC and Rock-Eval pyrolysis data of outcrop samples of Carynginia Shale (Pc) and Holmwood Shale (Ph) from the Coolcalalaya Sub-basin (from Mory et al, 1998). over most of the Perth Basin. It is considered an excellent source rock. It is about 200 to 300 metres thick, and may cover 2,000 to 3,000 km 2 in the graben and on its western flank. The key unknown is the brittleness of the shales ( frackability ; dependent on clay content) in this part of the basin. The Gneudna Formation is the only probable source within the Devonian sequence. It is a marginal or shallow marine deposit, locally rich in organic debris, although most of the limestones appear to be poor in organic carbon in the south of STP-EPA-0127 (the YURC mineral boreholes; see Table 2). There is, however, ample evidence of algal structures, and limited drilling suggests that basinal equivalents and possibly reefal sediments are present to the north of the Permit. Analysis of near-surface Gneudna Formation samples from GSWA and mineral boreholes some 250kms to the north of STP-EPA-0127 are shown in Fig. 13, and reveals good to very good source rock potential. The two CDH-8 samples have TOCs and S 1 +S 2 values as shown in Table 3. Table 2. TOCs of Devonian core samples from the southern Coolcalalaya Sub-basin. Locations are in Fig. 7. (Mory et al., 1998) GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 7

8 Rock-Eval pyrolysis and pyrolysis-gas chromatography shown in Fig.13 indicate that the three samples contain type II kerogen. Geochemical analyses from GSWA Gneudna- 1, further indicate that the shaly interval around 300m has good oil- and gas-generating Fig. 13. Gneudna source rock sample analyses based on pyrolysis GC and RockEval with potential yield of +2.0kg/t; from mineral borehole CDH-8 and GSWA Gneudna-1. potential. Vitrinite reflectance and T max analyses indicate that the section is marginally mature and approaching the oil-generation window. Quail-1 is the only well to penetrate a deeply buried section of the Gneudna Formation, and lies west of Gneudna-1 and CDH-8, in the northern part of the basin. A burial history for that well, suggests that the maximum depth of burial, rate of maturation, and petroleum generation occurred during the Permian. The Gneudna Formation lies at about 2700m to 3100m, has vitrinite reflectance of over 2.5%, indicating that it is over-mature for oil generation in that setting. The oil window (R 0 = 0.7% to 1.3%) in the main trough between Gneudna-1 and Quail-1 is estimated to lie at 1,000m to 2,000m depth. Fig. 14 The transition in depositional environment is shown in the interpreted paleogeography (Fig, 14) and embraced by the depositional model for the Gneuda Formation (Fig. 15). It is GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 8

9 reasonable to assume adequate to good source rock potential from the centre of STP-EPA to the north of the permit, and into the southern-most Carnarvon Basin. Southsoutheast Northnorthwest Fig. 15 The Hydrocarbon Potential Western Australian Department of Mines & Energy has summarised exploration results in the larger Perth Basin to June 2014: 314 onshore and 52 offshore wells 8 producing fields: Beharra Springs, Dongara, Corybas, Gingin West, Red Gully, Hovea, Tarantula and Redback. Cliff Head (offshore North Perth Basin) started production in Dongara Field had the largest initial conventional reserves: 0.51 Tcf gas and 104 MMbbls oil These conventional hydrocarbon fields, shown in Fig. 16, are all located within the Dandaragan Trough. Proved reserves to date GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 9

10 Upper and middle fracture interval in the Carynginia Formation are within the Upper Permian Dongara Sandstone and Beekeeper Formation. Natural gas recovered from the deeper Permo-Triassic reservoirs (in Dongara, Mondarra, Yardarino, Woodada and Whicher Range) tends to be dry, reflecting higher thermal maturity and higher proportions of gas-prone organic matter. CO 2 is generally low. The primary exploration target selected in STP-EPA-0127 is the shale gas potential of the Permian Carynginia Shale. The thickness of the Carynginia is shown in Fig. 17. Within the permit, the interpreted thickness (Jafary Dargahi, 2014) ranges from 50m in the north to 150m in the south. The Woodada Gas Field was discovered in 1980 with first production in The Woodada Gas Field has produced some 52.9 Bscf of gas from the Beekeeper Formation and is currently shut-in on care and maintenance. The Woodada Deep-1 shale gas projects targets the Carynginia Shales which lies beneath the Beekeeper Formation. In 2010, AWE Limited cut five cores in the Carynginia Shale in its Woodada Deep-1 exploration well (a deepening of the Woodada-4 well) in northern Perth Basin (Fig. 9). The company found the upper and lower zones to have high clay content. However, the middle zone (2,370m to 2,425m and 2,283m to 2,330 m) had lower clay content (value not reported). Jafary Dargahi (2014) estimated a value of brittleness index for the Carynginia, in the Dongara Field area, at 47% - using Young s modulus (E) and Poisson s ration (ν), TOCs of 1.7 to 3.7%, and estimated porosities from 3% to 6%. Zones in the Upper and Middle Carynginia were successfully hydraulically fractured in August 2012, with gas being produced during well flow-back and clean-up. AWE estimated a total 13 to 20 Tcf of gas in-place on its permit for the middle zone of the Carynginia Shale. Norwest Energy / AWE s Arrowsmith-2 well in 2011, also about 180 km south of STP-EPA-0127, was also fracked and flowed shale gas from the Carynginia at an initial maximum constrained gas flow rate of 3.5 million standard cubic feet per day (Mscf/d). Fig. 17 shows five fracture stimulation treatments (five stages) were carried out over four different reservoir formations: the High Cliff Sandstone/lower Irwin River Coal Measures (Stage 1), the Upper Irwin River Coal Measures (Stage 2), the Carynginia Shale (Stage 3 and 4) and the Kockatea shale (stage 5). Fig. 17. Carynginia Formation thickness Jafary Dargahi (2014) estimated the brittleness index of the Carynginia Formation in Arrowsmith-2, ranging from 40% to 50%, and that is shown on Figure 19. He showed that brittleness index, acquired from mineralogical and geomechanical properties, and thus high Carynginia Formation fracability, lies in the Barnett Shale range and occurs in the north-east of the North Perth Basin. Fig. 18. Electrofacies in the Carynginia Formation (Jafary Dargahi, 2014) GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 10

11 Fig. 19 Brittleness Index % Jafary Dargahi, 2014 Geothermal gradients in the Perth Basin can be elevated, ranging from 20 C/km to 55 C/km, but the thermal gradient in the Dandaragan Trough is less extreme (20 C/km to 25 C/km). Vitrinite reflectance data show poor relationship with depth, with extreme data scatter probably caused by subertinite and bitumen suppression. There is little actual control on maturation depths in STP-EPA-0127, but the Carynginia Formation is likely to be in the oil generation window (R 0 = 0.7% to 1.3%). The WA Department of Mines and Petroleum have estimated that the Carynginia and Kockatea shales in the Perth Basin have approximately 59 Tcf of gas resources. The US Energy Information Agency carried out an independent resource assessment of shale gas in the Perth Basin in For the Carynginia, EIA estimated 1 Bm 3 /km 2 gas in place: The Permian Carynginia Shale has a resource concentration of 94 Bcf/mi 2 (1Bm 3 /km 2 ) within its 2,200 mi 2 (~6000 km 2 ) dry gas prospective area. It holds a risked gas in-place of 124 Tcf, with a risked, technically recoverable shale gas. resource of 25 Tcf. Translated to STP-EPA-0127, this gives a possible 2,000Bm 3 (70Tcf) in place & 400Bm 3 (14Tcf) recoverable gas. Assuming a commercial discovery, Palatine projects sales into the existing NW Shelf to Perth pipeline, with domestic, mining and even export customers. The secondary target, also unconventional, is the Devonian Gneudna Formation. No hydrocarbon occurrences older than Permian are known from the larger Perth Basin. In the northwestern Merlinleigh Sub-Basin (South Carnarvon Basin), the Devonian Gneudna was intersected in Pendock-1 (offshore) and showed direct indications of hydrocarbons from a carbonate sequence. Permian Moogooloo Sandstone samples from five wells in the Merlinleigh Sub-Basin have also been reported as containing small inclusions of oil, falling in the gas and oil / gas zones (using GC kerogen typing) as well as interpreted hydrocarbon plumes from soil samples. Hydrocarbon occurrences from the Gneudna Formation are more common in the North Carnarvon Basin eg, Mardie-1; Peedamullah-1; Quobba-1. The Devonian is early to mid-mature in these wells. It is not possible to estimate an undiscovered resource assessment on the Gneudna play of any reliability, given the current paucity of data from within the Permit. However, assuming a thickness of 250m (borehole YURC-3); an area of about 4,000km 2 (Fig. 14); and a generative capacity of about 4 mg/g (Table 3), a liquid resource in place may be calculated at about 4Bm 3 (or 25 Bbbls) of oil. GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 11

12 Palatine also identifies a potential tertiary target conventional tilted fault blocks, involving Permo-Carboniferous sandstones reservoirs along the western edge of the main trough, and sourced from the Gneudna Formation. This play concept is totally untested in this area. The Exploration Approach Palatine Energy proposes the following initial six year program: 1. Full review of existing well data held in storage: geochemistry and physical properties; seismic reprocessing 2. Comprehensive stratigraphic drilling to recover fresh shale samples and test hydrocarbon presence; 3. New 2D seismic acquisition; 4. Two exploration wells and fracks ; and 5. Evaluation studies and resource assessment. The Permit holder s recommended exploration budget (A$) for the first six year permit cycle will be the subject of farm-in negotiations. If warranted, an Appraisal (renewal) phase of a further five years will follow the above exploration and assessment program. 50% of the Permit must be relinquished on this renewal; and one further renewal period is allowed. A work program indicated for the first renewal period, but not commitment is likely to involve: 6. A further one or two test boreholes, with hydraulic fracturing; 7. New 3D seismic acquisition; and 8. If successful, further drilling and trial production tests, as the agreed budget will allow. Any farm-in proposal must include up-front repayment of US$200,000, being previous exploration costs for Special Prospecting Authority (SPA 9 AO) and the application deriving from it, namely STP-EPA Palatine Energy Pty Ltd 15 December, 2014 GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 12

13 Appendix 1 - Disclaimer This presentation contains certain statements which may constitute "forwardlooking statements". Such statements are only predictions and are subject to inherent risks and uncertainties which could cause actual values, results, performance or achievements to differ materially from those expressed, implied or projected in any forward-looking statements. No representation or warranty, express or implied, is made by Palatine Energy Pty Ltd that the material contained in this document will be achieved or prove to be correct. Specifically, references to gas in place, or GIP, refer to estimates of unrisked, unproven resource potential, based on parameters derived from existing well data and rock sample descriptions, and general literature, and should be considered as speculative. Except for statutory liability which cannot be excluded, each of Palatine Energy Pty Ltd, its officers, employees and advisers expressly disclaims any responsibility for the accuracy or completeness of the material contained in this document and excludes all liability whatsoever (including in negligence) for any loss or damage which may be suffered by any person as a consequence of any information in this presentation or any error or omission there from. Palatine Energy Pty Ltd accepts no responsibility to update any person regarding any inaccuracy, omission or change in information in this presentation or any other information made available to a person, nor any obligation to furnish the person with any further information. Investment in Palatine Energy Pty Ltd, or any of its projects, should be considered speculative. Competent Person s Statement Sections of information contained in this report that relate to Exploration Results and Petroleum Resource Occurrence were compiled or supervised by David A Falvey, BSc, PhD, DSc (hon), who is the Managing Director of Palatine Energy Pty Ltd, and a direct stakeholder in the company. Dr Falvey is a former Associate Director of BMR (now Geoscience Australia) and Executive Director of the British Geological Survey. He has sufficient experience, which is relevant to the exploration for and assessment of the style of gas resources under consideration and to the activity which he is undertaking to qualify as a Competent Person. Dr Falvey consents to the inclusion in this report of the matters based on his information in the form and context in which it appears. GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 13

14 Appendix 2 Application Acceptance STP-EPA-0127 GPO Box 4325, Sydney NSW 2001, Australia;T:+61 (0) ; E:david.falvey@researchconnect.com.au 14