Petromin Resources Ltd.

Shale Gas

Shale gas is produce from shale. Shale gas has become an increasingly more important source of natural gas in the United States over the past decade, and interest has spread to potential gas shales in Canada and Europe. Analysts expect shale gas to supply half the natural gas production in North America by 2020.

Shale gas is one of a number of “unconventional” sources of natural gas; other unconventional sources of natural gas include coalbed methane, tight sandstones, and methane hydrates. Shale gas areas are often known resource plays (as opposed to exploration plays). The geological risk of not finding petro9leum is low in resource plays, but the potential profits per well are usually also lower.

Shale has low matrix permeability, so gas production in commercial quantities requires fractures to provide permeability. Shale gas has been produces for years from shales with natural fractures; the shale gas boom in recent years has been due to modern technology in hydraulic fracturing to create extensive artificial fractures around well bores.

Shales that host economic quantities of gas have a number of common properties. To date, almost all successful shale gas wells have been in rocks of Paleozoic age, but shales of other ages are being evaluated, particularly in Cretaceous shales in Rocky Mt. basins. The prices required to make drilling and producing shale gas economic are different for each shale area.

North America

North America has been the leader in developing and producing shale gas because of high gas prices in that market. The great economic success of the Barnett shale play in Texas in particular has purred the search for other sources of shale gas across the US and Canada. Canada has a number of prospective shale gas targets in various stages of exploration and exploitation in British Columbia, Alberta, Saskatchewan, Ontario, Quebec and Nova Scotia.

Barnett Shale, Texas

The Barnett Shale of Fort Worth Basin is the most active shale gas play in the US. The first Barnett shale well was complete. The thickness of the Barnett varies from 100 to 1,000 feet (300 m), but most economic wells are located where the shale is between 300 and 600 feet (180 m) thick. The success of the Barnett has spurred exploration of other deep shales. In 2007, the Barnett shale (Newark East) gas field produced 1.11 trillion cubic feet of gas, making it the second-largest source of natural gas in the United States. The Barnett shale currently produces more than 6% of US natural gas production.

Figure 1 Comparison Liuhuanggou Badowan Gas Shale with US Barnett Shale and British Columbia Prospective Gas Shales

Geologic Analogue

Mississippian

Barnett Shale (Forth Worth Basin)

Marine-shelf deposit

200 to 3000 meters

100 meters

4.5%

140 Bcf per section

TWE Liuhuanggou Project

Jurassic

Badaowan (J1B)

Basin margin; Interbedded shale with coal, coaly-shale and sandstone

300 to 1500 meters +

170 meters to very thick Tbd

Tbd

To 100+ Bcf per section Tbd