tag shale report aug2008

8/9/2019 TAG Shale Report Aug2008

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UnconventionalRsur opprus

ausrsFractured shale plays are emerging across the United

States and around the world. As the largest acreage

holder of Whangai-Waipawa shale in New Zealand,

TAG Oil brings its technical and operational expertise

to bear in unconventional gas and oil exploration.

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rsrrs mmry b prs.

Technology-driven, unconventional resource plays—particularly projects in search

o gas or oil production rom ractured shale—are sprouting up across the United

States and around the world. As extraction technology improves, areas once

thought to contain resources that would never see the light o day are today

considered to be some o the most proliic and popular in the industry. Why have

these unconventional reservoirs remained undeveloped, and what’s changing?

Shale, which consists mainly o consolidated clay-sized particles, is the Earth’s

most common sedimentary rock. It looks like the slate o a chalkboard and gener-

ally has ultra-low permeability. In many oil ields, shale orms the geologic seal

that retains the oil and gas within conventional producing reservoirs, preventing

hydrocarbons rom escaping to the surace. In a handul o basins, however, lay-

ers o shale—sometimes hundreds o eet thick and covering millions o acres—

are both the source rock and a reservoir sequence or oil and gas. These shales

have one thing in common: they are rich in organic carbon.

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ss dms rsurs

h r rd dpr

frms, ghr zs,

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U.S. Department of Energy



Fractured Shale Opportunities in Australasia | August 2008 page 2

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Early low-permeability wells were consid-

ered ailures because they did not naturally

produce at commercial rates. Technology

simply wasn’t up to the challenge, making

the oil and gas held in these unconventionalsources much more diicult—and thereore

more costly—to develop than conventional

oil and gas resources. But reduced oil sup-

plies, regional tightening in gas supplies,

continued rising demand or oil and gas on

a global scale, and advancements in drilling

and completion technology have resulted in

an ever-increasing interest in tapping these

unconventional oil and gas reserves.

A recent study by leading oil and gas

research irm, Wood Mackenzie, arguesthat the global unconventional hydrocarbon

prize is potentially enormous. In a report

entitled “Unconventional Hydrocarbons –

The Hidden Opportunity,” Wood Mackenzie

estimates nearly 3.6 trillion barrels o uncon-

ventional, undeveloped oil equivalent. That

is triple the 1.2 trillion barrels o conventional

oil considered recoverable rom conventional

oil reserves. And, in the Energy Information

Association’s long-term reerence case ore-

cast, production rom unconventional sources

are anticipated to grow to 5.7 million barrels

o oil per day in 2025, up rom 1.8 million

barrels o oil per day in 2003.

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As consumer demand or cleaner burning

uels grows, gas becomes an even more at-

tractive long-term opportunity. Based on its

lower carbon ootprint, it’s clear that every

cubic oot o gas brought to market can be

sold. At the end o 2006, proven reserves

o conventional gas in the ground stood at

around 6,300 trillion cubic eet. When po-

tential unconventional in-ground gas sources

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Dave Francis and Alexandra Johansen ignite an East Coast Basin gas seep.

Grwh Br Sh Prdu

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G a s P r o d u c t i o n

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Advanced drilling and completion technology is responsible or the dramatic production increase in East Texas’ Barnett Shale and other developing ractured shale plays which share similarities to New Zealand’s Waipawa-Whangai shales.




are added to these estimates, the uture o

gas in homes and industry suddenly becomes

a vast investment opportunity. In a 2005

presentation, IHS Energy estimated untapped

unconventional gas reserves alone at 90,000

trillion—that is 90,000,000,000,000,000—

cubic eet.1

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With 2.2 million net acres o permit hold-

ings, TAG Oil is the largest acreage holder o

Waipawa-Whangai oil

and gas shale in secure, stable New Zealand.

Employing its considerable technical and

operational experience, the company has

taken the leadership role in exploring and

developing these high-potential shale beds

in the largely untapped East Coast Basin o

New Zealand, where the Whangai-Waipawa

ractured shale ormations are widespread

and most thickly developed.

This project represents an exciting oppor-

tunity to unlock a very major unconventional

oil and gas resource. The Waipawa-Whangai

ormations together have always been viewed

as high-quality source rock, though they were

never considered to be producible until the

success o the Barnett Shale in Texas. Extrac-

tion success there, where reserves are esti-

mated by the U.S. Geological Survey to be in

excess o 25 trillion cubic eet, has provided

a model or shale exploration throughout

the world. And continuing developments indrilling capabilities and hydraulic racturing

technology support the premise that unlock-

ing a major reserve in the Waipawa-Whangai

shale is well within reach.

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Oil seep in TAG Oil’s East Coast Basin permit.

1Ken Chew, VP o Industry Perormance and Strategy, IHS Energy:

“World Oil and Gas Resource and Production Outlook,” 28 June 2005.

TAG Oil holds two permits in New Zealand’s East Coast Basin, covering 2.2 million acres.

es cs Bs

Barnett data: GNS NZ Gov’t, Field, Brad (2006), Curtis (2002), Hollis et al (2005) - Bakken Data: Flannery, Jack; Kraus, Je; 2006 Search and Discovery

Article #10105; Integrated Analysis o the Bakken Petroleum System, US Williston Basin - Waipawa, Whangai Data; GNS, NZ Gov’t; Francis, David; 2007

Reservoir Analysis o Whangai Formation and Waipawa Black Shale, PEP’s 34348 & 38349, onshore East Coast Basin, Core Labs report 2007-12-18

cmprs f h Wpw-Whg h Bkk d Br Shs

U Bkk Wpw Br Whg

Depth (m) 2700 - 3500 0 - 5000 1980 - 2590 0 - 5000

Net Thick (m) 10 - 50 10 - 60 15 - 60 300 - 600+

BI-I Temp °C 80 - 110 70 - 110+ 93 70 - 110+

TOC % 1.1 - 12 3 - 12 4.5 0.2 - 1.7

Vit Re R 0.3 - 1.2 0.3 - 0.4 1.0 - 1.3 0.4 - 1.4

Total Porosity % 8 -12 9 - 23 4 - 5 16 - 31

Reserves (mmc / well) 100k - 1,500k TBD 80k - 1,500k TBD




The Waipawa Black Shale is a ractured,

poorly bedded, organic-rich siltstone. Out-

crop sampling indicates an average total

organic carbon (TOC) value’s o 5% and

average Hydrogen Index (HI) o 245 with

maxima o 12% TOC and 550 HI, respec-

tively. The ormation occurs throughout

TAG Oil’s East Coast Basin acreage and has

also been identiied in other areas o New

Zealand. The Waipawa Black Shale is normal-

ly 30m or more thick and achieves a maxi-

mum thickness o 70m in Southern Hawke’s

Bay. The organic carbon is primarily o marine

origin, although signiicant terrestrial organic

matter is evident in some samples.

P rsrrs

ud sdss

f rus gs

d prss up

20% r mr

M urbd

f sdss

d shw-

mr ng

mss.

Wpw-Whg Sur Rk P

Whangai

Waipawa

0 25 50 75 100 125 150 175 2000

10 0

20 0

30 0

40 0

50 0

60 0

Type III

Type IIType 1

OI (mg CO /g TOC)2

) C O T

g / C H g m ( I H

Source: Geological &Nuclear Science

This Hydrogen Index has been created rom Waipawa-Whangai Formation outcrop samples.The results graphed help predict the Kerogen type o the samples, which are indicative o oil or gas as the hydrocarbon type associated with the Shale.In the case o the Waipawa-Whangai Formation this index suggests that the samples are

predominantly Type-I Kerogens that are more oil-prone than gas.

This oil-rich Waipawa Black Shale in outcrop demonstrates the prouse internal racturing within the ormation.




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Wpw-Whg Sur Rk P

Whangai

WaipawaGOOD

GA S

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S2 (mg HC/g ROCK)

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The multiple racturing systems observed in the Whangai Formation at the Gaddums Hill outcrop.

Source: Geological & Nuclear Science

Samples taken rom the Waipawa Formation indicate high TOC values, indicative o good to excellent quality source rocks. Although the TOC values are lower in the Whangai than the Waipawa Formation, the immense thickness o the ormation, up to 1500 eet in some areas, more than compensates or the lower values. In some instances, the two ormations could work together as one system.

The Whangai Formation is a poorly bedded,

siliceous or slightly calcareous mudstone, withlocalized development o greensand and well

bedded calcareous acies. The ormation is

300 to 600 m thick throughout much o the

East Coast Basin. The basal and main Whan-

gai acies, Rakauroa Member, has an average

TOC o 0.8% in the western sub-belt, with

maximum TOC values o 1.7% and 336 HI.

Although its TOC content is lower than the

Waipawa Black Shale, the Whangai Formation

is heavily ractured and can be nearly twenty

times as thick.

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With light sweet crude reaching more than

$80/bbl and natural gas rising above $6/

MMBtu in September, interest in develop-

ing exploration and extraction technologies

continues to grow.

Fracturing is achieved by using hydraulic

pressure created by pumping luid into open

cracks in the shale, and by keeping these

cracks open by injecting solid propping materi-

als (proppants) along with the luid pumped

into the ormation. The pumped luid, under

pressures o up to 8,000 psi, is enough to crackshale as much as 3,000 eet in each direction

rom the wellbore. And opening ractures in

the shale is the key to good production.

Because o shale’s extremely low permeabil-

ity, the best racture treatments are those that

expose as much o the shale as possible to the

well bore. The greater the exposure, the aster

the oil or gas will be produced.




A simple racturing job may pump a

mixture o water and sand into the well.

The water creates the pressure to initiate

the ractures, then carries the sand into the

cracks as they grow. When the luid pres-

sure is released, the grains o sand hold the

cracks open. Although water and sand are

the cheapest luid and proppant, they are not

always the best. High-tech racturing luids

are more viscous, and better able to maintain

the proppant in suspension, allowing it to

travel deeper into the ractures and reduce

the amount o settling that occurs beore the

ractures close. Advanced designs or artiicial

proppants used in addition to sand also do a

better job o holding open the cracks.

R-wrd hgy yds

r gsThe Bakken Shale play in the Williston Ba-

sin, which straddles Montana, North and

South Dakota, and dips up into Canada, now

contains the highest-producing onshore ield

established in the lower 48 states in the past

56 years, according to the Department o

Energy. Output at the Elm Coulee oil ield in

eastern Montana alone is estimated to reach

200 million to 250 million barrels.

To date, over 600 wells have been drilled

in the middle member o the Bakken Shale

Formation, and 356 producers were pump-

ing oil in Richland County as o August 2006.

In the mid-Bakken play, which only began in

December 2003, over 200 mid-Bakken wells

have been permitted and nearly 100 wells

were producing as o February 2007.

Because o new horizontal drilling and

completion technologies, the potential recov-

erable resource base or the Bakken Forma-

tion is massive. A recently published study by

USGS scientist Leigh Price provides estimates

rom 271 to 503 billion barrels (mean o

413 billion) o oil equivalent in place. I this

bears out, it could increase the estimate o

technically recoverable crude oil resources in

the U.S. by billions o barrels. For perspec-

tive, consider that the current estimate o all

technically recoverable crude oil resources in

the U.S., not including Bakken oil resources,

is 174.67 billion barrels.

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m hgs

hgy r

mkg xsg

rgy rsrs

srh furhr wh

kpg g-rm

rgy ss wr

h hy hrws

wud h b.”

Testimony of Chairman

Alan Greenspan before

the Committee on Energy

and Commerce, U.S.House

of Representatives —

June 10, 2003

Pumped fuid is enough to crack shale as much as 3,000 eet in each direction rom the wellbore.

A 2500’ horizontal well with 10 staged ractures contacts over 400 times the amount o reservoir

than a conventional vertical well through the same ormation.



th umrus pprusf h es cs Bs

The East Coast Basin o New Zealand is

a lightly-explored Cretaceous-Cenozoic

ore-arc basin situated across the Australian-

Paciic plate margin. Basins o this type can

be proliic producers o oil and gas, as seen

in Indonesia, Caliornia and other active plate

margins worldwide. Thus ar, only one well

per 800,000 acres has been drilled in the en-

tire East Coast Basin, and the great majority

o these had signiicant oil and gas shows.

In addition to the unconventional poten-

tial in the Waipawa-Whangai shale, TAG Oil’s

acreage contains at least 50 known Mio-

cene/Pliocene structural leads and deined

prospects, many at airly shallow depths.

This translates to relatively low drilling costs,

which enables TAG Oil to explore major up-

side potential with limited

inancial exposure. Potential reservoirs include

sandstones o various ages and porosities o

up to 20% or more in Miocene turbidite an

sandstones and shallow-marine Miocene lime-

stones. A recent independent technical assess-

ment conducted by Sproule International Ltd.

estimates the mid-case undiscovered resource

potential* o the deined prospects to be in

excess o 1.7 billion barrels o oil equivalent.*

eurgg rg, whhr pursug r u ms

Whether pursuing oil and gas in the Waipa-

wa-Whangai ractured shale, or exploring or

conventional oil and gas, this lightly explored

basin presents a unique opportunity or irst

movers.

Ws Bs Pr Rsrs

200520042003200220012000199919981997199619951994

0

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20 0

30 0

40 0

50 0

60 0

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C r u d e O i l P r o v e d R e s e r v e s , M i l l i o n s o f B a r r e l s

The middle member o the Bakken Shale ormation is responsible or the explosive increase in Williston Basin oil production over the past ew years.

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*The term barrels o oil equivalent

“boe” may be misleading, particularly

i used in isolation. A boe conversion

ratio o six thousand cubic eet (6

mc) to one barrel (1 bbl) is based on

an energy equivalency conversion

method primarily applicable at the

burner tip and does not represent avalue equivalency at the wellhead.

The term “undiscovered resources”

are those quantities o oil and gas

estimated on a given date to be

contained in accumulations yet to

be discovered. There is no certainty

that any portion o the undiscovered

resources will be discovered and that

i discovered, it may not be economi-

cally viable or ethnically easible to

produce.



taG o ld.

(Corporate Oice)

1050 Burrard Street

Suite 2901

Vancouver, BC V6Z 2S3Canada

Tel: 1.604.609.3350

Fax: 1.604.682.1174

taG o ld.

(Technical Headquarters)

233 Broadway

P.O. Box 262

Stratord 4332

Taranaki, New Zealand

Tel: 06.765.6643

Fax: 06.765.6654

TSX-V: TAO

www.tagoil.com

Frwrd-lkg Sms Certain statements contained in this document constitute orward-looking statements. These statements relate to anticipated uture

events or TAG Oil’s uture perormance. All statements other than statements o historical act may be orward-looking statements. Forward-looking statements are

oten, but not always, identifed by the use o words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”,

“targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements involve known and unknown risks, uncertainties and other actors

that may cause actual results or events to dier materially rom those anticipated in such orward-looking statements. TAG Oil believes that the expectations underly-

ing those orward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and thereore such orward-looking

statements included in this document should not be unduly relied upon. These statements speak only as o the date o this document.

tag shale report aug2008

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