Presentation by

Cabot J. Martin

President

Luca Resources Inc.

BIT’s 2nd International

Symposium on

Unconventional

Oil & Gas – 2012

WandaVista Hotel

Taiyuan, Shanxi Province

Peoples Republic of China

Sept 25, 2012

Bridging the

Lacustrine / Marine

Divide:

Lacustrine Shale

Opportunities in

A World Wide

Context

• 大家好！

• 来自加拿大纽芬兰的问候

• 我非常开心来到中国最主要的能源中心 --- 太原

• 我希望通过我们的商谈能为世界能源及气候问题找出一个有效，合算的方案。

Outline of my Presentation

• Shales in the Rift / Lacustrine Setting vs Marine Shales

• Some examples from Eastern North America

• Some rift / lacustrine exploration tactics (Thanks to Deer Lake Oil & Gas Inc. for illustrative data)

• The worldwide context

• Some opportunities for China

• Presentation will be available on www.lucaresources.ca

•

Lacustrine Rocks are difficult even for Conventional Oil & Gas

• “ Perhaps the most important contribution of this conference was the realization that lacustrine settings seem to be far more complex in an exploration sense than their marine counterparts. “

• Barry J. Katz (Ed.) Introduction to Lacustrine Basin Exploration

– Case Studies and Modern Analogs AAPG Memoir 50 ( 1990)

AAPG Memoir 50 also contains a Key Paper from China

• Hydrocarbon Accumulation in Meso-Cenozoic Lacustrine Remnant Petroliferous Depressions and Basins, Southeastern China

• Li Desheng Research Institute of Petroleum Exploration and Development Beijing. People’s Republic of China; and

• Luo Ming Department of Geological Sciences University of Texas at El Paso El Paso, Texas, U.S.A.

Rift / Lacustrine – Good for Conventional & Unconventional

• Lacustrine means “lake” and lacustrine life forms give primarily oil prone Type I organic material.

• Because of its often very thick organically rich sediment package, the rift / lacustrine depositional environment can be highly productive in spite of its usually small surface area - “ punches above its weight”.

• Examples – East Africa rift system ( eg. Albertine Basin) ; pre-salt strata offshore Brazil and Angola; onshore Indonesia; the West Newfoundland rift system ; Triassic Newark Super Group of coastal Eastern USA south of NYC ; numerous rift basins of SE China.

• The thermal maturity of a given shale unit can range through the oil / condensate / dry gas windows over relatively short distances because of rapid lateral changes in burial depth and localized elevated heat flow

• Thick shale sequences can result in all three windows being stacked at the same well location.

The Lacustrine / Marine Divide

• Lacustrine Clay Suite (mineralogy) different from marine especially re water sensitivities in drilling and fracing operations

• Lacustrine environment features rapid lateral and vertical changes in depositional character

• Interplay of Tectonics and Paleo-Climate critical for lacustrine / rift plays

• Thermal characteristics of shales as measured by Vitrinite Reflectance (Ro % ) and other geochemical parameters different

• The next 11 slides will use the rift/ lacustrine Deer Lake Basin in Western Newfoundland to examine the critical first steps in shale oil / shale gas exploration

DEER LAKE BASIN : 49 Degrees N Lat

( Collision related: SE China analog)

Elgin Sub Basin

Triassic Rift / Lacustrine Basins

Extension Related

18 Rift Basins

GSC & CHS

Hibernia

Boston

Montreal

Deer Lake

Basin Bay St George

Basin

St. John’s

Island of Newfoundland

White Rose

Terra Nova

HEBRON

300 Miles

Searston

Basin

White Bay Basin

Elgin Sub-basin

67 tcf shale gas in place

on 44,800 hectares

12 other rift

basins in this

area

5 Members of the West Newfoundland

Rift / Lacustrine System shown in Red

St Anthony Basin

Start with a view

from the Heavens

Although the latitude &

climate has changed,

due to an extended period

of tectonic quiescence

stretching back to the

start of the Permian, the

basic features we see

today in the Deer Lake

Basin of

deep fault controlled

lakes, flat basin floor,

central highlands

and bounding granitic

Highlands

are similar to those of

the late Carboniferous

DEER LAKE BASIN

NASA Space Shuttle

Radar Data

But basic on the ground

Field Geology is still Key

A > 7 m thick organically rich outcrop in the Deer Lake Basin, Western Newfoundland

Understanding the Basin’s Tectonic History is Vital

• “ New models for the structural evolution of continental rifts , together with changing depositional patterns through time, suggest that the topography required for large lake development only occurs early in rift history.”

•

• JJ Lambaise (Marathon Oil) page 265 AAPG Memoir 50 (1990)

Relative Position of

Werner Hatch # 1 ?

ELGIN SUB BASIN (NEW BRUNSWICK)

A RIFT / LACUSTRINE DEPOSITIONAL MODEL

FOR THE DEER LAKE BASIN (pre flower structure)

In Deer Lake now

eroded to ~ this level

3300 feet Projected

Rocky Brook

thickness

at Admirals Rise

North # 1 location

Additional Conventional Structure

With Porous ? Sandstones

Thick Flat Shale Target

Always Look Out for a stacked Conventional Play

Maximize the Science from each Well

• Use Continuous coring rigs from Surface to Total Depth ( NOT rotary tri-cone)

• Have specially equipped core analysis trailers on site

• Mud logging should be equipped to show gas breakdown NOT just total gas

• Take GEO-Jar rock/gas samples at regular (5 m) intervals

• Be prepared to take gas samples if flaring to pit required

Continuous Coring Rigs Beneficial

• Werner Hatch # 1 spudded by Deer Lake Oil & Gas February 2010 into target Rocky Brook Fm using a Longyear Hydro 44 rig

• Continuous cored ( 2.5 inch core) from 328 feet to 1460 feet

• Continuous core allowed exhaustive depositional facies study and repeated analysis of TOC, Ro , TRA etc ; also resulted in High Quality Triple Combo Logs

• Drilled 1443 feet of alternating organically rich shales (~60%) and lean turbiditic silts (~40%) ( ~ 4 to 6 foot cycles )

• Shale Sections : TOC 1.0 to 8.6 % ; HI 385 to 571; Porosity 6.9 to 18% ; Oil Saturation 7 to 70%; Gas Saturation 7.7 to 23.6% ; Dolomite 18 to 36%

• Ro 0.73 to 0.90% - oil window for Type I lacustrine material is 0.6 to 1.1%

• Significantly smaller footprint; low volume closed system drill water

• Horizontal Continuous coring available

Thermal Maturity Profile for Werner Hatch # 1 (Wet gas / Condensate Window at 2000 to 3000 feet)

Source: Nov 2010 Report to Deer Lake Oil & Gas

by Dr. P.K. Mukhopodhyay (Muki) Global Geoenergy Research Ltd

Thermal Zone Prognosis in the Rocky Brook Formation at Admiral Rise #1 location : example of a stacked

Unconventional / Conventional Target

Top of Rocky Brook 650 feet

Admirals Rise # 1

1350 Feet

1350 to 2000 Feet

2000 to 3000 Feet

Main Oil Window

Wet Gas / Condensate Window

Dry Gas

Window 3000 feet +

1000 Feet Start of Oil Window

Base of the

Rocky Brook

& Top of

North Brook

Conventional

Target at

3280 feet

The World Wide Context

• Shale Gas is key in fight against Climate Change

• The Shale Gas and Shale Oil resource base is enormous and widespread on a world wide basis

• China has perhaps the largest shale gas / shale oil endowment in the world

• LNG technology is expanding rapidly in its applications and is scalable

A True Paradigm Shift

• Shale gas and Shale oil are “fossil solar energy” trapped as organically rich strata within their original burial formation – and relatively little has escaped !

• Since the beginning of the modern petroleum industry 150 years ago, we have been hunting for little more than the “fumes” coming off the “Gas Tank”.

• Now , thanks to the engineers, we have the keys to the “Gas Tank”.

? up to 90% ?

of all

Oil / Gas generated

is left in the shale

CONVENTIONAL OIL/GAS

TIGHT but commercial if fraced

Qne in the Total Hydrocarbon Triangle

The triangle represents the total volume of

hydrocarbons generated by a given shale unit

* The term Qne is adapted from Wallace & Roen (1989) USGS Open File 89-488 as

referenced in L. Wickstrom et al ( Ohio Geological Survey) presentation to the Ohio Oil & Gas

Association on March 3, 2011

Qne* – Quantity of

generated Oil / Gas

not expelled

– will vary based on

local thermal maturity

and other factors

DEADEND non commercial

The Biggest Part by Far

Assessing the Recoverable Shale Resource

• Conventional “Play Type / Monte Carlo “ methods found inadequate

• 2 Key Recent United States Geological Survey ( USGS) papers

• Eoff, J.D., Global prediction of continuous hydrocarbon accumulations in self-sourced reservoirs: USGS Open-File Report 2012–1091

• Crovelli , R.A ( revised by Chapertier,R.R.) Analytic Resource Assessment Method for Continuous (unconventional) Oil and Gas Accumulations – the “ACCESS” Method: USGS Open-File Report 2012- 1146

How Widespread are Organically Rich Shales ?

• Organic rich shales are some of the most commonly occurring rocks in the world

• They occur in every petroleum producing region in the world large or small PLUS many others with no commercial production

• This includes some regions which are currently major oil and gas importers ; for instance China, USA, India, and to a lesser extent Europe

The “Standard” USA Approach Will Not Work in China

• US Shale Plays nearly all based on marine shales

• In many parts of the USA a large data base of seismic and drilling results was already available from conventional exploration

• A decentralized Land Ownership and Corporate Structure allowed a highly focused, fast moving “cookie cutter” approach to develop

A Possible Approach for China ?

• Build on China’s current expertise in rift / lacustrine basins

• Review all key data, basin by basin, with the peculiar character of lacustrine shale oil /shale gas in mind

• Where possible, use continuous coring techniques instead of rotary especially in the first rounds of investigations

• Obtain extensive basin specific data with lower cost “mini-fracs” in small diameter vertical wells prior to major horizontal well programs

• Be prepared to try a variety of frac fluids besides water – if the resource is there, just keep trying till something works

Final Thoughts

• Fracture Enhanced Hydrocarbon production is revolutionizing energy supply worldwide – the amount of new energy being made available will easily be several times larger than all conventional oil & gas reserves

• Largely because of shale gas and shale oil, the United States will not need to import oil and gas ( Canada excepted) by 2020 -2025.

• China has the resource base and technological ability to achieve a similar quantum leap in shale gas / shale oil production

• The “rift/lacustrine” nature of much of China’s shale resource base requires some adaption of US techniques but China’s rift / lacustrine basins have a superior volumetric character

• China has strong “climate change” reasons for increasing shale gas as part of its electrical generation mix

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