Petromin's Terrawest suggests J1B formation quite thick

2009-07-09 05:00 ET - News Release

Mr. Ross Gorrell reports

PROJECT UPDATE & CONFIRMATION OF EXTENSIVE THICKNESS OF PROSPECTIVE SHALE GAS ZONE

Petromin Resources Ltd. investment Terrawest Energy Corp. (TWE) has indicated that, according to data from the field uncovered by Norwest Corp. at the completion of the geological survey and dated June 21, 2009, the thickness of the prospective Jurassic Badaowan (J1B) formation on TWE Liuhuanggou project lands is far greater than initially indicated by drilling. The Liuhuanggou project is located in the southern Junggar basin of Xinjiang, China.

As disclosed previously, the discovery well LHG 08-03 intersected approximately 350 metres (1,155 feet) of J1B formation prior to reaching total depth in late 2008. The 350-metre intersection included approximately 170 metres (560 feet) of gas-bearing shale. Well LHG 08-03 also intersected 52.3 metres of the previously known Jurassic Xishanyao J2X coal bed methane target coal seam.

The 2009 geological work began in late May, 2009, and has included surveying and mapping of extensive J1B outcrops, shale and coal seam exposures, and small-scale surface coal mining sites. The coal seams are excellent geological markers for the J1B and provide references in calculating formation thickness. Geologists were able to survey and map outcrops over distances of 1.25 kilometres to 2.5 kilometres (0.75 mile to 1.5 miles) across the northeasterly striking formation. Taking the dip of the formation into account a true formation thickness of at least 750 metres (2,475 feet) can be calculated.

The geologic survey of surface outcrops of the J1B and small mining locations indicate the formation contains prospective shale intervals of indeterminate thickness interbedded with multiple coal seams of up-to-six-metre (19.8-foot) thickness across the entire survey area.

The board considers that the confirmation of greater thicknesses of prospective shale as well as multiple interbedded CBM zones provides confidence that TWE has potentially encountered a natural gas accumulation of great merit and importance to China. The next steps of the Liuhuanggou project will be to further sample, test, and analyze the shale and the other formation intervals, delineate the scale of the resource, and determine critical reservoir characteristics.

Samples of shale taken from 2008 drilling are currently being analyzed. Additional test drilling at selected locations is expected to begin in late July or August, 2009.

The geological team for the TWE Liuhuanggou project is headed by Dr. Yulin Li, senior resource scientist for Norwest. Dr. Li is a respected China coal expert who was the chairman of Xian Branch China Coal Research Institute. In Canada, Dr. Li has been involved with other Norwest professionals in various unconventional natural gas exploration projects in Alberta and British Columbia, Canada.

As previously disclosed, the Liuhuanggou project has a significant infrastructure advantage in China. The Junggar basin in Xinjiang is an active hydrocarbon region with existing petroleum and natural gas production and extensive gas infrastructure. At present, natural gas pipelines owned and operated by PetroChina Company Ltd. transport gas from producing fields to Urumqi city, a growing local gas market. Another pipeline connects Urumqi to the west-east pipeline, which can transport gas across China to Shanghai and other population centres. A second west-east pipeline to carry imported and eventually, domestic natural gas across China to Guangzhou in the southern province of Guangdong is under construction and crosses the Liuhuanggou project lands.

Shale gas exploration and development in North America has blossomed to become the hottest hydrocarbon play on the continent. Several shale gas basins, including the Barnett, Woodford, Haynesville, Fayetteville and Marcellus, have become large-scale producers with huge reserve bases in North America. Shale gas production in the United States has risen rapidly in recent years as production technology evolved, reaching approximately five billion cubic feet per day in 2008 according to the U.S. Department of Energy.

The apparent thickness of the prospective J1B formation in outcrops and the drilling intersection in well LHG 08-03 compare favourably with known producing shale gas basins. A comparison is set out here.

Location               Formation               Average thickness

British Columbia       Doig, Doig phosphate,   300 to 500 metres(*)
                       Montney
United States          Barnett shale           100 metres(*)
United States          Marcellus shale         15 to 75 metres(xx)
Junggar basin, China   Badaowan J1B            750 metres(xxx)

(*) Data are obtained from "An overview of shale gas potential in
northeastern British Columbia," Levson, V.M., Walsh, W., Adams, C.,
Ferri, F., Hayes, M., Canadian Society of Petroleum Geologists, 
2009 (CSPG)

(xx) Data obtained from Talisman Energy 2008

(xxx) Information obtained from Barnett Shale Energy Education 
Council 2009 based on 1.4-trillion-cubic-foot annual total 
production in 2008.

This is the indicated true thickness from geological survey of
surface outcrops conducted by Norwest.

Other than the data with regards to the Badowan J1B formation, the
sources of the data in the above table are independent of Petromin.
The information obtained from the Canadian Society of Petroleum
Geologists and the Barnett Shale Energy Council was prepared by
industry groups.

Estimates of shale gas reserves and resources are such that industry leaders believe there is sufficient natural gas in North America to support expanded production and greater usage in electricity generation and automobile transport.

The expansion of the usage of gas in North America will have a beneficial impact on the environment by lowering greenhouse gas emissions if natural gas use replaces coal and petroleum. The double-edged benefit of increased energy security and improved environmental impact is being widely promoted by industry and well received by governments internationally. The international implications of the expansion of shale gas reserves and production are reflected in the reported meetings of industry leaders with the Energy Secretary of the United States in Washington and G8 energy ministers in Rome in May, 2009.

TWE holds a 47-per-cent interest in the Liuhuanggou production-sharing contract (PSC) with China United Coalbed Methane Corp Ltd. (CUCBM) holding the remaining 53 per cent. The PSC was executed on Dec. 30, 2005, came into force on March 1, 2006, after receiving China Ministry of Commerce approval and has a nominal five-year exploration period and a total 30-year term. TWE is the operator of the Liuhuanggou project and has the right to explore for, develop produce and sell all natural gas stored in various Jurassic-age geologic formations to a depth of 1,500 metres.

We seek Safe Harbor.