POTENTIAL DRILLING PROJECT (2 CORE + 5 PRODUCTION WELLS) ILLAWARRA/BULLI– · 2011. 9. 23. · Figure 4 – Multiple wells drilled from a multiple horizon horizons negotiates a guidance

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P O T E N T I A L D R I L L I N G P R O J E C T ( 2 C O R E + 5

P R O D U C T I O N W E L L S ) – I L L A W A R R A / B U L L I

FEBRUARY 2010

Report compiled by:

Chris Rogers Chief Operating Officer Apex Energy NL

Apex Energy NL

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Table of Contents Executive Summary .................................................................. 3 Introduction ............................................................................... 4 Seam Stimulation Methods ...................................................... 6 Conventional Seam Stimulation - Hydro-fracturing ............ 6 Zero Radius Drilling ................................................................. 7 Relationship Between Lonestar Lateral Drilling Technologies and Apex Energy 10 Resource Exploitation Starting Point ................................... 10 Post Driiling Reserve Upgrade Expectaions ....................... 12 Innitial Core Well Suggested Locations ............................... 13 Innitial Production Well Suggested Locations.................... 22 Coal Stratigraphy as Determned from EM3 Drilled within CCL703 (Metropolitan Colliery) 25 Approximate Costs ................................................................. 27 Conclusion ................................................................................ 39 Figures Figure 1 – Three x Well Types ........................................................................................................................................................... 6 Figure 2 – Example of hydraulic fracturing ..................................................................................................................................... 7 Figure 3 – ZRD coal seam infiltration .............................................................................................................................................. 8 Figure 4 – Multiple wells drilled from a multiple horizon horizons ............................................................................................ 9 Figure 5 – Drilling the horizontal “lateral” ...................................................................................................................................... 9 Figure 6 – Locations of Proposed Core Holes .............................................................................................................................. 13 Figure 7 – AI16 site to the west of the F6 freeway. ..................................................................................................................... 14 Figure 8 – AI16 site – Bauxite scrape ............................................................................................................................................. 15 Figure 9 – AI16 in relation to mine workings ............................................................................................................................... 15 Figure 10 – AI16 – ACIRL geology vs mine workings and surface features ........................................................................... 16 Figure 11 – AI19 in relation to mine workings ............................................................................................................................. 17 Figure 12 – AI19 on Fire Trail 9A ................................................................................................................................................... 18 Figure 13 – Close up of AI19 on Fire Trail 9A ............................................................................................................................. 18 Figure 14 – ACIRL Geology Layer vs workings and surface features ...................................................................................... 19 Figure 15 – AI06 Site Aerial Veiw ................................................................................................................................................... 20 Figure 16 – AI06 Surface Site ........................................................................................................................................................... 21 Figure 17 – AI06 Underground Bulli Seam Intersection Point .................................................................................................. 21 Figure 18- Locations of Proposed Production Wells ................................................................................................................... 22 Figure 19 – AI13................................................................................................................................................................................. 24 Figure 20 – EM3 (DDH3) ................................................................................................................................................................ 25 Figure 21 – Coal ttratogrophy – EM3 (DDH3) ............................................................................................................................ 26 Figure 22 – Core well timeline ......................................................................................................................................................... 31 Figure 23 – Combination well timeline ........................................................................................................................................... 35 Figure 24 – Basic production well timeline .................................................................................................................................... 38

Tables

Table 1 – Estimated Gas Reserves/Resources – August 2009 ................................................................................................... 11 Table 2 – Proposed reserve/resource – August 2008 .................................................................................................................. 12 Table 3 – Post Drilling Expected Reserve Upgrade - Illawarra .................................................................................................. 12 Table 4 – Total Reserve Upgrade Progression .............................................................................................................................. 12 Table 5 – AI16 .................................................................................................................................................................................... 16 Table 6 – AI19 .................................................................................................................................................................................... 19

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Table 7 – Details of Proposed Production Wells.......................................................................................................................... 23 Table 6 – Scenario 1 costs ................................................................................................................................................................. 27 Table 7 – Scenario 2 costs ................................................................................................................................................................. 28 Table 8 – Detailed well costs (steel or fiberglass liner) – no contingency................................................................................. 30 Table 9 – Production well through mine pillar .............................................................................................................................. 34 Table 10 - Detailed well costs (Straight production well) – no contingency ............................................................................ 37

EXECUTIVE SUMMARY

Apex Energy NL has control of 372 km2 in its three gas tenures PEL’s 442, 444 and 454 as well as joint venture interests in an additional 113 km2. Apex has a gross estimated gas in place quantity of 2530 billion cubic feet (Bcf) from approximately 9 billion tonnes of coal in the Illawarra coal measures alone. Further potential for gas exploitation exists below the Illawarra coal measures in the Cumberland formation. Within the Apex tenures there are a number of abandoned coal mines containing approximately 6.2 Petajoules (PJ) of “free gas”. These abandoned mines represent large areas of de-stressed ground which present great opportunities for the exploitation of the gas not only within the coal mines but from the surrounding seams. The Apex tenures within the Illawarra measures present approximately 30m of net coal in multiple seams and sub seams. This presents opportunity for conventional or non conventional gas exploitation not connected with abandoned coal mines. The exploitation of gas from the abandoned coal mines represents one opportunity for Apex but the greater potential for commercial success long term exists in the seams below the mined seams. Apex considers the exploitation of gas from abandoned coal mines and exploitation from non mined seams as being separate projects. Due to the stratified nature of the coal seams it is believed that vertical wells with secondary coal seam stimulation will provide a successful methodology. Completion techniques available include hydraulic fracturing and zero radius drilling (ZRD) with biological gas stimulation and augmentation a future possibility. It is believed that seam stimulation will be essential due to the low permeability of the coal seams and experience gained by neighboring gas companies such as AGL. Apex is currently looking at several scenarios for the exploration and commercial exploitation of the gas within its areas of interest. This report concentrates on the scenarios surrounding the drilling of two initial core wells which will be fully tested then plugged and abandoned followed by five production wells.

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INTROD UCTION

Apex Energy NL submitted a Part 3A approval application for a fifteen well coal seam gas (CSG) and coal mine gas (CMG) exploration program and Apex received notification of approval for the project on 24/9/09. The link below goes to the Department of Planning NSW web site and the Apex project page. http://majorprojects.planning.nsw.gov.au/index.pl?action=view_job&job_id=1325 The Part 3A approval includes the drilling of 15 boreholes of varying types as shown in Figure 1. It is intended that some of the boreholes will be extended to the base of the Illawarra Coal Measures and as well as defining the regional gas potential will also provide more detail of the regional geology. The boreholes will be configured to enable ongoing gas monitoring. This monitoring will assess gas quality, quantity and flow rates. This is essential data for planning future gas energy projects. The proposed program of each borehole involves both core drilling for initial data gathering and drilling for reserve testing/production capability. The Part 3A approved boreholes can be divided into three types, each of which will require different equipment and duration on site. The three different types of boreholes are shown diagrammatically on Figure 1. Type 1

These are 10 approved open hole boreholes drilled directly into goaf areas. They function as goaf gas exploration wells and are designed to determine goaf gas quality and quantity. These boreholes require drilling by a large rig such as the Schramm T685 or equivalent. Proposed boreholes, AI 05, AI 07, AI 08, AI 09, AI 10, AI 11, AI 12, AI14, AI 17 and AI 18 are of this type.

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Type 2

This type of borehole is transitional between Types 1 and 3. They are cored holes drilled into remnant coal pillars in abandoned mine workings or goafs. They are open holes from which seam core samples will be extracted. They can be developed further using the zero radius drilling technology etc. They will be used to determine goaf gas characteristics in underlying old Bulli Seam workings. Gas can also be accessed through fractures in the remnant pillars and surrounding strata. Additional drilling will be undertaken to obtain core samples from lower seams. Drilling through and sealing off abandoned goafs requires additional equipment and procedures. This includes a larger diameter hole from the surface to allow placement of additional bore casing. This will require a larger rig and additional time on site. Proposed boreholes AI 04B, AI 06 AI 13 and AI 15 are of this type.

Type 3

These are cored holes (e.g. HQ3) drilled over un-worked areas. These holes will enable core samples from the coal seams within the Illawarra Coal Measures. They will provide stratigraphic data, desorption testing of gas content and seam permeability testing. Approved hole AI 16 is of this type and AI19 is intended to be a second well of this type. AI19 requires a Section 75 variation to be submitted to the Department of Planning for approval prior to drilling. If results from these core wells proves satisfactory they will be replaced by the drilling of production wells (Type 1) at the same locations.

Apex Energy is currently strategising with potential partners to determine viable methods of adding value to the Apex Energy NL resources. The exploitation of gas from the goafs within the abandoned mines and the non mined seams has been separated into two different projects and whilst there is a connection between these two projects, the exploitation of goaf (CMG) is well understood, there is a need to further prove the un-mined coal seams and their viability for gas production. This will be done by means of the core and production wells. Once the core wells have been fully tested as per Apex requirements, these wells can be further worked but it is planned that the first two will be plugged and abandoned. It is also expected that the coal seams will need to be stimulated in order to increase localised permeability and there are three options currently being considered for this;

1. Conventional methods (Hydraulic fracturing or frac’ing)

2. Zero Radius Drilling

3. Combination of the above

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Figure 1 – Three x Well Types

SEAM STIMULATION METHOD S

Conventional Seam Stimulation - Hydro-fracturing

Often an oil or gas bearing formation may contain large quantities of oil or gas, but have a poor flow rate due to low permeability, or from damage or clogging of the formation during drilling. This is particularly true for tight sands, oil shales and coalbed methane. Hydraulic fracturing (also known as frac’ing) is a technique used to create fractures that extend from the well bore into rock or coal formations. These fractures allow the oil or gas to travel more easily from the rock pores and internal surfaces, where the oil or gas is trapped, to the production well. Typically, in order to create fractures a mixture of water, proppants (sand or ceramic beads) and chemicals is pumped into the rock or coal formation.

Eventually, the formation will not be able to absorb the fluid as quickly as it is being injected. At this point, the pressure created causes the formation to crack or fracture. The fractures are held open by the proppants, and the oil or gas is then able to flow through the fractures to the well (Earthworks). Fracturing can be done with various pressures according to proximity to abandoned coal mines.

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Figure 2 – Example of hydraulic fracturing

Zero Radius Drilling

The method involves the drilling of a vertical well through the target coal measures. The vertical well is then used as the base for Zero Radius Drilling (ZRD) to be deployed. Horizontal wells are drilled at various depths in the well in order to infiltrate coal seams and sub seams separated by clays/tuffs. Multiple laterals are drilled from the various horizons in order to provide greater coverage and take advantage of any natural gas paths such as cleats and joints. Figure 3 shows how the technique of ZRD can be used to infiltrate individual target coal seams and sub sections of these coal seams.

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Figure 3 – ZRD coal seam infiltration

Figure 4 diagrammatically describes how multiple laterals can be drilled at any given horizon in order to increase coal seam contact.

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Figure 4 – Multiple wells drilled from a multiple horizon horizons

Figure 5 – Drilling the horizontal “lateral”

The ZRD cutting tool uses water pressure to cut the rock or coal and then clear the resultant hole. The tool negotiates a guidance “shoe” anchored within the vertical well and enters the formation perpendicular to the vertical well bore. The drill rig then provides forward cutting force to advance the lateral hole. The cutting assembly is then withdrawn into the vertical well, the shoe is repositioned either at another horizon or around its axis to drill a further horizontal hole.

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RELATIONSHIP BETWEEN LONESTAR LAT ERAL DRILLING TECHNOLOGIES AND APEX ENERGY

Lone Star Lateral Drilling Technologies (Lone Star) is a company based in Midland, Texas USA. Lone star is the originator of the term “Zero Radius Drilling” or “ZRD” and the operator and IP/patent holder of a particular configuration of drilling equipment and techniques for the creation of a network of underground lateral wells drilled from a central vertical well.

Apex Energy NL has entered into a 50/50 joint venture (JV) whereby Lone Star’s ZRD technology will be utilised to enhance the permeability and production potential of Apex’s gas reserves.

RESOURCE EXPLOITATION STARTING POINT

A possible starting point for Apex Energy NL in commercializing its gas tenures is to drill and complete two initial core wells which will be fully tested and then plugged and abandoned followed by the drilling of a series of five production testing wells spread across Apex’s Northern gas tenures. This will do a number of things for Apex and its potential venture partners;

1. Reduce risk incurred by any partners including Apex by reducing the capital expenditure necessary to further understand the resource/reserves

2. Encourages possible participation/partnerships as a result of reduced business risk 3. Allows Apex to enhance confidence in its resources and reserves by augmenting its

existing MHA reserve statement. 4. Commences operational activities and thus increases the profile of Apex Energy NL,

its possible partners. Reserve Upgrade Apex Energy NL has a current resource/reserve estimation provided by MHA Petroleum Consultants as shown in Table 1 below.

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Table 1 – Estimated Gas Reserves/Resources – August 2009

Subsequent to the issuing of the above statement of reserves, Apex Energy undertook an investigative process to further quantify is reserves by carrying out two processes;

1. Digital Magnetotelluric Survey (DMT) By the utilisation of DMT technology Apex has been able to produce isopach diagrams of greater accuracy than ever produced in the Illawarra and Burragorang areas. The survey estimated overburden depths, seam thicknesses, interburden depths as well as other useful information. The survey results were quantified in a report completed by Ian MacCulloch entitled Reserve Resource August 09 Review. Appendix 1 shows the produced DMT isopachs.

2. Goaf Management Group (GMG) The GMG was convened by Apex for the purposed of defining goaf extent and behavior throughout the Illawarra gas tenures (PEL 442 and 444). Work has since commenced on similar determinations for the Burragorang region. The work of the GMG was quantified in a report completed for Apex by Chris Rogers of CJR Management Services Pty Ltd entitled Goafs and Goaf Behavior – Apex Energy Tenures August 2009. Ian MacCulloch of the Coomoroo Exploration Company has also carried out a detailed analysis of the resource utilising the findings of the GMG and the results of the DMT survey as well as data from other boreholes drilled in the area. These reports when combined allowed Apex to propose that its reserves may be increased to the levels shown in Table 2. MHA Petroleum Consultants are currently assessing Apex’s resource based on the above reports and the results of this assessment are expected in March 2010. The assessment is expected to increase Apex’s resource/reserve status to that shown in Table 2 below.

2P Reserve Amendment (PJ) 3P Reserve Amendment (PJ) 3C Reserve Ammendment (PJ) 107 227 1360

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Table 2 – Proposed reserve/resource – August 2008

However, the above reports and the detail contained within, along with future results as a result of core drilling will combine to dramatically improve Apex’s reserve and resource situation. Therefore any future core sampling and well testing will be considered along with existing information to increase the commercial value of Apex’s tenures.

POST DRIILING RESERVE UPGRADE EXPECTAIONS

Table 3 shows how the Illawarra gas reserves are expected to be re classified following completion of the drilling program in consultation with MHA Petroleum Consultants. The assumption is that all the Illawarra contingent resource will be converted to reserve status.

Reserve category

Estimated Volume of

Gas in Place (Bcf)

CURRENT Estimated

Recoverable Gas (PJ)

POST UPGRADE Estimated

Recoverable Gas (PJ)

% increase

Illawarra Eastern Leases

Probable (2P) 124 58 210 262%

Probable & Possible (3P) 454 210 705 236%

Table 3 – Post Drilling Expected Reserve Upgrade - Illawarra

Reserve category

Current Estimated

Recoverable Gas (PJ)

Pre Drilling Upgrade Estimated

Recoverable Gas (PJ)

Post Drilling Ugrade Estimated Recoverable Gas

(PJ)

Illawarra Eastern Leases

Probable (2P) 58 107 210 Probable & Possible (3P) 210 227 705

Contingent (C) 495 674 0

Burragorang Western Leases

Probable (2P) 0 0 0 Probable & Possible (3P) 0 0 0

Contingent (C) 865 780 780

Table 4 – Total Reserve Upgrade Progression

The Western Burragorang lease is currently a contingent resource of approximately 1600 Bcf Gas in Place giving a contingent resource of approximately 780PJ. This is not expected to change until this area id further explored. This exploration program is planned to be completed during 2012. Table 4 shows the total resource/reserve expected progression.

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INNITIAL CORE WELL SUGGESTED LOCATIONS

In order to reduce risk and complexity the first two core wells are proposed to be Type 3 and therefore be drilled be away from the influence of coal mine workings. Such wells should also be on Apex Energy leases so as to reduce stakeholder complexity at this early stage in resource development. Suggested well locations Apex currently has one type 3 well approved, AI16. The other approved core wells are Type 2 and therefore they intersect mine workings with the associated risk and increased cost. Therefore AI16 is the first recommended location and AI19 is the second recommended core site. AI19 is not currently approved and will therefore require an approval process to be followed. AI19 is planned to be drilled on PEL444.

Figure 6 – Locations of Proposed Core Holes

AI19

AI16

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AI16 The approved drill site is on Sydney Catchment Area (SCA) land. The site is on a Bauxite scrape that was probably formed during the construction of the F6 motorway. The site is over an un-mined area approximately 120m NW of the North Bulli Colliery workings. Site establishment and rehab work will be minimal. Figures 7 & 8 show the site, which is several kilometres away from any residences. Figure 8 shows the actual site of the Bauxite Scrape chosen for the hole. Figure 9 shows the site in relation to the mine workings demonstrating the distance from the workings. The minimum distance to known mine workings is 0.8 kms to the east. Figure 10 demonstrates that there is a known fault system approximately 0.2 kms to the west of the proposed drill site. Note: Due to the proximity of the coal mine abandoned workings it may be possible to access the gas contained within these workings using the hydraulic fracturing or ZRD stimulation techniques.

Figure 7 – AI16 site to the west of the F6 freeway.

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Figure 8 – AI16 site – Bauxite scrape

Figure 9 – AI16 in relation to mine workings

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Figure 10 – AI16 – ACIRL geology vs mine workings and surface features

Table 3 shows the expected depths estimated from DMT survey results.

Coal Seam Seam Top (metres depth) Seam Thickness (metres) Bulli 360 2 Balgownie 375 1.5 Cape Horn 385 2 Woronora 400 ? Wongawilli 450 2.5 American Creek 470 5 Tongarra 520 ? Woonona 575 7.5 All seam isopach 30

Table 5 – AI16

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AI19 AI19 is not part of the current approval issued by the Department of planning. The site would require a Section 75 variation which would take approximately 3 months to obtain following an environmental assessment and land owner negotiations. The site is within PEL 444 immediately to the south of the CCL703 (Metropolitan Colliery boundary. Access to the site is via Fire Trail 9A off Darkes Forest Road. Figure 11 shows the location of the site in relation to the Darkes Forest and Metropolitan Colliery workings. The site is 2.25 kms north east of Darkes Forest #1 well. Figure 14 shows the proposed site in relation to the Darkes Forest mine workings and ACIRL geological information and the surface topography. There is known faulting 0.3 kms to the east of the proposed site. The abandoned coal mine workings of Darkes Forest Mine are approximately 50m from the proposed drill site. The Metropolitan Colliery workings are approximately 0.8 kms to the North West of the proposed site. Note: Due to the proximity of the coal mine abandoned workings it may be possible to access the gas contained within these workings using the hydraulic fracturing or ZRD stimulation techniques. AI19 relative to existing hole data:

· 3.05km SSW of EM5 · 4.0km SW of EM3 · 2.1 km S of AOG Woronora 1 – non-core petroleum well · 2.8km SE of DM Camden 61

Figure 11 – AI19 in relation to mine workings

Metropolitan Colliery

Darkes Forest Colliery Coalcliff Colliery

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Figure 12 – AI19 on Fire Trail 9A

Figure 13 – Close up of AI19 on Fire Trail 9A

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Figure 14 – ACIRL Geology Layer vs workings and surface features

Table 4 shows the expected depths estimated from DMT survey results.

Coal Seam Seam Top (metres depth) Seam Thickness (metres) Bulli 520 3 Balgownie 535 2 Cape Horn 545 1 Woronora 560 ? Wongawilli 590 2.7 American Creek 620 6 Tongarra 665 2.5 Woonona 725 10 All seam isopach 30

Table 6 – AI19

Fall Back Position if Approval for AI19 is not granted or sought As previously explained, AI19 is not at a site that is currently approved from drilling, however, Apex has scope to replace this well with an approved well if the need arrises. This well is AI06 which is a type 2 well that can be drilled through a large Darkes Forest Mine

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Pillar as can be seen below. The additional cost to replace AI19 with AI06 would be approximately $300,000 AI 06 This site is approximately 50m east of the abandoned offices of the Darkes Forest mine. The site is cleared with excellent access. The site is approximately 110m SE of the Darkes Forest Mine number 2 shaft. The underground location is located in an area of first workings (not goaf). It can be expected that the pillars have some degree of deterioration. The purpose of the hole could be duel function as an open hole and core hole.

Figure 15 – AI06 Site Aerial Veiw

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Figure 16 – AI06 Surface Site

Figure 17 – AI06 Underground Bulli Seam Intersection Point

AI 06

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INNITIAL PROD UCTION WELL SUGGESTED LOCATIONS

Figure 18- Locations of Proposed Production Wells

The five proposed production wells are shown on Figure 15 above. AI16 and AI19 were previously described as core wells. If results from analysis of the core data show commercial probability then production wells will be drilled at the same sites. Table 5 further describes the wells. Part 3A approval for drilling exists for AI16, AI04 and AI08 but approval will be required for AI19 and AI20. As previously indicated AI19 can be replace with AI06. AI06 would pass through a large mine pillar. The second hole that currently does not have approval is AI20. AI20 is situated on Metropolitan Colliery’s CCL703. Apex Energy currently has a joint venture with Helensburgh Coal Pty Ltd who operates this colliery. Apex Energy are currently in talks with Helensburgh Coal to bring the JV up to date. The current JV mainly addresses the utilisation of Coal Mine Gas trapped by the Colliery gas drainage drillers. The current talks are focused on reviewing and altering the JV to provide focus on Coal Seam Gas

AI19

AI20

AI04

AI08

AI16

AI06

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from the seams below the Wongawilli Seam. In the unlikely chance that planning approval is not granted for the drilling of AI20 a pre approved Apex well will replace this one. AI13 is suitable for this purpose. This well will cost approximately $800,000 more than AI20. Therefore, if the two wells that require planning permission are replaced as above then an approximate amount of $1,000,000 will have to be spent. However, Apex does not expect to encounter insurmountable problems in applying for planning permission to drill AI19 or AI20. Both holes would require no excessive clearing of vegetation and both wells are on Sydney Catchment Authority land. Apex has an excellent working relationship with the SCA and so far Apex has 5 wells pre approved for drilling on SCA land. Well Description Comment AI16 P Drilled to 50m below Woonona seam, cased with

fiberglass, perforated, frac’ed, dewatered then drilled with ZRD.

Replacement hole for AI16 core hole. Site approval exists

AI19 P Drilled to 50m below Woonona seam, cased with fiberglass, perforated, frac’ed, dewatered then drilled with ZRD.

Replacement hole for AI19 core hole. Site approval required. Can be replaced by AI06.

AI04 Drilled through Coalcliff Colliery Pillar, stell casing installed through Bulli, drilled on to 50m below the Woonona Seam, cased with firbreglass, perforated, frac’ed, dewatered then drilled with ZRD

Site approval exists

AI08 Drilled through Coalcliff Colliery Pillar, stell casing installed through Bulli, drilled on to 50m below the Woonona Seam, cased with fibreglass, perforated, frac’ed, dewatered then drilled with ZRD

Site approval exists

AI20 Drilled to 50m below Woonona seam, cased with fiberglass, perforated, frac’ed, dewatered then drilled with ZRD.

Site approval required. Can be replaced by a pre approved hole. AI13 is suitable for this purpose

Table 7 – Details of Proposed Production Wells

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Figure 19 – AI13

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COAL STRATIGRAPHY AS D ETERMNED FROM EM3 D RILLED WITHIN CCL703 (METROPOLITAN COLLIERY)

Figure 20 – EM3 (DDH3)

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Figure 21 – Coal ttratogrophy – EM3 (DDH3)

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APPROXIMATE COSTS

The way these costs are set out is such that the drilling costs and the Apex Energy oversight costs have been kept separate. Each of the holes which have no existing planning permission can be replaced by a pre approved hole. The additional cost for the replacement of AI119 and AI20 in scenario 1 is approximately $1M. Scenario 1 – Includes 10% Contingence and GST. The stimulation method assumed is conventional multistage hydo-fracking followed by a period of dewatering and testing before ZRD is applied to each well.

· 2 core wells (AI 16c & AI 19c) · Two replacement production wells (AI 16p & AI 19p) – frac’d and ZRD’d · Two production wells drilled and through mine pillar (AI 04 & AI 06) – frac’d and ZRD’d · One straight production well (AI 20) – frac’d and ZRD’d

Type Well Drill Frac * ZRD Oversight Total Core AI16 c $ 865,767 $ 189,352 $ 1,055,119 Core AI19 c $ 865,767 $ 189,352 $ 1,055,119

Production AI 16 p $ 677,500 $ 365,000 $ 402,448 $ 48,960 $ 1,493,908 Production AI 19 p $ 677,500 $ 365,000 $ 402,448 $ 48,960 $ 1,493,908 Production AI 04 $ 1,435,400 $ 365,000 $ 402,448 $ 132,934 $ 2,335,781 Production AI 06 $ 1,435,400 $ 365,000 $ 402,448 $ 132,934 $ 2,335,781 Production AI 20 $ 677,500 $ 365,000 $ 402,448 $ 132,934 $ 1,577,881

Flare $ 1,000,000

Pumps $ 1,951,200

Site prep Included

Sit rehab Included

Monitoring $ 12,000

Civils $ 100,000

Planning/admin costs $ 500,000

Sub Total $ 6,634,833 $ 1,825,000 $ 2,012,238 $ 875,425 $14,910,696

Contingency 10% $ 663,483 $ 182,500 $ 201,224 $ 87,542 $ 1,491,070

Total excl GST $ 7,298,317 $ 2,007,500 $ 2,213,461 $ 962,967 $16,401,765

GST 10% $ 729,832 $ 200,750 $ 221,346 $ 96,297 $ 1,640,177

Gross Total (incl GST) $ 8,028,148 $ 2,208,250 $ 2,434,807 $ 1,059,264 $18,041,942

Table 8 – Scenario 1 costs

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Scenario 2 – Includes 10% Contingence and GST. Scenario two is based on the Type 2 wells AI04 and AI06 being replaced by Type 3 wells. These wells are less costly because they are not drilled through mine pillars with all the associated safety related additional work and hence cost. In addition, only one type of stimulation is applied to each borehole as opposed to two types (Frac’ing and ZRD) as applied in Scenario 1.

· 2 core wells (AI 16c & AI 19c) · Two replacement production wells (AI 16p & AI 19p) – frac’d · Three straight production well (AI 20) – ZRD’d

Table 9 – Scenario 2 costs

Type Well Drill Frac * ZRD Oversight Total Core AI16 c $ 865,767 $ 189,352 $ 1,055,119 Core AI19 c $ 865,767 $ 189,352 $ 1,055,119

Production AI 16 p $ 677,500 $ 365,000 $ 48,960 $ 1,091,460 Production AI 19 p $ 677,500 $ 365,000 $ 48,960 $ 1,091,460 Production New well $ 677,500 $ 402,448 $ 48,960 $ 1,128,908 Production New well $ 677,500 $ 402,448 $ 48,960 $ 1,128,908 Production AI 20 $ 677,500 $ 402,448 $ 48,960 $ 1,128,908

Flare $ 1,000,000

Pumps $ 1,951,200

Site prep Included

Sit rehab Included

Monitoring $ 12,000

Civils $ 100,000

Planning/admin costs $ 500,000

Sub Total $ 5,119,033 $ 730,000 $ 1,207,343 $ 623,504 $11,243,080

Contingency 10% $ 511,903 $ 73,000 $ 120,734 $ 62,350 $ 1,124,308

Total excl GST $ 5,630,937 $ 803,000 $ 1,328,077 $ 685,854 $12,367,388

GST 10% $ 563,094 $ 80,300 $ 132,808 $ 68,585 $ 1,236,739

Gross Total (incl GST) $ 6,194,030 $ 883,300 $ 1,460,884 $ 754,440 $13,604,127

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Core hole (AI16c &AI19c) WELL NAME: Apex-1C (Corehole - No Goaf Encountered) PERMIT: TBA COSTCODE: AP-09-001 PROJECT TYPE: Corehole - No Goaf - FOUR DST's_P&A (cement plugs)

DESCRIPTION: Move onto Location

Drill 8-1/2" hole to 100 m, run 7"

Drill 96mm (3.78") PDC to 400m

Cut HQ core from 400m to TD at 800 m

Number of DST's 4

Wireline logs at TD

Nil reaming / 4-1/2" casing NOT run

P&A well (with cement plugs - 5 x 150m plugs) Predicted

Days Phase ROP 0 Move and rig up Estimate

0.83 Drill 8-1/2" hole 5 1.33 Run and cement 7" surf csg, install and test BOP, LOT (8+2+8+12+2 hr) 0.00 Drill 6" surface hole 0.5 0.00 Run and cement 4-1/2" surface casing, install and test BOP, LOT (16+2+8+12+2 hr) 1.67 Drill to Core Point (99mm PDC) 8 9.00 Core to well TD 2 4.00 Days of DST's (1 day per DST) 1.00 Run wireline logs 0.00 Nil reaming; 4-1/2" Casing NOT run #DIV/0! 3.75 P&A well (with cement plugs - 5 x 150m plugs) 21.6 Total

100 Surface Casing depth (metres)

Coring Liner / Casing Depth (metres) - NO LINER USED 400 Core point (metres) 800 Total Depth (metres)

CODE DESCRIPTION Predicted

101 Lease&Access Preparation 15,000 102 Lease Cleanup & Rehab 5,000 103 Lease Supervision; Consenting, Permitting 10,000 104 Land Owners Compensation / Community Rel 5,000 105 Lease - Install cellar and conductor 4,000 106 Lease - Well Location Survey 3,000 108 Lease - Sewerage & Waste Treatment 3,800 121 Communications - Call Costs 2,600 122 Communications - Set Up / Maintenace / Rig Down 500 123 Drilling Reporting System 300 141 Water Supply - Potable 4,400 142 Water Supply - Drilling 6,100

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161 Transport - Freight (DST Tools, Desorpt Lab, Csg, W/head) 10,000 162 Hire Vehicles 4,500 163 Airfraes: (Domestic: 2 x DST, 1 x Geo, 4 x Desorpt, 1 x Co Man) 4,000 164 Travel Accommodation & Meals (2 dst, 5 geol, 1 co man) 2,400 181 Inspections - Rig 5,400 201 Rig - Mob / Demob 3,800 202 Rig Rate - Operating 331,300 203 Rig Rate - Standby 204 Rig Rate - Repairs 205 Rig Rate - Moving 19,000 206 Camp (Meals, Accom, etc - Apex personnel Only - LM Personnel in Rig Day Rate) 28,300 207 Fuel 1,000 210 Rig: Pre-spud compliance / upgrade cost 5,000 301 Tubulars - Conductor 2,500 303 Tubulars - 7" Casing 12,500 304 Tubulars - 4-1/2" Casing 0 305 Tubulars - 2-3/8" Tubing 311 Tubulars - Accessories / Cementing & Float Equipment 1,500 320 Cement Materials 15,000 322 Cementing Service 30,000 361 Wellhead 12,000 362 Wellhead - Tubing Spool 363 Wellhead - Tree for Suspension / Observation Well 387 Rentals - Deviation Survey Equipment 0 397 Rentals - Site Equipment (co. man accom, desorption crew donga) 16,700 401 Bits 25,000 421 Mud 15,000 502 Testing - Open Hole / DST 111,367 505 Desorpion Testing (crew, lab, q1,q2,q3) 112,300 521 Electrical Logging Svcs 25,000 701 Analysis - DST 5,000 703 Analysis - Wireline 1,000 704 Analysis - Fluid 500 705 Analysis - Gas 1,000 801 Personnel - Wellsite - Drillling Rig Representative 0 804 Personnel - Wellsite - Wellsite Geologist 0 821 Personnel - Office - Preparation 0 822 Personnel - Office - Operations 0 823 Insurance - Well Control 5,000 900 Contingency (20%) 0

TOTAL 865,767

Table 10 – Detailed well costs (steel or fiberglass liner) – no contingency

31

Figure 22 – Core well timeline

0

100

200

300

400

500

600

700

800

9000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

DEP

TH,m

RT

DAYS FROM SPUD

Apex-1C Corehole (No Goaf) - Core + Plug and AbandonPREDICTED TIME v DEPTH CURVE

#REF! #REF!

Run and Cement 7" Surface Csg; Install A Section, N/U BOP, P/T, LOT

Log Well, Plug and abandon well with 5 x 150m cement plugs

Drill 8-1/2" hole

Drill 3.78" hole (PDC) To Core Pt @ 400m

HQ3 (3.96") Core to TD99mm hole / 61mm core

Outline of WellMove onto LocationDrill 8-1/2" hole to 100 m, run 7" SFJ (Range 1) CsgNipple up and test 7-1/16" BOP, LOTDrill 3.78" (96mm) hole to 400 mCut HQ core (3.78") from 400m to TD at 800 mNumber of DST's = FOUR (4)Wireline logs at TD Plug and abandon well (5 x 150m cement plugs)NB: Mud drilled throughout with 3% KCl

DST #1

DST #2

DST #3

DST #4

32

Production Well (with goaf) WELL NAME: Apex-1PC Combination Well - Goaf Component

PERMIT: TBA

COSTCODE: AP-09-001 PROJECT TYPE: Core hole below Goaf - Plug and Abandon

DESCRIPTION: Move onto Location (Production Rig)

Drill 12-1/4" hole to 100 m, run 9-5/8"

Nipple up and test BOP, LOT

Drill 8-1/2" hole to 400 m, run 7" casing

Nipple up and test BOP, LOT

Drill 6-1/8" hole to TD at 450 m; Run 4-1/2" casing

Number of DST's = NIL 0

Wireline logs = NIL

Release production rig; RDMO

Move onto location (Core Rig)

Core to well TD = 800m

Number of DST's = NIL

Wireline logs = GR-Cal-Density

Nil Reaming

Plug and abandon well

Predicted Days Phase Prod Rig ROP

0 Move and rig up Estimate 0.33 Drill 12-1/4" hole 12.5 1.00 Run and cement 9-5/8" surf csg, install and test BOP, LOT (4+2+6+10+2 hr) 0.67 Drill 8-1/2" hole 20 1.17 Run and cement 7" casing, install and test BOP, LOT (6+2+6+12+2 hr) 0.00 Nil Coring 0 2.00 Drill thru goaf (6-1/8") 1.458333333 0.00 Days of DST's (1 day per DST) 0.00 Run wireline logs 1.50 Run 4-1/2" Casing (live well) 1.00 Suspend well / RDMO 7.67 Total Days - Production Rig

Core Rig 1.00 MIRU; N/U BOP 7.71 Core to well TD 2 0.00 Days of DST's (1 day per DST) 1.00 Run wireline logs 0.00 Nil Reaming #DIV/0! 3.75 Plug and Abandon well - 5 x 150m cement plugs

13.46 Total Days - Core Rig

33

21.13 Total Days - Both Rigs

100 Surface Casing depth (metres) 400 7" Production Casing Depth (metres) 450 Below Goaf - set 4-1/2" Csg = Core Pt 800 Total Depth (metres)

CODE DESCRIPTION Predicted

101 Lease&Access Preparation 35,000 102 Lease Cleanup & Rehab 20,000 103 Lease Supervision; Consenting, Permitting 9,000 104 Land Owners Compensation / Community Rel 5,000 105 Lease - Install cellar and conductor 4,000 106 Lease - Well Location Survey 3,000 108 Lease - Sewerage & Waste Treatment 4,000 121 Communications - Call Costs 3,000 122 Communications - Set Up / Maintenace / Rig Down 500 123 Drilling Reporting System 300 141 Water Supply - Potable 4,300 142 Water Supply - Drilling 6,000 161 Transport - Freight (DST Tools, Desorpt Lab, Csg, W/head) 35,000 162 Hire Vehicles 8,200 163 Airfraes: (Domestic: 1 x Geo, 1 x Co Man) 2,000 164 Travel Accommodation & Meals (1 geol, 1 co man) 1,200 181 Inspections - Rig 7,200 201 Rig - Mob / Demob 89,300 202 Rig Rate - Operating 447,300 203 Rig Rate - Standby 204 Rig Rate - Repairs 205 Rig Rate - Moving 85,000 206 Camp (Meals, Accom, etc - Apex personnel Only - LM Personnel in Rig Day Rate) 24,500 207 Fuel 1,500 210 Rig: Pre-spud compliance / upgrade cost 10,000 301 Tubulars - Conductor 2,500 303 Tubulars - 9-5/8" Casing 25,000 304 Tubulars - 7" Casing 60,000 305 Tubulars - 4-1/2" Casing 56,300 311 Tubulars - Accessories / Cementing & Float Equipment 9,000 320 Cement Materials 45,000 322 Cementing Service 45,000 361 Wellhead 55,000 362 Wellhead - Tubing Spool 363 Wellhead - Tree for Suspension / Observation Well 387 Rentals - Deviation Survey Equipment 0

34

397 Rentals - Site Equipment (co. man accom, desorption crew donga) 19,000 401 Bits 45,000 421 Mud 30,000 502 Testing - Open Hole / DST 0 505 Desorpion Testing (crew, lab, q1,q2,q3) 0 521 Electrical Logging Svcs 0 701 Analysis - DST 0 703 Analysis - Wireline 1,000 704 Analysis - Fluid 500 705 Analysis - Gas 1,000 801 Personnel - Wellsite - Drillling Rig Representative 804 Personnel - Wellsite - Wellsite Geologist 821 Personnel - Office - Preparation 822 Personnel - Office - Operations 823 Insurance - Well Control 10,000 900 Contingency (20%)

TOTAL 1,209,600

Table 11 – Production well through mine pillar

35

Figure 23 – Combination well timeline

0

100

200

300

400

500

600

700

800

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

DEP

TH,m

RT

DAYS FROM SPUD

Apex-1 Combination Goaf Well PREDICTED TIME v DEPTH CURVE

Apex 1 Combo - Production Rig

Apex 1 Combo - Actual

Apex 1Combo - Core Rig

Run and Cement 9-5/8" Surface Csg; Install A Section; N/U 11"

Drill 12-1/4" hole

Drill 8-1/2" hole

Drill 6-1/8" hole thru goaf

Outline of WellMove production rig onto LocationDrill 12-1/4" hole to 100 m, run 9-5/8" R3 CsgNipple up and test BOP + Diverter, LOTDrill 8-1/2" hole to 400 m (50 tp 100m above top coal), Run and cement 7" R3 casingNipple up and test 7-1/16" Valve + BOP + Diverter,; LOTDrill 6-1/8" hole to TD at 450 m (thru / into goaf)Run and cement 4-1/2" R3 casingRelease prodction rigMove core rig onto location Nipple up and test 7-1/16" BOP, LOTCut HQ core (3.78") from 400m to TD at 800 mNumber of DST's = NILWireline logs at TD Plug and abandon well (5 x 150m cement plugs)

Run and Cement 7" Csg; Install B Section, N/U 7-1/16" Valve + BOP +

Run and Cement 4-1/2" Csg; MIRU Core Rig; N/U BOP; P/T; LOT

Log Well, Plug and abandon well (5 x 150m

36

Production Well (no goaf) WELL NAME: Apex-1 Production Well - No Goaf Encountered

PERMIT: TBA

COSTCODE: AP-09-001 PROJECT TYPE:

Production Well - No Goaf - NIL DST's_Case and cement 5.5" for future frac or Radjet (One well campaign)

DESCRIPTION: Move onto Location

Drill 12-1/4" hole to 100 m, run 9-5/8"

Drill 7-7/8" PDC to 800m

Number of DST's 0

Wireline logs at TD

Run and cement 4-1/2" fibreglass casing for future zero radius Predicted

Days Phase ROP 0 Move in and rig up Estimate

0.33 Drill 12-1/4" hole 12.5 1.00 Run and cement 9-5/8" surf csg, install and test BOP, LOT (4+2+6+10+2 hr) 2.00 Drill 7-7/8" hole 15 0.00 Days of DST's (1 day per DST) 0.50 Run wireline logs 1.67 Run and cement 5.5" casing; Suspend well for Frac or Radjet; RDMO 5.50 Total

100 Surface Casing depth (metres) 800 Total Depth (metres)

CODE DESCRIPTION Predicted

101 Lease&Access Preparation 35,000 102 Lease Cleanup & Rehab 20,000 103 Lease Supervision; Consenting, Permitting 9,000 104 Land Owners Compensation / Community Rel 5,000 105 Lease - Install cellar and conductor 4,000 106 Lease - Well Location Survey 3,000 108 Lease - Sewerage & Waste Treatment 3,000 121 Communications - Call Costs 1,000 122 Communications - Set Up / Maintenace / Rig Down 500 123 Drilling Reporting System 300 141 Water Supply - Potable 1,200 142 Water Supply - Drilling 19,400 161 Transport - Freight (DST Tools, Desorpt Lab, Csg, W/head) 25,000 162 Hire Vehicles 2,700 163 Airfraes: (Domestic: 1 x Geo, 1 x Co Man) 2,000 164 Travel Accommodation & Meals (1 geol, 1 co man) 600

37

181 Inspections - Rig 5,400 201 Rig - Mob / Demob 426,400 202 Rig Rate - Operating 175,600 203 Rig Rate - Standby 204 Rig Rate - Repairs 205 Rig Rate - Moving 0 206 Camp (Meals, Accom, etc - Apex personnel Only - LM Personnel in Rig Day Rate) 6,800 207 Fuel 500 210 Rig: Pre-spud compliance / upgrade cost 5,000 301 Tubulars - Conductor 2,500 303 Tubulars - 9-5/8" Casing 10,000 304 Tubulars - 7" Casing 0 305 Tubulars - 5-1/2" Casing 56,000 311 Tubulars - Accessories / Cementing & Float Equipment 6,000 320 Cement Materials 45,000 322 Cementing Service 45,000 361 Wellhead 20,000 362 Wellhead - Tubing Spool 363 Wellhead - Tree for Suspension / Observation Well 387 Rentals - Deviation Survey Equipment 0 397 Rentals - Site Equipment (co. man accom, desorption crew donga) 6,200 401 Bits 25,000 421 Mud 15,000 502 Testing - Open Hole / DST 0 505 Desorpion Testing (crew, lab, q1,q2,q3) 0 521 Electrical Logging Svcs 25,000 701 Analysis - DST 0 703 Analysis - Wireline 1,000 704 Analysis - Fluid 500 705 Analysis - Gas 1,000 801 Personnel - Wellsite - Drillling Rig Representative 0 804 Personnel - Wellsite - Wellsite Geologist 0 821 Personnel - Office - Preparation 0 822 Personnel - Office - Operations 0 823 Insurance - Well Control 5,000 900 Contingency (20%) 0

TOTAL 1,014,600

Table 12 - Detailed well costs (Straight production well) – no contingency

38

Figure 24 – Basic production well timeline

0

100

200

300

400

500

600

700

800

9000 1 2 3 4 5 6 7 8

DEP

TH,m

RT

DAYS FROM SPUD

Apex-1 Production Well (No Goaf) - Run 5-1/2" CsgPREDICTED TIME v DEPTH CURVE

Apex-1C Predicted

Apex-1C - Actual

Run and Cement 9-5/8" Surface Csg; Install A Section, N/U BOP, P/T, LOT

Log Well, Run and Cement 5.5" F'glass or Steel Casing Suspend Well

Drill 12-1/4" hole

Drill 7-7/8" hole (PDC) To TD @ 800m

Outline of WellMove onto LocationDrill 12-1/4" hole to 100 m, run 9-5/8" BTC R3 CsgNipple up and test 11" BOP, LOTDrill 7-7/8" hole to 800 mNumber of DST's = NIL (0)Wireline logs at TD Run and cement 5-1/2" F'glass or Steel CasingSuspend well for future zero radius or fracNB: Mud drilled throughout with 3% KCl

39

CONCLUSION

There are many possible scenarios for Apex and potential partners to use in exploring and exploiting the gas contained within the Apex Energy NL gas tenures. The range of scenarios depends upon the intended purpose of the drilling, type of testing required, completion techniques and commercial considerations. This report attempts to simplify an initial drilling program designed for the purpose of proving up the resource in the northern Illawarra region.

The report identifies potential drill sites. The report also identifies issues for the design and completion of the wells. The type of holes drilled depends upon commercial arrangements, potential partnership requirements and risk management. Risk management should not be underestimated. There are many variable in drilling for coal seam gas which can quickly expand project costs. Therefore it may not be the right thing to do to accept risk in drilling an apparently less costly multipurpose hole as opposed to an apparently more expensive but simpler scenario of separate core/production wells. In addition drilling separate core holes enable consideration to be given to test results prior to committing the company to the drilling of expensive production wells.

40

Appendix 1

DMT survey seam top and thickness isopachs maps

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