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GPO Box 5262Brisbane QLD 4001 Australia℡Tel: +61(07) 3105-3400

Fax: +61(07) 3105-3401

BOWEN BASIN PL196GR064 (FCCM PILOT 2)

Moranbah Gas Project Well Proposal September 2007

CH4 PTY LTD

On Approval Copies must be sent to:

Arrow well site representative Arrow GM Exploration & Land Arrow CEOArrow Principal Drilling & Completions Engineer Arrow Energy well fileMitchell Drilling

__ _ CEO Exploration Manager

Moranbah Gas Project – 2007 Exploration Program - Well Proposal

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TABLE OF CONTENTS

TABLE OF CONTENTS.......................................................................................21. SUMMARY / SPEC CARD...............................................................................32. GEOLOGY.......................................................................................................6

2.a. Geological Summary...........................................................................62.a.1 Regional Geology....................................................................................62.a.2 Local Geology and Stratigraphy..............................................................72.a.3 Site Geology and Stratigraphy................................................................72.b. Previous Exploration...........................................................................92.c. Reasons for Drilling..........................................................................102.d. Predicted Section..............................................................................10

3. WELL PROPOSAL.........................................................................................113.a. Drilling Procedure / Hole Design.....................................................11Hole Design....................................................................................................113.b. Well Completion................................................................................133.b.1 Casing Program....................................................................................133.b.2 Fluid program........................................................................................133.b.3 Hydraulic Jetting & Well Stimulation Methodology................................153.b.4 Well Development Test.........................................................................153.b.5 Testing for Sand & Debris content in wells...........................................153.c. Reporting............................................................................................16

4. CONTRACTOR CONTACT LIST...................................................................165. REFERENCES...............................................................................................17

Appendix 1: JSEA (RISK ASSESSMENT)

LIST OF FIGURES

Figure 1: Regional Location of PL191/PL196 4Figure 2: Location of PL191/PL196 and 2007 MGP Exploration Wells 5Figure 3: Stratigraphic Nomenclature of the Northern Bowen Basin 6Figure 4: Moranbah Gas Project Area Stratigraphic Section 8Figure 5: Structural Elements of the Bowen 9Figure 6: Predicted Formation Depths and Thicknesses 11Figure 7: Basic PCD Well Design 14


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1. SUMMARY / SPEC CARDWell Name: GR064

Tenure: PL196 Moranbah Gas Project

Easting/Northing: 614968.00 AMG7563114.8 AMGAGD 84, Zone 55

Elevation: 209.12m ASL

Landholder:

Nearest Town: Moranbah, Queensland

Nearest Road: Peak Down Highway

Directions to proposed sites: Refer to Site Geologist

Nearest Wells: GR040, GR041, GR042, GR043, GR044

Surface Casing Depth: 125m – well beyond base of Tertiary (13m)and weathering (24m)

Main Targets: Fort Cooper Coal Measures

Estimated Total depth: 211 metres (includes a 20m sump)

Net Coal thickness expected: 36.5m (from 13-191.02m)

Drilling Contractor and Rig: Mitchell Drilling, Rig 132

Well Abbreviation: GR064 (FCCM Pilot 2)


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Figure 1: Regional Location of PL191/PL196

GR063

GR064


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Figure 2: Location of PL191/PL196 and 2007 MGP Exploration Wells


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2. GEOLOGY

2.a. Geological Summary

2.a.1 Regional Geology

PL191 and PL196 are located on the north-western flank of the Permo- Triassic Bowen Basin in Central Queensland. The sedimentary strata in this area were deposited on the Collinsville Shelf, a stable tectonic environment situated to the west of the major depositional axis of the northern Bowen Basin, the Taroom Trough.

The area is mantled by an irregular cover of poorly consolidated Tertiary sedimentary strata and both fresh and weathered basalt of the Suttor Formation. The Tertiary cover overlies the Triassic sediments of the Mimosa Group, which in turn overlies the sediments and main coal-bearing units of the Late Permian Blackwater Group.

The Late Permian Blackwater Group is divided into three terrestrial units, namely the Moranbah Coal Measures (MCM), Fort Cooper Coal Measures (FCCM), and the Rangal Coal Measures (RCM).

The stratigraphic relationship between these coal measures is shown in the table below:

Age Formation South North

Triassic Mimosa Group

MoolayemberFormation

MoolayemberFormation

Clematis Sandstone Clematis Sandstone

Rewan Formation Rewan Formation

Late Permian

Blackwater Group

Rangal Measures

Coal Rangal Measures

Coal

Burngrove FormationFort Cooper Coal MeasuresFairhill Formation

MacMillan FormationMoranbah Coal MeasuresGerman

FormationCreek

Figure 3: Stratigraphic Nomenclature of the Northern Bowen Basin

Moranbah Gas Project – 2007 Exploration Program - Well

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2.a.2 Local Geology and Stratigraphy

Primary coal measure sequences targeted for exploration and production within the CH4 tenement areas are the RCM, FCCM, and the MCM.

The RCM conformably overly the FCCM, and are targeted elsewhere by Arrow Energy as a potential gas resource. The RCM are typically 150 metres thick, with two main coal seams ranging in thickness from 3 to 9 metres.

The FCCM are up to 400m in thickness, and comprised of sediments including coal, sandstones, siltstones and mudstones. The FCCM coals are characterised by up to seven seams varying in thickness from 6 to 60m. Their high inherent ash ratios, and abundant associated tuffaceous beds, distinguish the FCCM coal seams.

Despite the FCCM’s low gross to net coal ratio and poor permeability’s, they represent a potential gas resource. The FCCM conformably overlie the MCM.

The MCM are the main target for coal seam gas exploration and production within the MGP. The MCM consist of coals, sandstones, siltstones and shales; and range in thickness from 250-300m.

2.a.3 Site Geology and Stratigraphy

The site geology for GR064 is based on the adjacent exploration well GR041.

This well encountered Tertiary sediments belonging to the Suttor Formation (0-13m). These consisted of soil, clayey sand, gravelly sand and sandy gravel. Base of weathering was 24m.

The well did not encounter any Triassic sediments of the Mimosa Group.

The Tertiary sediments overlie the Permian sediments of the FCCM (13-191.02m). In the Moranbah area the FCCM is divided into the Burngrove and Fairhill (FH) Formations. These consist of fine to medium grained sandstone and siltstone, with occasional coal seams (up to 2m thick) and tuff bands.

The Fairhill Formation (130.2-191.02m) occurs towards the base of the FCCM. This consists of highly interbedded coal, claystone and mudstone, a feature of the FCCM. The Fairhill Seam, which forms the base of the FCCM, was 3.01m thick.

The drilling of GR041 has identified three broad potential gas bearing zones: 130-141m, 142.5- 165.5m and 176-192m. Within these there are four zones of interest (with net coal thickness of 12.50m) and are shown in the table below:

Interval Depth From (m) Depth To (m) Interval Thickness (m) Predicted Coal (m)1 131.0 135.6 4.6 3.22 136.7 140.7 4.0 3.43 160.0 165.6 5.5 3.64 188.0 190.9 2.9 2.3


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The total depth of GR064 should not exceed 215m, as the top of the QA1 seam is at 215.2m. If the QA1 seam is drilled into, production testing of the FCCM may be compromised. Strict geological control will be required during this stage to ensure this seam isn’t entered but still allowing for as large a sump as possible below the Fairhill seam.

The drill rig should also be equipped for continuous gas monitoring during drilling of the well. As the FCCM has a high net coal thickness, and potential high gas resource, close gas monitoring will be required to identify more prospective zones. These zones will be determined by the driller and geologist and identified for potential under-reaming, either during the drilling of the hole or once TD is reached (process to be decided on by drilling department). As such, decisions regarding target zones or intervals will be made during the drilling process.

Figure 4: Moranbah Gas Project Area Stratigraphic Section


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Figure 5: Structural Elements of the Bowen Basin (after Nguyen and Dewhirst, 2002) – The MGP is located within the Collinsville Shelf, northern Bowen Basin

2.b. Previous Exploration

ARROW ENERGY (previously CH4) has been producing Coal Seam Gas from the Goonyella P and Goonyella Middle (GM) seams in the PL191 and PL196 areas of the Moranbah Gas Project.

Further prospective targets for future development of coal seam gas resources have been identified as the FCCM, FH, QA1, QA2, QB, and GML seams of the MCM (refer to Figure 4).


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Previous exploration drilling and reservoir testing conducted by CH4 in the area identified the development of thick coal seam gas reservoir seams, with a nominal resource potential of about 400PJ.

However, the exploration work to date has comprised only reconnaissance wells (CH4 GR series exploration wells) which are concentrated in the south half of PL191 and PL196. (Refer to Figure 2 for location of GR series exploration wells)

It is proposed this stage of pilot drilling be undertaken to establish production data for the prospective FCCM. The program will comprise the drilling of two production wells, one in both PL191 (adjacent to GR058) and PL196 (adjacent to GR041).

These wells will supplement potential Pilot Well Programs in the GU/QA/QB and GML seams (refer to Figure 4).

This well will be a chip hole, drilled under-balanced with air. As it will be a production well, no desorption or permeability testing will be conducted on coal seams within the FCCM.

2.c. Reasons for Drilling

GR064 has been planned to test the FCCM to a depth of approximately 191.02 metres. The main target is the FH seam, and is expected to be intersected at approximately 188.01 metres. The hole will be drilled to a total depth of 211m (allowing for a 20m sump below the Fairhill Seam).

This well forms part of a pilot program over PL191 and PL196 of the Moranbah Gas Project (MGP), comprising the drilling of 2 production wells and will provide production data for the FCCM.

2.d. Predicted Section

Predicted Borehole: GR064

Collar Coordinates Easting : 614968 AMG EastNorthing : 7563114.8 AMG North Elevation : 209.12m ASL

Target Seam From Depth (m) To Depth (m) ThicknessTertiary 0.00 13 13Base of weathering 24.00FCCM 13 191.02 178.02Fairhill Seam 188.01 191.02 3.0

Figure 6: Predicted Formation Depths and Thicknesses


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3. WELL PROPOSAL

3.a. Drilling Procedure / Hole Design

The following is a guide for drilling GR064.

This hole is to be drilled ONLY on day shift.

Hole DesignThe following is a guide for drilling the well. The actual work carried out may be contingent on the results during drilling and any subsequent special instructions. In the absence of any special instructions, use the guide below.Drilling Program is as follows➢ Survey and clear wellsite as per drill site preparation procedures➢ Site preparations, including mud pits, a flare pit as required by drilling rig. Ensure

that the flare pit is at a minimum distance of 30m from the well. Site offices and parking areas should also be 30m from the well.

➢ Dig out and emplace cellar as required by drilling contractor➢ Mobilisation of drilling rig, necessary equipment and personnel to well site➢ Ensure pre-drilling and Site Inspection Checklist has been filled out➢ Ensure all personnel have been inducted as per Arrow Energy’s Occupation

Health and Safety Procedures➢ Rig must be equipped for continuous gas monitoring during drilling of the

well➢ Drill and set 10-3/4” (273.1mm) conductor pipe to ~6m and cement with no less

than 1.64 SG➢ The specific gravity (S.G.) of cement slurry must be measured with conventional

and/or pressurized mud balance at atmospheric pressure and/or under 100psi simulated pressure.

➢ Cement powder & grout mixes – Portland/ GP 30 litres of water per 1 bag (40kg) of cement and/or Class A blend Builder’s cement with 25% (pozzolan / fly ash) 1 bag (40kg) mixed with no more than 25 litres of fresh water.

➢ Drill 250mm (9-7/8” and/or 10”) hole to ~125m at least 20m into competent strata. Do not just blindly set casing point at the depth predicted.

➢ Run API 5LB 219.1mm OD x 6.4mm WT (8-5/8”) surface casing to ~125m and cement using S.G. of 1.64 – 1.72 g/cc (to be checked with mud balance) with minimum of 50% excess or as per hole condition advised by the Arrow Senior Drilling representative.

➢ Install well head flange.➢ Allow cement to set for a minimum of 6-8 hours before BOP test conducted➢ Cement to be topped up as required immediately or within 12 hours (12 hrs if left

overnight) and left to set a minimum of 2 hours prior to setting up of blow out prevention equipment and/or Washington diverter.


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➢ Drill out cement plug using air and water injection (approx 30m), then perform an airlift test – recording water & gas production rates.

➢ Drill to ~211m using 7-7/8” PDC bit utilizing air and water injection. If excessive water influx is encountered, contact Arrow senior drilling representatives to discuss a change to fresh formation water mixed with KCL at 3 % (30 kg per 1000 litres) as drilling fluid. Maintain this KCL content until TD is reached.

➢➢ At any time do not mix KCL (% wt) greater than 3.1% (31.7 kg/m3) to keep

hydrostatic head in wellbore in near balanced state between 1.003 - 1.020 S.G.➢ Deviation surveys are to be run every 36m. (Survey interval maybe increased

dependant on results, after written confirmation from Arrow Energy’s head office)➢ Deviation must not exceed 2˚. If excessive deviation is starting to occur, stop

drilling and consult with Arrow Energy’s Drilling Representatives.➢ Upon reaching TD the hole is to be flushed clean of cuttings and a wiper trip may

be necessary depending on hole conditions➢ Flow test well if directed by Arrow Energy head office and take water samples➢ If gas flows occur, rate of flow should be recorded and samples should be

collected (minimum of 3)➢ Underreaming to 16”

- Select coals from wireline logs to underream with 16” mills drag-type underreamer to increase surface area of production intervals. Consult with Arrow Energy’s Brisbane Exploration and Reservoir Representatives.

- If required, run caliper log over under reamed zones to check that the entire zone was under reamed. If not then zone may have to be under reamed again

- Jet underreamed intervals to clean hole of cuttings and enhance fractures generated during the reaming process.

➢ Run API 5LB 168.3mm OD x 6.4mm WT (6-5/8”) production casing across 7-7/8” open-hole production interval. A casing program must be developed in conjunction with the wireline logs. Where possible 30-36m of unslotted casing must be run at the bottom of the string with pre-slotted run over the coals and unslotted casing run over the non-coal bearing zones.

➢ Due to the excessive loads on pc pumps, torque anchors are to be attached on our pump assemblies so that the pumps don’t “back off” during production. Therefore the following must be adhered to on all production wells so we caneffectively run torque anchors.

➢ The bottom 30-36m of 6-5/8” casing is to be tack welded together and/or secured using BakerLock Compound (the pump will be set within the sump section of the casing string where there is no slotted casing). Hole must be filled with water and gas monitoring setup during this process. Risk assess the operation and check well for gas levels prior to proceeding.

➢ The base of the liner string is to be left open with no cement plug emplaced until the workover rig arrives.


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➢ 6-5/8” production liner should hang a minimum of 20-30m inside the 8-5/8” surface casing.

➢ Upon completion of drilling operations the well head is to be attached prior to demobilisation of drilling rig

3.b. Well Completion

3.b.1 Casing Program :

Surface Casing Production LinerHole Diameter

– Inches:9-7/8” (250mm) 7-7/8” (200mm)

Casing Size –Inches:

219.1mm (8-5/8”) 168.3mm (6-5/8”)

Weight: 33.57 kg/m 25.55 kg/m

Grade: API5LB x 6.4mm WTAS1396

API5LB x 6.4mm WTAS1396

TypeCoupling:

Welded Threaded couplings/Welded

Make: Steel Steel

Approximate Setting Depth

~50-60 m ~30-40m – 211m/TD(MT/S liner hanger to overlap 20m inside

surface casing)

3.b.2 Fluid program: The following program is set for drilling surface and production zones, as well as under

reaming

9-7/8 and/or 10” bit to surface casing shoe: drill with formation water only

7-7/8” bit drill out cement and to 30m below surface casing shoe with air (and water

injection if required)

From this point to TD .drill with Air using 1-2% foam. If significant water is encountered

and air drilling cannot continue switch to clean formation water mixed with 3 % KCL

(30kg per 1000litres) Do not drill with fluids used to drill the surface section or the drill

out of the cement.

16” under reaming of coal production zones: under-reaming of coal must be done on

air using 1-2% foam. Since foam is rheologically a dynamic and complex mixture of gas

and fluid, good measurements e.g. 1-2% continuously injected are needed to

(a) Maintain under-balance in the system across the entire open-hole section,

(b) Eliminate annulus pack-off, and


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(c) Optimize bit hydraulics in narrow annuli.

Figure 2: Typical Wellhead Diagram


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3.b.3 Hydraulic Jetting & Well Stimulation Methodology The jetting tool is rotated at a speed less than ten (10) rpm. The jetting tool is positioned at one level for not less than two minutes and then moved to the next level which should be no more than 6-10 inches vertically from the preceding jetting level. Jetting proceeds from the bottom of the production casing/ liner to the top. Jetting should extended by optimizing the well efficiency, stabilization of reservoir material, and control of suspended solids. The development of a Coal Seam Gas (CSG) reservoir shall not be concluded before continuous clean, silt-and sand-free supply of water is obtainable at the full flow capability using foam and air-lift techniques.

This results in a rearrangement of the remaining water-bearing material to form a coarser but stable filter which retains the aquifer. A sand/silt free discharge can be regarded as having a sand particle content of no more than one teaspoon (~10-20cc of solids/ particles) per 1,000 litres pumped using air-lift techniques at maximum rates. This is considered by industry as particle-free hole within acceptable and practical limits.

3.b.4 Well Development Test Development shall be considered satisfactory when the following have been achieved:-

(a) Operation of the final mechanical and chemical (anionic surfactants) procedures being used that is hydro-jetting of the production liner assembly for a one hour period produces no further noticeable sand or silt.

(b) Formation water is relatively clear when air-lifted at maximum air-pack volume/ pressure rates.

(c) There is no sand/ debris in the bottom of the casing sump after the one-hour hydro- jetting/ well development period.

(d) There shall be no increase in specific capacity of the well during a four-hour pump/ air- lift testing technique.

3.b.5 Testing for Sand & Debris content in wells 1. 15 minutes after start.2. After one quarter of total planned test time.3. After half of total planned test time.4. After three quarters of total planned test time.5. Near the end of test.

The minimum recommended volume of water sample collected for testing for sand/ debris content shall be the test pump rate of flow in litres per second (L/sec) multiplied by three with a maximum volume of 100 litres. The minimum volume required for wells tested at less than five litres per second must be 20 litres.


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3.c. Reporting

Daily drilling reports will contain:

Well name

Date

Current depth and meters drilled today

Current operations summary

Next 24hrs operations summary

Detailed description of the days operations

Chip/core descriptions

Wellsite geologist interpretation of results so far

Gas readings

Foreseeable problems

Wellsite geologist name and contact number

Drillers name and contact number

The report will then be sent to the approved Arrow distribution list

4. CONTRACTOR CONTACT LIST

Drilling Contractor: Mitchell DrillingPhone number (07) 33637333Fax number (07) 33637399 Email [email protected] Address 112 Ebbern St Darra 4076

Geophysical Logging: Geoscience Logging Pty Ltd

Surveyors:


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5. REFERENCES

SURAT BASIN ATP 683 Dalby South Block Meenawarra- 4 Walloon CSG Well Proposal January 2007.

NGUYEN, D.L., & DEWHIRST, N.H., 2002. ATP 471P, MNL Barker -1 , Well Completion


Task Description of Task

Tools, equipmentPPE

Hazards within the task Raw Risk Controls Residual

Risk

1Drilling through surfical sediments to between 6–20m

Drill Rig Hole Collapse 8Drill hole rapidly and do not leave open for significant lengths of time prior to running casing

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2

Drilling through Tertiary sediments, and possible basaltflows

Drill Rig Hole Collapse 5

Drill hole rapidly and do not leave open for significant lengths of time prior to running casing.Revert to mud drilling if required

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3.Drilling through Fort Cooper Coal measures

Drill rig Hole collapse 8

Drill with mud if hole stability is in question, don’t leave rods in hole if there are any indications of instability, give hole a thorough circulation prior to pulling rods to build up a thick mud cakeUse KCl mud to control clays

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Gas blowout from coal 14

Use t-piec divertor or Washington rubber with 12 metre long blooie lineMonitoring of mud pit levels to detect any influx into wellDrill on mud prior to setting surface casing

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Gas leaking from mud into air around rig causing fire hazard 9

Continuous gas monitoring, eliminate ignition sources from wellhead

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