Ann: Operations Update, page-77

Hi Guys again.

Said goodbye To Dad yesterday. Very sad day for all the family but lovely to know that many here were thinking of us and have and still r going thru this same journey themselves with their families.

Couple of things from this update to keep in mind.

Some might find Dave's email response somewhat underwhelming but as he says or intimates there can still be issues even once the proppant is placed in the reservoir.

It seems logical to assume that a level of fracturing has taken place given they have been able to insert the proppant into the RESERVOIR.

But the effectiveness of the fracking and the complexity of the networking will only b revealed by the consequential flow rate.

Why?

The effectiveness of the proppant placement is reliant on HOW it placed.

There is the possibility of a condition known as EMBEDMENT. This is a confusing term as it actually is not a positive condition for the placement of the proppant.

As the pure petro definition of the word implies, there is a level of BURIAL of the proppant into the shales surface which will alter the friction coefficient of the artificial permeability fracture channels to the negative by roughening them which can have an obvious slowing potential. Visualise a ball being thrown into mud and you've pretty much got into.

Another issue that may still be faced, but one that they will mitigate with frac juice additives if they feel it necessary to stabilise the fractured shale channel surface, is flaking of the shale and migration of the clay flakes into the new permeability channels.

However, given the relative stability of the Illite Vs Smectite clays present one hopes this will not be an issue. Ice 1 results showed us that the clays present were non swelling and this implies structural stability of the clay, those being Illites as talked about b4, but may not guarantee it.

This is not to say that any of these conditions will occur and the proppant placement definition may well be exactly what was required, the shale will indeed be stable or stabilised and there will be no flaking and potential reduction of flow.

It's interesting that they use the word "success". But due to the above one must meter ones enthusiasm, as the market did today, becos once again until they flow the reservoir they cannot possibly know the effectiveness of how the proppant placed or how the shale fractured.

Given the speed at which this is moving we will soon know as Dave mentioned HOURS for the completion of stage 2 stimulation.

Then comes flow back and then we find out how it flows via the variation of the well head choke for the upper zone and then combine with the lower zone flow.

One might expect a similar stage 2 annmnt very soon but with a similar market reaction given the same potential issues will exist with this zone as well:

If we can take solace in one factor, and that's that they seem to be happy that the necessary AMOUNT of proppant was placed which may imply the fracture volume, and hence fracture complexity may be present.

Its simply a matter of rolling with these annmnts and not over analysing then to the positive or negative.

As they have been clear in the annmnts it will be with the flow results that we will get true clarity of the HRZ as a next potential major shale play.

d.