Ann: Operating Update - Mercury Stetson , page-2

2 May 2012
ASX release
Operations Update – Mercury Stetson
· Gas produced from Woodford during production testing
· Sufficient to flare – however reduced rapidly
· Frac slot secured for Barnett test last week of May
2 May 2012: Challenger Energy Ltd
(“Challenger”) has completed a
production test on the Woodford shale.
Having reduced the water rate to below 10
BBL/hr, the well was put on production test.
The gas rate was sufficient to light and run
a flare, however it was not sustained due
to continued influx of water into the well
bore, increasing the pressure on the
formation ultimately killing the well.
Challenger has now shut- in the well to
carry out a pressure build up evaluation of
the well, ahead of mobilising a service rig
to strip out the tubing and set a bridge
plug above the Woodford Shale. A similar
stimulation and testing as that just
completed is planned for the Barnett
Shale.
An initial evaluation of the results suggests that the fracture stimulation was not effective in
providing a broad contact with the reservoir as is typically the case in these treatments.
Challenger is reviewing the frac design for the Barnett to take into account the information
obtained during Woodford Frac.
The log analysis indicates that the Barnett Shale interval in the well contains 450 net feet of
richly organic, porous and, brittle shale. This interval is more than twice the thickness of the
Woodford, and zone selected for the Fracture Stimulation has porosity as much as 50%
higher than the zone tested in the Woodford.Prospect Overview.
The Mercury Stetson Prospect contains two of the premier shale formations in the US – the
Woodford and Barnett shales – in geological extensions of the core producing areas in the
Arkoma and Fort Worth Basins.
The key well on the Mercury Stetson Prospect was drilled in 1978 before the development of
any of the shale gas plays in the US. It identified that both shales present in the well had the
same log signatures, geochemical characteristics and thicknesses as those found in the
core producing areas of both the Barnett and Woodford shales.
Based on the technical information available from this well, the two shales are estimated to
contain in excess of 360 BCF/sq mile of gas in place. Interpretation of the current seismic
data suggests that the prospect area is ~ 55,000 acres (85 sq miles).
The core objective of the testing program is to demonstrate that gas can be delivered to
surface from both the Barnett and Woodford shales in the prospect area. This is the critical
piece of information that will underpin the validity of the massive gas in place and
commercial potential of the prospect area.
Challenger Energy has agreed to farm in to earn 50% of the Mercury Stetson Prospect
which includes the Barnett and Woodford shales - both proven shale formations. The
prospect which is potentially up to 55,000 acres (86 sq miles) has a massive potential gas in
place with OGIP estimated at 360 BCF/sq mile. The JV area initially includes 26,000 acres
contiguous land position with three pipelines across prospect with an initial target of 35,000
acres across the prospect.
Further updates will be provided in due course.