worth a read

TECHNICAL REPORT

ON

BLEUE LORRAINE

COALBED METHANE PROJECT

N.E. FRANCE





Dargo Associates Ltd
April 2006


Preface.

At the request of Heritage Petroleum plc. Dargo Associates Ltd (DA) have been
commissioned to produce a technical report on the progress of the Bleue Lorraine Coalbed Methane (CBM) project in NE France.

The report reviews the current state of knowledge and the progress made since the last
evaluation by DA in April 2005.

The review included the visit to the office of Charbonnages de France (CdF), the examination of additional reports, maps and plans as well as discussions on and visits to the proposed well sites within the St Avold and Alsting Development Areas.

The current state of the project is appraised and conclusions given. All is based on the
available data at the time of the visit.


Dr Larry Thomas.
Director.
April 2006.

1. Introduction.
A visit was made together with Alan Flavelle and Gilbert Clark of European Gas Ltd (EGL)
to the Bleue Lorraine concession area in NE France.
This included visits to the offices of Charbonnages de France (CdF) and to the Department of
Geology, University of Metz, where relevant data pertaining to the project were viewed.
A number of geological and technical reports were provided by EGL, a review of these
together with discussions were held with EGL and M. Mattieu Sutter, consulting Engineer,
and ex-mine manager for CdF.
The selected field locations for the first stratigraphic wells in the St Avold and Alsting
Development Areas were visited and the surrounding infrastructure was observed.

2. Data Collection.
A number of reports were provided by EGL, some of which had been reviewed in a previous
report by DA in April 2005. These reports are:
Offering Memorandum – Enron Exploration France SA, May 1999
A Review of Exploration and CBM Prospectivity in the Enron Concession, Lorraine Basin, NE France – Petrologic Services, April 1999
Coal Bed Methane Appraisal, Lorraine, France – Gaffney, Cline & Associates Ltd, February 2006, Gazéification in situ du Charbon Site de Faulquemont, Étude Structurale – J L Bles & J Lozer, BRGM, Juin 1980, Gas in Place Calculations per Bleue Lorraine – EGL, November 2005, A note on gas in place calculations – CdF.

In addition, copies of maps and plans of the St Avold Development Area, illustrating geology, block selection and gas in place values were provided.

Data was also viewed at the CdF office in St Avold. Here are kept very detailed records of all surface and underground exploration and mine development works. These include all borehole records, coal seam details, coal sample locations and descriptions together with gas in coal analysis results. These records include hundreds of entries and are testament to the detailed work carried out by CdF over a long period of time. They are strongly influenced by the nature of the geology and the ever present problem of large amounts of gas being present in the workings.

3. Geology.

3.1 Geology
The geological records of CdF together with the wells drilled by Windsor France SA, Enron Exploration France SA, and the BRGM Memoire 117 by M Donsimoni, give a detailed analysis of the geology present both within the Bleue Lorraine Concession Area and in the surrounding Lorraine Coalfield area. These were reviewed in the DA Report of April 2005.
The coal bearing sequence of Carboniferous (Westphalian) age are concealed beneath younger sediments of Permian and Triassic age (Permo-Trias). The basin contains a large number of faults many of which affect only the Carboniferous geology beneath the Permo-Trias cover.

The pre-Permo-Trias geology is shown in Figs 1 and 2. From Fig 1, it can be seen that the structural ‘grain’ of the Lorraine coalfield is one of NE-SW trending folds which have been affected by an NE-SW, NW-SE orthogonal pattern of faulting. The principal areas of interest centre on the anticlinal crest areas of Merlebach-St Avold and Alsting (Fig 3). Strata folded upwards tend to produce internal fracturing due to stretching of the rocks, a property favourable to CBM extraction.

The sequence present in these areas is characterised by an overlying thick sequence of
sandstones and conglomerates (Permo-Trias) overlying more steeply dipping sandstones,
mudstones and coals of Carboniferous age (Fig 4). Within the Carboniferousd sequence there are a number of groups or ‘packets’ of coal seams which can contain over 10m of coal interbedded with only thin non-coal horizons. In the Folschviller boreholes these coals are present as three distinct groups at depths of less than 1,000m. Included is the ?, ?1,ß, a packet or group of coals (Fig 5).

3.2 Geophysics.
A series of sismic sections was shot across the St Avold and Alsting areas, these surveys
illustrate the structural character of the Lorraine Coalfield. Fig 6 shows a comparable example of the seismic interpretation of the Lorraine Basin to the SW of the Concession Area around Chaumont. Here the steeper dipping Carboniferous is interpreted beneath the shallower dipping Permo-Trias cover. Faults are interpreted as terminating at the Carboniferous-Permo- Trias interface. CdF hold downhole geophysical logs of a number of boreholes drilled in the areas of interest. These indicate the detailed character of the coal packets as well as depth control and the geotechnical character of the strata.

3.3 Stress Field analysis.
The existing stress field within the strata of the Lorraine Basin has been studied extensively by CdF. M. Sutter has obtained the following value for the principal stress components in the Lorraine Basin. The vertical stress constraint dz is approximately 30 Mpa (MegaPascals) at -1,250m, and the horizontal stress constraint dh is 24 Mpa with orientation SE-NW. There is also a secondary horizontal stress constraint of 18 Mpa with orientation NE-SW. These horizontal stress components mirror the orthogonal fault pattern in the basin. According to Heim’s Rule (Hoek & Brown 1980) at depths in excess of 1,000m, there is a tendency for the average horizontal and vertical stress to even out, this is borne out by the above figures.

The figures provided are considered by CdF to be normal values in the Lorraine Basin at
1,250m but there may be local variations.



4. Gas in Place Calculations.
During the years of active coal mining in the St Avold area, the extremely ‘gassy’ nature of the coal bearing strata has posed problems for the mining operations, particularly in the anticlinal areas. For example, when the Folschviller mine attempted to drive a heading towards the workings of the St Fontaine mine to the NE, in order to develop a new coal field ‘the Big South’, the operation had to be abandoned due to the presence of large amounts of methane gas (CH4) being emitted from the exposed strata.

In all the mining operations, underground drilling was normal practice, and coal samples
obtained from these drill holes were analysed for CH4 content in the CdF laboratories.
These results run into hundreds and the ledgers in which they are recorded were examined in the CdF office in St Avold.

Fig 2 shows the average values for coal CH4 contents for selected block areas in the St Avold development Area. These values range from 5m3/t to 19m3/t for those blocks where data is reliable. For planning, those blocks without values have been extrapolated from known values in immediately adjacent blocks. These coals lie within 1,000m of the surface.

These values are encouraging when compared to the CH4 content in coals in the productive CBM field in the Warrior Basin in USA which has values of 8-16m3/t at depths of 4-700m. CdF have made gas in place calculations for the St Avold blocks as shown in Fig 7. The method of calculation is: The cumulative thickness (m) of coal in each block area multiplied by the area of the block multiplied by the Specific Gravity value (SG) of the coal to give a coal tonnage present in the block. A SG value of 1.35 has been selected by CdF which is acceptable.

Once the gas in coal values (m3/t) are known for each block area, a gas in place estimate can be made. i.e. coal tonnage x gas content = gas in place (million m3, or million cft)

In Fig 7, CdF has assigned coal tonnage and gas in place figures to those blocks where CdF are confident of the reliability of the data. CdF have never mined in the Alsting area, here the Windsor and Enron wells have provided the only gas in coal calculations. These indicate encouraging gas in coal levels situated in a favourable structural setting.
EGL has produced a Gas in Place Report for the two Development Areas in November 2005.

In it they calculate the predicted gas in place volumes for the St Avold and Alsting
development Areas. The St Avold area, as described above, has a large data base to draw from. The Alsting area is outside the CdF mining areas and therefore the data is much more restricted to a number of seismic sections and the Enron Diebling and Johansviller 1 wells.


The St Avold area is 50 km2 in area, and has been divided into 50 sub-blocks each 1 km2 in area. Using a depth cut off of 1,500m, plus the coal tonnages calculated by CdF, together with the use of an average gas in coal figure of 10m3/t for the northern part and 8m3/t for the central and southern parts, a total gas in place figure of 11.69 bm3 (414.9 bcf) has been calculated for the area where accurate information is available, an average of 0.37 bm3/km2 (12.97 bcf/km2). The figure is based on an average cumulative coal thickness of 34m over 230m. The Permo-Trias cover ranges from 5-800m in thickness and acts as a sealant above the coal bearing sequence.

In the Alsting Development Area, due to the paucity of real data, a large part of the area has not yet been quantified. The Enron wells gave gas in coal contents of 9m3/t at –1,000m to 21m3/t at –1,300m. The coal thicknesses are calculated from the well sections (a cumulative thickness of 32m in the Johansviller 1 well). Lateral reliability is supported by interpreted seismic sections across the Alsting Anticline, and the calculation is restricted to the anticlinal crest area.

Using these criteria, EGL have calculated a gas in place figure of 16.3 bm3 (576.3 bcf), an
average of 0.48 bm3/km2 (16.97 bcf/km2).

At this stage of the project, it is sufficient to say that there is every likelihood that the gas
volumes quoted are in the right order of magnitude.

5. Stratigraphic Well Site Selection.

5.1 St Avold Development Area.
The site selected for the first stratigraphic well is shown on Fig 8. It is sited between the
Alexandre and Valmont Faults and is to intersect the southerly dipping coal bearing sequence beneath the Permo-Trias cover. The ?, ?1, ß, a packet of coal seams is targeted (see Fig 5) at a depth of –800m. faulting has been avoided where known to reduce the likelihood of water ingress into the borehole.

The site was visited and the land surface is relatively flat (photo 2) close to the existing
infrastructure of the towns of St Avold, Valmont and Folschviller. Preparations in the form of tree and hedge cutting has begun and the date to commence drilling is scheduled for June 2006. Once the well is completed and all sampling and analyses recorded, a specialist drilling company will be engaged for the next stage of the project to drill an inclined well into the target coal seams up dip, followed by the drilling of laterals from this along the strike of the coal seams, an approximate 3,000m of drilling. This is scheduled to be completed by end October 2006.

5.2 Alsting Development Area.
A site has been selected near Diebling (photo 1), this was visited and is set in rolling
countryside away from housing but with good road access. The site is selected as it is on the crest of the anticline, not close to any known faults and can access coals at depths less than 1,500m. This well is scheduled to follow after the testing of the St Avold well.




6. CBM Prospectivity.
6.1 Requirements.
In order to produce CBM, the following criteria are required:
a) Thick amounts of coal, in discrete packets.

b) Moderate to high rank coals with low ash contents.

c) Significant gas in coal contents, preferably greater than 8m3/t, increasing with depth.

d) The combination of a) and b) to give an estimate of gas in place volumes to indicate
the potential economic viability of the project.

e) Favourable geological structure:
i) Macrostructure: presence of anticlinal folds, areas of stress relief. Block
faulting possibly producing stress relief but also may be gas traps and may
also act as conduits for groundwater in the area.
ii) Microstructure: good development of cleat in the coal seams to produce
large surface areas on which CH4 can be absorbed. Fig 9 illustrates the
orthogonal cleat patter in a bituminous coal similar to that found in the
Lorraine Coalfield.

f) Good permeability within the coal packets and surrounding strata. Permeability is the
ability of gas/fluids to move through the rock sequence. The degree of porosity and/or
fracturing within the rock sequence determines the level of permeability. This is of
major importance in relation to the production of CBM in commercial quantities. If the
sequence has low permeability, then induced fracturing of the coal underground may
be required to raise the permeability level. A significant consequence of lower
permeability is the requirement of a greater density of production wells in order to
maintain economic gas production.

g) The overlying strata should provide an effective sealant preventing gas migration and
escape.

h) The availability of a good data base, encompassing regional and local geology, coal
seam development, structural features and coal quality and gas in coal data.

i) Proximity to potential customers, i.e. close to existing infrastructure.


6.2. Bleue Lorraine CBM Prospectivity.
From the examination of the data and from information received from EGL and associated personnel, the Bleue Lorraine CBM prospect has all of the above criteria in place except for f) permeability. The large amount of data available from CdF has enabled the St Avold Development Area to be targeted with a degree of optimism, and in the case of Alsting, the required criteria are also in place although based on less data and fewer control points.
Having said this, the one remaining deciding factor in terms of CBM production and
economics is the ability to induce gas desorption underground in sufficient quantities, and get it to the surface and then to the customer. Until the test wells are completed, gas content and permeability values are obtained, and the successful application of the in-seam drilling technology is demonstrated, this remains the principal unknown at this stage of the project.

The known high gas liberation levels from the coals in previous underground workings in the St Avold area suggest that there is every likelihood that gas returns should be high in this area. The Alsting area, which has been previously drilled has question marks over the permeability levels present in the coals. Newer technology may help to resolve this in the drilling of the test well.

7. Conclusions.

1. The geology and structure of the selected development areas is well known. The
details of the lithological sequences and in particular the thickness and distribution of
the coal seams is well documented. In addition, the orientation and magnitude of the
prevailing stress field is well understood, and the hydrogeological regime has been
evaluated.

2. Due to the diligence of CdF during its mining operations in the St Avold area,
numerous samples were taken for gas analysis. Some data was obtained from the
Enron wells in the Alsting area.

3. The data base held by CdF is extensive, but may be lost to EGL after end of 2007
when the CdF office closes and becomes part of BRGM. It is essential that the relevant
data, such as gas content records, coal qualities, borehole and geophysical records are
loaded onto an EGL data base for project use. This could be done during and after the
completion of the first stratigraphic well at St Avold.

4. The engagement of M.Sutter, a past employee of CdF will be an asset to the project, as
he has the background of coal mining in the area and knows where the data can be
obtained and the people who should be involved in the project development.

5. The appointment of a drilling manager will be important as the principals involved in
the project are widespread i.e. in S France, Australia, Monaco, UK etc. Good
communication will be essential.

6. The assistance of the Geology Department, University of Metz through Professor
Alain Izart may provide geological man power which will be required once drilling
commences.

7. A visit to the proposed well sites and an examination of the available data indicates
that the Bleue Lorraine prospect has the majority of essential features required for
CBM production.