COMET RIDGE LIMITED

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Unconventional Gas in East Australia – Where Next ?

Tor McCaul, Managing Director, Comet Ridge Limited China-Australia Unconventional Natural Gas Forum, Beijing 7 November 2016

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ASX listed - based in Brisbane
Focus on natural gas in eastern Australia
Multi-basin presence
Southern Bowen (Mahalo)
Galilee
Gunnedah
Coal Seam Gas (CSG) Pilot schemes running at the Mahalo Gas Project with initial 2P and 3P reserves
Significant resource base in the Galilee Basin northwest of Gladstone (over 2200 PJ 3C)[1 ]
CSG
Sandstone Gas

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1Chapter 5 ASX Listing Rules disclosure Page 15

Australian Gas Market Background

Large continent
Small population residing mostly around coast, particularly in southeast
Historically small gas market relative to reserve base
Subsequently historically low gas prices
Gas resources are generally located at a distance from major population centers
Gas pipeline transmission network is sparse (compared for example, to US national pipeline network)
Three separate functioning gas markets developed independently; not yet interconnected

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Darwin
Brisbane
Perth
Sydney
Adelaide
Melbourne
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Source: Australian Energy Resource Assessment (GA), 2014

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Eastern Australia Gas Market Development

Late 1960s start of gas transmission and industrial and domestic use in the Eastern region
Bass Strait, Victoria (offshore)
Moomba, South Australia (onshore)
Roma, Queensland (onshore)
Initial LNG exports commenced mid 1980s
Northwest Shelf online and LNG export initially to Japan
Expanded later to South Korea, China and India
Further LNG development in west and north
Since late 2014, three LNG projects in Gladstone in the east (25 MMTPa)
Gas prices in eastern market are moving higher due to
Greater demand

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Eastern Australia Gas Market Currently

Massive increase in demand since 2014 due Gladstone LNG
Recent price spikes to above $25/GJ during high demand winter period
short term market only
long term industrial customers under pressure
Shortfall in gas supply to meet domestic demand from 2018
Development of contingent resources and reserves required to meet forecast domestic demand
How will the price of oil and global LNG prices impact on gas allocation between LNG and domestic markets?

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Historic Sources of Gas

Eastern Australia gas market supplied with conventional sandstone gas from 1960s – including associated gas (with oil production, particularly Bass Strait)

Aus Natural Gas Production and Consumption

Since late 1990s, CSG production grown substantially from Queensland
Eastern Australia production from conventional reservoirs peaked and now declining
Increasing requirement for production from unconventional resources
Significant volume of gas in place which was economically uncommercial to develop at lower gas prices
Move to tight gas reservoirs also aided by improvements to technology

Source: Unconventional Gas in Australia , APPEA (2016)

Australian Final Energy Consumption: 2013-14

Oil (38%) Gas (24%) Coal (32%) Renewables (6%)

Source: Unconventional Gas in Australia , APPEA (2016)

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Eastern Australia External Factors

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Significant green activism and disruption applied to gas exploration and production across Australia despite the significant contribution gas can make to curbing emissions
Moratoria on onshore gas exploration and development and other regulatory restrictions in several states and territories – LIMITING supply as demand INCREASES dramatically !
Queensland and South Australia have been blessed with gas common sense over the past several years
Increasing national awareness of need for gas power backup in an electricity network with growing renewables
Tension building between East Coast LNG export and domestic and industrial use – who will suffer decreased supply?

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Future Sources of Gas

New reserves will come from:

Poorer quality areas in existing CSG basins moving away from sweet-spots (i.e. Surat Basin)
Gladstone LNG projects likely to focus here
But can they get their costs down?
Untapped CSG in new basins further from market (i.e. Galilee Basin)
Smaller cap companies likely to focus here
Lighter touch with low overhead

3. Shale oil and gas

Current NT moratorium causing delay
High cost and long lead time?
Conventional gas moving into tighter sandstone reservoirs (i.e. Cooper and Galilee Basins)

Source: Qld Department of Natural Resources and Mines (2016)

LNG companies have tried very deep (high cost)
Smaller cap companies to try mid range depths (and lower cost)

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Production Challenges

Development of contingent resources and reserves will require a shift in focus away from high quality conventional reservoirs and CSG sweet-spots – and needs to be economic in a lower oil price environment!
Leading to increased technical challenges
Decreased reservoir quality – more data required to understand reservoir
Decreased permeability = decreased flow per well
Increased technical requirements including innovative completion methodology

Source: PSE Healthy Energy (2016)

Increased number of wells required to develop resource
Connectivity between wellbore and reservoir will remain a key technical driver for economic success
Increased requirement for stimulation techniques (and horizontal wells)

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Tighter Sandstone Reservoirs

Had been some Queensland focus on tighter onshore sandstone reservoirs in 1980s and 1990s however this was somewhat taken over by focus on CSG reservoirs from late 1990s

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Tighter gas opportunities exist in eastern Australia
Expect to see more effort in the short to medium term
Tighter sandstone reservoirs need to be approached much more carefully than conventional reservoirs. Considerations include:
Mud property selection / reservoir fluid sensitivity
Mud overbalance minimisation (balanced drilling?)
Drawdown minimisation avoiding fines mobilisation
Testing on penetration (not after logging)
Suitability of horizontal wells (and orientation)
Air / Nitrogen drilling
Identification and orientation of natural fractures (& stress regime)
Application of stimulation - hydraulic fracturing
Application of Short Radius Drilling (coiled tubing?)
Other methods, not yet identified

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Tighter Sandstone Reservoirs

Drill stem testing

Reservoirs can be fluid sensitive and very susceptible to damage via mud overbalance and mud components
Drilling to TD and obtaining logs can lead to unacceptably long delays before testing which can lead to poor DST flow results and negative assessment of potential reservoirs
For tighter zones, Mudlog data can be used to pick packer seats and testing prior to logging in openhole
Tests run immediately after penetration for least damage and best flow
Onshore operators often have experience with this
Tool strings consist of weight-set packers (either single or dual) to achieve zone isolation
Numerous Queensland examples of tight reservoirs with poor flow results after testing delays and overbalance. Offset wells tested on penetration or air drilled and showed considerably better results
Greater use now of electric line conveyed testing tools – eg MDT and FRT however time still a critical factor

Source: China Petroleum Technology & Development Corporation (CPTDC)

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Tighter Sandstone Reservoirs

Air / Nitrogen Drilling

High mud overbalance used during drilling of early exploration wells (1960s to 1990s) – resulted in non-commercial gas flows (field examples Rolleston, Yandina & others)
Air / Nitrogen drilling enabled commercial gas rate in a number of applications
Tighter reservoirs historically drilled with heavier mud weights may simply require drilling with Air / Nitrogen

Photograph: Beharra Springs 4, Perth Basin – Origin Energy

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Summary

The Australian east coast gas market has grown and changed drastically in the past two years
The steady growth in gas production has been focused largely around CSG for the past 15 years
Shale gas may come in the medium to longer term however maintaining gas into the east coast market in the short term is likely to come from:
Movement into lower quality CSG around the edges of current basin sweet-spots
CSG from new basins, more proximal to demand centres
Tighter sandstones
Research effort for unconventional gas at an academic level should also continue to support tighter sandstone gas production as well as CSG
Technical innovation remains critically important for lowered costs
The quality of the connection between the wellbore and the reservoir is likely to remain one of the key economic drivers for success in both tighter gas and CSG

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Important Notice and Disclaimer

Disclaimer

This presentation (Presentation) has been prepared by Comet Ridge Limited (ABN 47 106 092 577) (Comet Ridge). The Presentation and information contained in it is being provided to shareholders and investors for information purposes only. Shareholders and investors should undertake their own evaluation of this information and otherwise contact their professional advisers in the event they wish to buy or sell shares. To the extent the information contains any projections, Comet Ridge has provided these projections based upon the information that has been provided to Comet Ridge. None of Comet Ridge or its directors, officers or employees make any representations (express or implied) as to the accuracy or otherwise of any information or opinions in the Presentation and (to the maximum extent permitted by law) no liability or responsibility is accepted by such persons.

Summary information

This Presentation contains summary information about Comet Ridge and its subsidiaries and some of their activities current as at the date of this Presentation. The information in this Presentation is of general background and does not purport to be complete. It should be read in conjunction with Comet Ridge’s other periodic and continuous disclosure announcements lodged with the Australian Securities Exchange (ASX), which are available at www.asx.com.au.

ASX Releases

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Past performance

Past performance information given in this Presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance.

Future performance

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Forward-looking statements including projections, guidance on future earnings and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. This presentation contains such statements that are subject to known and unknown risks and uncertainties and other factors, many of which are beyond the control of Comet Ridge, and may involve significant elements of subjective judgement and assumptions as to future events which may or may not be correct. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a range of variables which could cause actual results or trends to differ materially, including but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates. Such forward-looking statements are relevant at the date of this Presentation and Comet Ridge assumes no obligation to update such information.

Investment risk

An investment in Comet Ridge shares is subject to investment and other known and unknown risks, some of which are beyond the control of Comet Ridge. Comet Ridge does not guarantee any particular rate of return or the performance of Comet Ridge. Persons should have regard to the risks outlined in this Presentation.

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Important Notice and Disclaimer

Competent Person Statement and ASX Listing Rules Chapter 5 - Reporting on Oil and Gas Activities

The Contingent Resource for the Albany Structure referred to at page 2 of this presentation are taken from an independent report by Dr Bruce McConachie of SRK Consulting (Australasia) Pty Ltd, an independent petroleum reserve and resource evaluation company, originally released to the Market in the Company’s announcement of 6 August 2015. The Contingent Resources information has been issued with the prior written consent of Dr McConachie in the form and context in which it appears. His qualifications and experience meet the requirements to act as a Competent Person to report petroleum reserves in accordance with the Society of Petroleum Engineers (“SPE”) 2007 Petroleum Resource Management System (“PRMS”) Guidelines as well as the 2011 Guidelines for Application.

COI confirms that it is not aware of any new information or data that materially affects the information included in the two announcements referred to above and that all of the material assumptions and technical parameters underpinning the estimates in the announcements continue to apply and have not materially changed.

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COMET RIDGE LIMITED Investor Presentation 2016

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