Blue Energy Provides Operations Update on ATP814P (Australia)

Blue Energy Limited provided the following update on activities in the ATP814P permit.

Production testing activities are continuing on the Monslatt 5P well and the Monslatt 7/8H paired wells.

Monslatt 5P: Pilot pumping activities continue at Monslatt 5P with water rates increasing to the limit of surface equipment of approximately 60 barrels per day of gas cut water. Water level measurements in the well indicate that the P Seam is still not fully pumped off at this stage. The well has been recently offline for several days for repair and upsizing of surface pump equipment which should allow for up to 40% higher pumping rates. The well has now returned to pilot production test.

Monslatt 7/8H: Monslatt 8H was drilled as an in-seam well within the P Seam to intersect the vertical Monslatt 7 well. The pilot Monslatt 7 has been pumping gas cut water. In recent weeks, pilot production rates in Monslatt 7 have declined and pressure data from the two well bores indicated a blockage in the Monslatt 8H in-seam bore. Flushing operations were successfully conducted to clear the blockage in the last few days. Gas surges were reported throughout the flushing operations. Monslatt 7 is now back on pump. The water level will be gradually reduced in the well over the coming weeks to re-establish a “pumped off” state for continued pilot production testing.

A detailed study of the clay mineralogy within the Monslatt coals has been undertaken to better understand the damage mechanisms specific to the coals at Monslatt. Further laboratory and study work is in progress, and as a result, Blue Energy is proceeding to revise drilling, completion, and stimulation programs to ensure minimum formation damage in future activities.

Forward Plan

Blue Energy intends to conduct re-completion of Monslatt 4 and initial completion of Monslatt 6P in the P Seam, and to place these wells on pilot production test. Well work is being designed and most likely will include hydraulic fracture stimulations. This is consistent with the process of establishing the most effective completion mechanism for the Monslatt coals. Planning is currently well underway to ensure the stimulations are designed to incorporate new fluid designs and are conducted in accordance with the new regulations such that all fluids and additives to be used in the process are approved by the regulator. At this stage, nitrogen based fluids will most likely be utilised in both wells.

A new single appraisal and pilot well is planned to be drilled in the southern part of the Monslatt Block (south of Monslatt 6P). This well is located to define and extend the southern limits of the Monslatt area coals. The well will collect core from the prospective coals for further gas content and adsorption isotherm analysis, and provide additional permeability test data for the area.

In addition to the new well in the Monslatt Block, a new single appraisal and pilot well will also be drilled in the Sapphire Block of ATP814P to address conversion of contingent resources to reserves in the Fort Cooper Coal Measures, Rangal Coal Measures and Moranbah Coal measures.

A combined 60 km 2D seismic acquisition program is planned for the Monslatt and Central Blocks in ATP814P.

Blue Energy is currently working through logistical issues of drilling rig and seismic crew availability, but is hopeful that activities will commence in early August.

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Source: Blue Energy, June 24, 2011;