Australia: Oil Basins Limited Becomes Operator of Unconventional Shale Gas Permit 5/07-8 EP

Oil Basins Limited announced that effective from 12 July 2011, the Company has reached a formal agreement with its WA Canning Basin Permit Application 5/07-8 EP Joint Venture Partner Backreef Oil Pty Limited (BOL) for OBL’s appointment as Designate Unconventional Shale Gas (USG) Permit 5/07-8 EP Operator.

The permit interests upon award will be held 50% / 50% by BOL / OBL respectively.

The Company’s appointment as USG Operator Designate 5/07-8 EP is subject to the usual regulatory and stakeholder consents and also to finalisation and formal issuance of the permit. Specifically at all times all WA Department of Mines and Petroleum, Native Title and Environmental submissions and communications will go through BOL as overall permit Operator on award.

OBL advised that mediation with the Kimberley Land Council on behalf of the traditional owners is presently progressing and the Company is very pleased with progress to-date.

Exploration Permit 5/07-8 EP is a very large and hydrocarbon prospective address encompassing some 5,062 km2 and is most favourably situated to both the future James Price Point LNG Terminal, the proposed Point Torment industrial area and the existing infrastructure (roads, airports and harbours) and community and light industry facilities associated with the vibrant Kimberley regional townships of Derby and Broome.

Previously OBL was appointed CSG operator designate 5/07-8 EP Coal Seam Gas (CSG) Rights (refer to the ASX announcement on 26 March 2010) and fulfilled its agreed funding obligations with BOL during 2010 by commissioning and completing an Expert Report on the potential coal measures in the 5/07-8 EP Permit Area (released to the ASX in summary form on 1 June 2010) and by commissioning and completing an Expert Report on the CSG Prospectivity in the 5/07-8 EP Permit Area (released to the ASX on 8 July 2010).

The Expert Report concluded that Permit 5/07-8 EP is uniquely favourably positioned for CSG exploration within the Fitzroy Trough region with a number of shallow depth Permian aged coal depocentres which are likely to be prospective for gas production. The Expert Report assessed the best estimate CSG risked recoverable prospective 2P potential at circa 6.8 Tcf.

The Company continues to seek expressions of interest from experienced CSG operators to Farm-In to these shallow CSG rights on behalf of its partner BOL, whilst BOL has now elected to soley focus upon operatorship of conventional oil exploration prospects and the Farm-Out of these rights on behalf of OBL.

As newly appointed USG operator designate 5/07-8 EP, OBL will on behalf of its partner BOL immediately seek to attract third party expressions of interest from experienced USG Operators to Farm-In to the deeper USG rights (or both CSG & USG Rights).

To assist this process and to keep the market fully informed (given recent announcements in USG Farm-Ins in nearby Canning Basin exploration permits), the Company has attached the Independent Expert Report on the Unconventional Hydrocarbon Potential of the 5/07-8 EP Permit Area which specifically includes a comprehensive assessment of the USG potential of this attractively positioned permit.

In summary, the Independent Expert states that there are many extensive intervals of mature, organic rich marine shales present in the Canning Basin. These include:

– The Ordovician Goldwyer Formation

– The Devonian Gogo Formation

– The Carboniferous Laurel Formation

– The lower Carboniferous Anderson Formation

– The Winifred Formation of the Permian Grant Group

– The Permian Noonkanbah Formation (where buried deeply enough)

With the exception of the Noonkanbah Formation, all of the above potential gas shale units are expected to be mature within OBL’s acreage are known to have contributed to the sourcing of hydrocarbons shows and flows in the Fitzroy Sub-basin. A review of prior wells in the Fitzroy Trough region suggests the Noonkanbah Formation, Grant Group and Anderson Formation have the greatest potential for hydrocarbon generation, with total organic carbon (TOC) values of up to 5%. These sequences also have Hydrogen Index (HI) values of between 150 and 300, suggesting good potential for gas and possibly some liquids generation.

OBL considers that Permit 5/07-8 EP, being the closest marine shale depocentre situated immediately to the south of the only commercial oil discoveries within the Devonian aged Fitzroy Trough carbonates is a highly prospective address for hydrocarbon generation but would emphasise that a more stratigraphic drilling and analysis of shale cores is required before any definitive conclusions can be made for overall USG prospectivity.

Recognising the above, the Company wishes to emphasise to shareholders and future investors that is very difficult to attempt to quantify the potential shale gas resource that could be present within Permit 5/07-8 EP as there is no nearby production to use as an analogue and consequently recommends the reading of the entire Independent Expert Report including the key assumptions.

The Independent Expert indicates that a nearby operator is using estimates that one km2 could produce between 20 – 100 Bcf / km2 gas in place, and has based his volumetric estimates on a range of gas / km2 (adopting similar assumptions).

The Independent Expert estimates a large potential gas resource within Permit 5/07-8 EP with an approximate range of gross USG unrisked gas initial in place potential GIIP from 106 – 527 Tcf

Notwithstanding the inherent uncertainties and the assumptions, the Independent Expert concludes…”A large shale gas resource could be hosted in Oil Basins’ Canning Basin acreage, in the order of 25 – 50 times that of CSG potential undiscovered resource”.

About: Oil Basins Limited

Oil Basins Limited is engaged in the investment in selected exploration production and development opportunities in the upstream oil and gas sector. Oil Basins Limited was listed on the ASX on 23 August 2006 and is involved in exploration for oil and gas initially in the offshore Gippsland Basin waters of south-eastern Australia and the onshore Canning Basin of Western Australia. Since listing the Company has increased its leverage across all of its assets and has increased its exposure to attractive and prospective areas with the Canning Basin.

Source:Oil Basins , July 21, 2011;

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