Carnarvon Basin – Retention Lease R3 / R1

General

Late in the September Quarter 2011, the WA Department of Mines and Petroleum (DMP) has accepted the Company’s submission dated 9 June 2011 for the Renewal of Retention Lease R3. The Company on 3 October 2011 formally endorsed the Application, which is now waiting for Ministerial consent.

Retention Lease R3 will be re-awarded to Oil Basins Limited - as operator and the present 100% legal and beneficial holder - for a period of 5 years, with a minimum annual expenditure commitment of $200,000 (to encompass further geological and geophysical studies, including those relating to the Nasutus Oil Field extension into R3, and advanced engineering studies for a possible scoping of a staged low-cost development / Extended Well Test). Retention Lease R3 will be renewed as Retention Lease R3 / R1, refer to Figure 1.

Oil Basins Limited first acquired a 15% interest in June 2008 and a further 10% interest in July 2008. In October 2010 it acquired a further 75% interest and on 4 April 2011 was confirmed on title as to 100% and operator R3. The previous operator assessed 2C resources of 0.9MMbbls based on conservative assumptions. With water depth at Cyrano is only 17m and productive reservoirs are at a modest 600m.

This low-cost entry has excellent hub potential with close proximity to nearby infrastructure.

Location

Figure 1: Location of R3 / R1

Nearby proposed Apache Energy Airlie Island Redevelopment & Taunton Oil Field Development & Undeveloped Gas Fields South Chervil and Cadell

Cyrano Oil Field

The Cyrano Oil Field was discovered in a water depth of around circa 15 m to 17 m. Cyrano-1 was drilled in March, 2003 to test an elongate amplitude and structural rollover at the Airlie Sandstone/Top Barrow Group level, (refer to Figures 3 and 4). The amplitude anomaly was interpreted to represent gas charged sands overlying an oil leg, similar to nearby fields at Chervil, South Chervil and Nasutus. The Cyrano-1 well encountered the top of the Mardie Greensand at 634.5m (-603.6m); the top of the Airlie Sands at 656m (-625.1m); and the top of the Barrow Group at 669.1m (-638.2m).

The Mardie Greensand consists of very fine grained glauconitic sandstone with 21.5m gross and 14.5m net gas pay. Porosities range from 25-35% but permeabilities are low, of the order of 1 to 30 millidarcies averaging 20 millidarcies.

The Airlie Sandstone is composed of fine to medium grained, quartzose sandstones with minor glauconite and clay matrix. Gross oil pay was 10.0m and net oil pay was 7.0m. Porosities average 25.3% with permeabilities in the range 10’s to a few 100’s millidarcies averaging 50 millidarcies.

The Barrow Group comprises clean, medium grained, quartzose sandstones with very good to excellent porosities and permeabilities.

Cyrano-1 intersected a 31.5 metres gross hydrocarbon column. Based on MDT pressure data, the gas/oil contact is at –625m and the oil/water contact is at –635m. The discovered oil is heavy biodegraded 22.8° API oil.

Cyrano-2 was drilled in December, 2004 to appraise the Cyrano-1 oil discovery. It was located one km southwest of Cyrano-1 and was deviated to also test deeper Jurassic and Triassic objectives. Cyrano-2 encountered the top of the Mardie Greensand at 664.6m (-631.3m); the top of the Airlie Sands at 683.4m (-650.1m); and the top of the Barrow Group at 701.1m (-667.8m).

Cyrano-2 was designed to test the top Airlie Sandstone 14 metres downdip to Cyrano-1 to intersect the oil/water contact in the Mardie Greensand. However, the top of the Mardie Greensand came in 27.7m low to Cyrano-1 with only 3.7m of gross oil column at the top of the unit.

Both the Airlie Sandstone and Barrow Group were water wet.

The Cyrano Oil Field is three way closed structure on the downthrown side of the Flinders Fault. The oil pools in the Early Cretaceous Mardie Greensand and Airlie Sands are sealed against the Early Triassic Locker Shale on the upthrown side of the fault.

The Cyrano Oilfield is on trend with the Nasutus Oil Field to the northeast situated in Retention Lease R5 50% / 50% Apache Energy / OMV Australia. There is a potentially significant extension of Nasutus Oil Field into R3.

Figure 2: Oil Basins Interpretation of Cyrano Oil Field

Independent Assessment by RPS Energy

During March 2011, OBL commissioned RPS Energy to conduct an independent detailed review of 3D seismic and examine exploration well data. Report showed Oil in Place (theoretical in-place oil reservoir capacity) for Mardie Greensand and Airlie Sandstone reservoirs totals:

• P90 – 5.42 MMbbls
• P50 – 10.13 MMbbls
• P10 – 18.19 MMbbls

RPS’s independent mapping of Cyrano Oil Field oil in place volumes has resulted in a 250% increase of the previous expectation case of 4.36 MMbbls to a median P50 case of 10.12 MMbbls. Nonetheless, the estimated risked 2C contingent resources at Cyrano (presently assessed at 1.52 MMbbls) are considered by Oil Basins to be insufficient to support a stand-alone development at this time – consistent with the former operators conclusion in May 2010.

The RPS Report has highlighted the need to conduct re-mapping of the possible extension of the neighbouring R5 Nasutus Oil Field into the north east quadrant area of R3 and the need to better estimate the risked recovery factors applicable for a challenging shallow heavy biodegraded viscous oil field with an overlying gas cap development.

RPS Energy have assumed a conservative 15% recovery factor without electric submerged pumps (ESP). Nonetheless, the new 2011 mapping has seen OBL book 2C contingent resources revised upwards to circa 1.5MMbbls, but it remains uneconomic and challenging based upon a standalone field (based upon conventional development approaches).

Nearby Oil Infrastructure

Airlie Island / Taunton Oil Development

Airlie Island, operator Apache Energy 66.83% – denotes a group of small oil and gas fields located in the Carnarvon Basin south of Barrow Island. The North Herald and South Pepper fields were both abandoned in October 1997 and the Chervil field ceased production in Q1 2002. The oil was stored at Airlie Island in two large tanks before being exported via a 51 mm (20 inch) diameter 2 km pipeline transports the oil to an offloading facility tanker.

The Airlie Island plant and pipelines have been flushed to remove the oil and are decommissioned. The island infrastructure includes oil processing and water separation facilities, two 150,000 bbl storage tanks, a gas lift compressor, pipelines, a power generation plant and a flare tower.

The planned upgrading of the existing Airlie Island Facilities will include the following components:

• Processing and treatment facilities
• Gas injection facilities
• Water injection facilities
• Upgrades to the basic island infrastructure including accommodation, jetty, tanks, bunds and drainage
• Refurbishment of the offloading system, pumps, pipeline & moorings

In addition major upgrade and rehabilitation of the Airlie Island Facilities, the Taunton Oil and Gas Field (circa 9.0 MMBoe is also being progressed by Apache and its joint venture partners all up costs estimated at between US$300 million to US$400 million.

South Chervril Oil & Gas Field

Possible reserves on South Chervil (circa 7.0 MMBoe) are believed to be sub-commercial at present. Initial recoverable gas reserves are understood to be around 30 Bcf, split roughly 5 Bcf of solution gas and 25 Bcf of gas cap gas. Remaining reserves are estimated at around 10 Bcf, of which approximately 7 Bcf lies in South Chervil. However, the commerciality of a gas-gathering scheme has yet to be established.

Nasutus Oil Field R5

The Apache-operated Nasutus-1 was drilled in November 1999 to a total depth of 750m (-721.0m) in nearby EP 409 permit (now awarded as Retention Lease R5 in late 2010) in the Carnarvon Basin. The well is located approximately 1 kilometre from Nares-1, which encountered good shows, 12 kilometres east of Chervil (Figure 1), which was an oil discovery and some 19 kilometres to the east of the Airlie Island oil processing facilities. The well tested heavy biodegraded 21.3° API oil at a maximum rate of 1,637 barrels per day through a 32/64” choke with a GOR of 266 scf/stb over a four metre interval in the Flacourt sandstones at the top of the Barrow Group between 669 and 673m (-640 to -644m).

Petrophysical analysis indicates that Nasutus-1 encountered a 44.1m gross (23.1m net) hydrocarbon column, comprising 32.0/12.1m gross 911.2/11.9m net) gas/oil columns in the Mardie Greensand / Upper Barrow Group. Based on MDT pressure data, the gas/oil contact is at –640m and the oil/water contact is at –645.5m.

Whilst the operator Apache has not published “technical” or contingent reserves, OBL believes that delineated gross P50 recoverable “technical” or contingent oil reserves at the Nasutus Oil Field are a similar order of magnitude to the nearby Cyrano Oil Field.

Nasutus-1 is interpreted as a valid test of the Nasutus structure and indicates that heavy biodegraded oil can potentially be flowed at economic rates.

Current Status

New study objectives to boost risked resources to between 2.5MMbbls and 4.0MMbbls in Cyrano alone will include:

• confirming evidence that northern Nasutus Oil Field’s extends into R3 from the adjacent R5 (north east) by re-mapping the existing 3D seismic
• assessment of low cost development options
• potential for improving overall field recovery factors (circa 30% upto 50%) with the application of electric submerged pumping and horizontal well completion technologies

OBL expects an imminent upgrade of Cyrano reserves and the addition of the assessment of the Nasutus Extension from R5 to have a significant impact on field valuation.

In anticipation of this pending renewal, during the September Quarter, OBL gave the go-ahead for a comprehensive scoping engineering study by our experienced petroleum engineering consultant DU-EL Drilling Services Pty Ltd (leveraging off similar low cost offshore development projects for international energy and petroleum clients in shallow water Philippines and Vietnam) using new stand-alone low-cost development concepts, the latest equipment and technologies (with an emphasis on pumping technologies and indicative recovery factors), which (subject to favourable screening economics) may be suitable for application to a staged low-cost development / Extended Well Test to produce from the Cyrano Oil Field (and similar small stranded offshore marginal oil field acquisition opportunities). It is noted that the Cyrano Oil Field lies offshore in only 17 metres of water.