Terrawest Energy Taps into New Natural Gas Resource in China

Petromin yesterday announced that Terrawest Energy Corp. (TWE) has discovered significant gas-bearing shale and multiple coal seams in its LHG 08-03 well which was drilled in November 2008.

TWE holds a 47% interest in a production sharing contract (PSC) with China United Coalbed Methane Corp. Ltd. (CUCBM). The project, called Liuhuanggou, is located in Xinjiang province and the PSC is located adjacent to the capital city of Urumqi. The project covers over 162,000 contiguous acres (TWE approximately 77,000 net acres) in the southern Junggar Basin. The Junggar Basin is an active hydrocarbon producing area but no shale gas discoveries have previously been announced.

"The Liuhuanggou project is in an easily accessible area and near existing pipeline infrastructure, which we feel is a significant benefit to future exploration and development prospects," said Ross Gorrell, TWE President & CEO. "TWE has been working to establish a multi-play project at Liuhuanggou for several years and we are excited about the potential of this most recent development".

TWE had previously announced significant coal seam intersections in earlier drilling dating back to 2006. The company intersected Jurassic Xishanyao (J2X) formation coal seams with total thickness of over 40m. The J2X is continuous over much of the PSC area and represents a significant Coal Bed Methane (CBM) development opportunity on a stand alone basis.

The latest discovery is in the underlying and previously unexplored Jurassic Badaowan (J1B) formation. Well LHG 08-03 intersected approximately 350m of J1B with multiple gaseous coal seams as well as over 170m of gas-bearing shale before reaching total depth. Preliminary geological reconnaissance of the J1B in surface exposure has indicated potential for significantly greater thicknesses of prospective formations. "Over the past 3-5 years the development and production technologies for shale gas have been established and are transferable across sedimentary basins, which we feel could be utilized to further analyze and develop the resource potential of LHG 08-03" said Gorrell.

The PSC area covers an existing PetroChina oil and gas lease and China National Petroleum Corp. (CNPC) PetroChina personnel are members of the cooperative project team. TWE utilizes CNPC PetroChina for mud logging, specialized geophysical services and is utilizing the services of the CNPC PetroChina Karamay Lab for shale analysis.

2009 Program

Based on the 2008 results TWE will initiate further exploration of its Liuhuanggou project lands in the coming weeks to obtain critical shale data, further analyze coalbed methane in coal seams and further study essential reservoir characteristics. The 2009 program will include geological survey of target areas, seismic geophysical survey and drilling of selected locations. The initial drilling program is aimed at confirming gas contents of coal seams, sampling deeper prospective formations, confirming formation thickness and confirming the prospectivity of the J1B.

These shale gas plays have the potential to supply enough gas to satisfy North American demand for the future and are altering the energy balance on a continental scale.

New shale gas discoveries of the same type have implications for countries like China where such new gas supply may provide much needed security and the basis for large-scale conversion of the economy from coal to natural gas.