Overview

Shale Gas Summary

Shale gas is natural gas that is typically produced from “continuous” gas accumulations where thick shale rock formations extend over a large area and are characterized by high levels of organic carbon or kerogen, the source of the gas. Shale plays can hold an enormous amount of natural gas and are capable of producing gas at a steady rate for decades. Although shale is  a very common sedimentary rock  and is a known  source for unconventional natural gas reservoirs, the energy industry has not pursued widespread commercial development of shale plays until quite recently. As an unconventional  resource, shale gas has traditionally been difficult to extract economically. Shale gas plays are characterized by low permeability which causes gas to flow more slowly than conventional gas resources and generally requires fracturing to allow gas to flow to well bores. As the price of natural gas climbed due to increasing demand and the flow rates significantly improved due to improved and cost-effective hydraulic fracturing technology, shale gas production became economically viable in the 1990s and led to the development of successful shale gas plays such as the Barnett and Fayetteville Shales in the United States. Significant shale plays are now being developed in Canada.

Windsor Block – Nova Scotia, Canada

The Windsor Block covers 474,625 gross acres in the Windsor Sub-Basin of the Maritimes Basin located in the province of Nova Scotia, Canada. The property is within 25 miles (40 kilometers) of the Maritimes & Northeast Pipeline which supplies gas to one of the largest markets in North America – the northeastern United States. Natural Gas prices in these markets generally receive a premium to the benchmark Nymex Henry Hub price.  Royalty rates in the province are a very reasonable 10% and initial production from new fields may qualify for a two-year royalty holiday.

Joint Ventures

Triangle originally acquired an interest in the Windsor Block through a farm-in agreement with Contact Exploration Inc. reached in May 2007 and earned its initial 70% working interest in the block by drilling and completing the first vertical test well in early 2008. Subsequently, in June 2008, Triangle reached a joint venture agreement with Zodiac Exploration Corp. Under the agreement, Zodiac paid 50% of drilling costs in a $16 million exploration and delineation program in exchange to earn a working interest  of approximately 13% in the Windsor Block. Triangle operated the program and contributed 20% of the costs of the exploration program. Triangle’s working interest in the project is 57% following conclusion of the 2008 drilling program.  On June 11, 2009 Triangle executed a definitive agreement with Contact Exploration Inc. to acquire Contact's 30% working interest in the Windsor Block in exchange for agreeing to provide Contact a 5.75% non-convertible gross overriding royalty interest.  Contact also received a cash payment of $270,000 and Triangle assumed the liabilities related to Contact's former working interest. Triangle now has an 87% working interest.

Exploration Programs

From May 2007 to June 2008, Triangle executed the first phase of the Windsor Block exploration program consisting of a 2D and 3D seismic program, geological studies, and drilling and completing two vertical test wells (Kennetcook #1 and Kennetcook #2). From July 2008 to March 2009, Triangle executed the second phase of the Windsor Block shale gas exploration program consisting of drilling three vertical exploration wells (N-14-A, O-61-C and E-38-A) and completing one of these wells (N-14-A).

During the first quarter of fiscal 2010 (Feb 1 – Apr 30, 2009), Triangle tested the N-14-A well, which was completed in early December 2008 with a four-stage perforation and fracture treatment. The frac flowback operations were suspended in April 2009 after the well recovered 15% of load fluid but negligible gas production.  Subsequent analysis indicates an unusually high insitu stress regime in the immediate vicinity of the well, likely due to proximity to a major fault, which contributed to fracture ineffectiveness. Completion operations on the O-61-C well commenced in March 2009 and continued into early May. Several tight sand and carbonate intervals were perforated but not fracture-treated. Triangle obtained useful geological information from the well that will help guide subsequent exploration efforts. No hydrocarbons flowed from the well.

During the second quarter of fiscal 2010 (May 1- July 31, 2009), operations on the E-38-A well moved forward with three zones having been perforated and treated with diagnostic “micro-fracs.”  Engineering data from these tests are currently being evaluated. E-38-A evaluates an area of the Windsor Block which is structurally and geologicall y distinct from previous wells drilled in the field. Also in the second quarter, the two wells drilled in 2007, Kennetcook #1 and Kennetcook #2, were re-entered to isolate and test individual zones to identify the “gassiest” intervals in each well. From these tests, it appears the fracture treatments undertaken previously have commingled multiple zones together, making it difficult to separate gas from water in the subsurface.

• The production lease is for 474,625 gross acres (413,000 net acres).  The production lease covers substantially all of the land which the Company had leased previously under the terms of an Exploration Agreement, with the exception of some fringe acreage deemed non-prospective by Triangle.
• Triangle has rights to conventional oil and gas in the area, which includes shale gas, in both the Windsor and Horton Groups, excluding natural gas from coal.  Triangle does not believe there are any prospective coals within the Windsor Block.
• To retain rights to this land block, Triangle has agreed to drill seven wells to continue to evaluate the Windsor Block prior to April 15, 2014.  These wells are to be distributed across the land block to fully evaluate both conventional and shale resources.  Areas of the land block not drilled or adequately evaluated after the fifth year are subject to surrender.
• Tenure on some or all of the lands is eligible for renewal after the first ten years, based on the establishment of commercial production and/or the satisfaction of certain drilling and evaluation criteria.

Other Potential Canadian Shale Programs

Triangle continues to evaluate and rank various shale opportunities in both Eastern and Western Canada. The objective is to secure an initial land position, engage an industry partner, and commence an exploration program. Triangle has extensively studied the Maritimes Basin in Nova Scotia and New Brunswick, and has identified several potential opportunities in the Maritimes, outside the Windsor Block.

In Western Canada, Triangle has participated in a multi-company shale gas geological study of the Western Canadian Sedimentary Basin. Triangle has had the study reviewed independently, employed its own key technical indicators, and is in the process of identifying prospective shale gas opportunities which make sense for the company’s skill set and business plan. This follows the corporate strategy utilized in the Windsor Block in which the company capitalized on previous shale gas experience to secure an early stage shale opportunity, with a large land block, close to infrastructure.