3Legs Resources Operational Update

16 November 2011
3Legs Resources Operational Update

Operations on Warblino LE-1H2 horizontal well

3Legs Resources plc (the "Company"), a company focussed on the exploration and development of unconventional oil and gas resources with a particular focus on shale gas in Europe,announces the following operational update.

Key points

  • The Warblino LE-1H2 horizontal well flowed at an initial rate of 60 to 90 mscfd of natural gas and over 1,000 bpd
  • of fracture fluid, declining after five days of testing to approximately 18 mscfd of natural gas and 300 bpd of fracture fluid, when the well was shut-in
  • Testing equipment has been released; further production testing proposed for spring 2012, when weather
  • conditions are more favourable
  • The Company considers that the well could benefit from being shut in for an extended period of several months to recover from the fracture stimulation and to enable the fracture treatment fluid, potentially obstructing the flow of natural gas, to dissipate
  • Extensive coring, wireline logging, production and other data have been gathered and are being analysed in order to advance further the Company's understanding of the target formations, for reservoir assessment and for future drilling and completion designs; these analyses are expected to be completed in the first quarter of 2012.

Baltic Basin concessions

Following its announcement on 26 September 2011 regarding the drilling of the Warblino LE-1 vertical pilot and LE-1H2 horizontal wells, the initial testing phase on the Warblino LE-1H2 well has been temporarily suspended. A seven stage hydraulic fracture stimulation ("frac") programme was successfully executed across the 500 metre horizontal section in the deeper lower Palaeozoic shales. This deeper zone was not included in the Competent Person's Report issued in connection with the Company's initial public offering earlier this year, as it had not been drilled in either of the Company's two (vertical) wells referred to in that report.

Analysis of the deeper zone indicates total organic carbon and porosity values which compare favourably to a number of US shale plays. However, the zone also presents challenges for drilling and completion (including frac design), which the Company expects to address in future operations.

The frac at Warblino LE-1H2 used a gelled fluid, which enabled significantly higher concentrations of sand to be delivered into the formation than can typically be achieved with a slick water solution as was used on the Lebien LE-2H well. Following the frac, the well started to unload frac fluid at over 1,000 bpd, and to flow natural gas at 60-90 mscfd. Because of the significant volumes of frac fluid, a nitrogen injection lift was initiated early to continue the flow. After five days of testing, approximately 21% of the total injected frac fluid had been recovered, and the well was continuing to produce approximately 18 mscfd of natural gas and 300 bpd of frac fluid.

The well was shut in after five days and the testing equipment released. The Company will continue to monitor the well over the winter period, with a view to considering further production testing in spring 2012. The Company believes that the well could benefit from being shut in for an extended period of several months to recover from the fracture stimulation and to enable the fracture fluid, potentially obstructing the flow of natural gas, to dissipate.

As indicated in its announcement on 26 September 2011, the Company had originally planned a longer horizontal section on the Warblino LE-1H2 well, but opted to limit the lateral length to 500 metres due to hole stability issues. The Company believes that the reduced length of the horizontal section will have had a proportional impact on the well's performance, but that data gained may enable it to overcome similar down-hole issues and to drill longer horizontal sections in future wells targeting this zone.

The Company is continuing its detailed analysis of data gathered from all of its wells in the Baltic Basin, including cores, logs and tests, in order to refine and update its regional geological model and potential drilling and completion designs. The Company has also acquired or agreed to acquire data from other operators in the Baltic Basin through data trades. The Company expects these analyses to be completed in the first quarter of 2012, following which it will determine a near-term exploration plan in conjunction with its venture partner ConocoPhillips.

Peter Clutterbuck, Chief Executive of 3Legs Resources, said:

"We have now concluded our 2011 drilling and testing programme for the Baltic Basin, which has achieved its objectives of completing two wells with horizontal sections and multistage fracs. We have demonstrated that shale gas can be flowed in both wells and in different horizons, and we have gathered extensive amounts of new data with which to advance further our understanding of the production potential of the reservoir. Although flow rates have been low, we expect to be able to further improve well productivity, as is often the case in other shale plays in the US at this stage of appraisal.

Our primary focus now is on developing improvements in hydraulic fracture and completion design which will further enhance well production rates, in addition to considering the acquisition of new 2D and 3D seismic and the drilling of a number of new wells in the near term. This is critical in order to convert this very large gas in place volume into commercial reserves. The benefits of developing a domestic energy supply from a clean fuel such as natural gas are potentially very significant, particularly in the prevailing economic climate."