BlackPearl Resources Inc.





Introduction

On September 19th, 2005, the company announced that it had entered into an agreement, subsequently completed on December 14th, 2005, with a private numbered company to acquire the vendor's 45% working interest in a participation agreement with Petroglobe Energy USA Ltd. The participation agreement is regarding certain lands within an area of mutual interest (AMI) in an emerging natural gas resource project located in the Palo Duro natural gas resource basin. The AMI includes all of Motley, Floyd, Hale, Briscoe and Swisher counties in north Texas.


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Shale Gas Basins

The Company's working interest has since been reduced from 45% to 30% as the vendor exercised its back-in right for a 15% working interest.

The primary target of the Project is an emerging natural gas resource play in the Palo Duro basin. The Vendor and Petroglobe have acquired within the AMI 100,000 acres currently under lease. The acreage includes areas within the heart of the play area currently being explored by Vintage Petroleum, Bankers Petroleum and Tyner Resources.

The target within the Palo Duro natural gas resource basin is an unconventional gas shale, Palo Duro Shales, which are analogous to the prolific Barnett Shales of the Fort Worth Basin.

Organic carbon rich shales are found in basins located across the mid-continent and western US. The most prolific shale gas basin is the Barnett Basin with resources of 25-252 tcf of gas. In 2000, shale gas production in the US was 700 bcf per year from 28,000 wells. The shale is both source and trap for the gas and although the gas is more difficult to extract than from conventional reservoirs, the production is long lived. The enabling technology that has resulted in the ability of shale gas production has been hydraulic fracturing and horizontal drilling. Cracks are induced in the shale by pumping fluids with proppants into the well. When the hydraulic pressure is reduced, the proppants prop open the cracks, preventing them from healing and allowing the extraction of the gas.

The operator, PetroGlobe, spudded the first well of a four exploratory well program on September 15, 2006. Previously the Company had reported the well program was expected to begin in July 2006. The operator has advised the Company that the delay is the result of a regional shortage of drilling equipment required for the program. In addition to the Lower Pennsylvania shale gas play, the potential of several shallower secondary oil objectives are expected to be tested with the four planned wells.



Location

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Palo Duro Location Map

The Project is located within the Palo Duro Basin in an area of mutual interest within Motley, Floyd, Hale, Briscoe and Swisher counties in North Texas. The Palo Duro Basin is 260 miles northwest of the Fort Worth Basin that is home to the Barnett Shale, the largest natural gas play in Texas. The Palo Duro Basin is bounded to the north by the Amarillo Uplift, to the south by the Matador Arch and to the east and west by minor structural highs that separate it from the Hardeman and Tucumcari Basins.

Geology


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Palo Duro Shale Gas Schematic

The Palo Duro Shale play is an unconventional natural gas play targeting organically rich, fractured Lower Pennsylvanian shales that exist at depths between 8,000 and 10,000 feet. The Lower Pennsylvanian Shale of the Palo Duro Basin is similar in many of its geochemical characteristics to the Barnett Shale of the Fort Worth Basin. Both are organically rich, thick fractured shales. Because the shale is over 300 feet thick in the Barnett Shale Group, it is estimated that there is approximately 150-180 BCF of gas per section in place. The estimated recovery with current completion technology is approximately 24 BCF of gas per section (16 wells at 1.5 BCF per well). The original gas in place numbers could be somewhat higher for the Lower Pennsylvanian Shale because of the greater thickness (400 - 1000 feet) as compared to the Barnett Shale. The Lower Pennsylvanian Shale should have a higher recovery factor than the Barnett Shale because of the greater deliverability of the Lower Pennsylvanian Shale.

The following table is a comparison of the Lower Pennsylvanian Shale (Palo Duro Basin) and the Barnett Shale (Fort Worth Basin):
                                                          Lower 
                                    Barnett Shale   Pennsylvanian Shale
                                  Fort Worth Basin    Palo Duro Basin
                                 --------------------------------------
    - Depth (feet)                     6,500 - 8,500      8,250 - 9,500
    - Thickness (feet)                     200 - 400         400 - 1000
    - Total Organic Content Range %         0 - 12.5             0 - 10
    - Total Organic Content Average %            4.0                2.5
    - Thermal Maturity % (Ro)              1.0 - 1.3          1.0 - 1.2
    - Reservoir Pressure (PSI)         3,000 - 4,000      3,000 - 3,250
    - Ultimate Reserves, BCF        16.0 per section   24.0 per section



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Palo Duro Stratigraphic Column

The discovery Well, Legacy Exploration - D.M. Cogdell Jr., Est. No. 1-01 was drilled to 9,200 feet. The well cut 647 feet of fractured organic rich shale in the Lower Penn from 8,529 - 8,943 feet. The perforations in the Lower Penn Shale flowed at rates estimated to be 5 million cubic feet per day ("mmcfpd"). The well was flow tested for 3 days and flowed at a rate of 3 mmcfpd and had a bottom hold flowing pressure of 2,440 psi (original bottom hole pressure was approximately 3,000 psi). The excellent test results in the Lower Penn Shale have ignited a great deal of interest in the shale gas potential of this field, and of the Palo Duro Basin.

Reserves

The Project as concluded the land acquisition stage and drilling of the first well, of a four exploratory well program, is expected to begin in September 2006. The Project is currently without reserves.

Based on public information, scouting information and internal projections, the following parameters have been estimated for the Lower Pennsylvanian natural gas resource play in the Palo Duro basin:
  • Gas initially in place (GIIP): 160-200 billion cubic feet per section (publicly disclosed estimate of Vintage Petroleum, Inc.)
  • Recovery factor: 10-12% of GIIP (as compared with the 10% -15% recovery factor publicly disclosed in respect of the Barnett Shale)


On an unrisked 100% working interest basis, 100,000 acres would expose working interest partners (including the Company, with a 30% working interest) to:
  • GIIP of 24-31 trillion cubic feet ("TCF")
  • Reserves of 2.4-3.7 TCF

Development

Based on public information, scouting information and internal projections, the following parameters have been estimated for the Lower Pennsylvanian natural gas resource play in the Palo Duro basin:
  • Well drilling and stimulation costs: $2 million per well
  • Development spacing: 8-16 wells per section
  • Facilities and transportation costs: 0.65-0.85 $/thousand cubic feet ("$/mcf")
  • Total finding and development costs of 1.75-2.10 $/mcf

    Work Programs 2007

    The final well of a four well shale gas exploration program targeting the Lower Pennsylvania Shale in the Palo Duro basin of northern Texas is now underway. The Ramsower #1-113 well is currently drilling at a depth of approximately 5,000 feet towards a projected target depth of 9,800 feet. Results of the first three wells are still being evaluated. Flow test results for the first well in the program, McIntosh #1-77, have now been submitted to the Texas Railroad Commission. The absolute open flow rate of the well measured 3,316 thousand cubic feet per day and approximately 150 barrels of condensate per million cubic feet of gas, suggesting that a significant economic risk factor for the basin remains the expected ultimate recovery volume per well rather than initial well productivity. Pipeline easements are being procured and arrangements made for construction of a four mile pipeline to transport the gas. Having access to a gas sales pipeline will allow long-term testing of well performance (and recovery) for this condensate rich gas, tight gas reservoir.

    In the second well of the program, Young #1-32, several shallow prospective secondary oil zones were identified. Testing of the deepest of these oil zones reached during drilling is now complete with the zone determined to be non-commercial. Further testing of the remaining "uphole" oil zones is expected to resume once necessary equipment becomes available. The third well in the program, Cox #1-13, will be evaluated for stimulation in the shale section once an evaluation of the geologic data has been completed. The results for the well are indeterminate at this time. Planning is underway for an extension of the current drilling program with the additional of wells to further test the economic viability of the play. The Company holds a non-operated 30% working interest in the project.

    No additional drilling was undertaken during the quarter ended June 30, 2007 on the Palo Duro Shale Gas Project. Efforts were concentrated on building the required pipeline and facilities to tie-in and test the long term performance of the two existing MacIntosh wells. The Company will continue to monitor the results of the extended production testing as well as the results of other operators in the basin in order to evaluate the long term economic viability of the Palo Duro Shale Gas Project.


    Related News Releases

    September 6, 2007 Pearl Announces Operations Update
    February 2, 2007 Pearl Announces $75 Million Credit Agreement
    February 1, 2007 Pearl Files 2006 Reserves Data
    January 30, 2007 Pearl Announces 2006 Year-End Financial Results
    January 12, 2007 Pearl Announces Operations Update




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    Palo Duro Land Status

     



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