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Investor Linc Newsletter

September 2011 /19

INSIDE FOCUS

Interview with Geologist Chris Mullen

Chris Mullen joined Linc Energy to lead the company’s Oil and Gas Division. A qualified Geologist with over 25 years of experience, Chris is also heavily involved in the development of Linc Energy’s Enhanced Oil Recovery (EOR) program planned for the United States. We talk with Chris about what lies ahead for this exciting business division.

What attracted you to join the Linc Energy team?

What impressed me before joining Linc Energy was the overall vision of the company and the commitment to its business strategy. I like the full integration between coal resources, technology and the new plans for expansion into the oil and gas sector. The commitment comes through financial support to get new assets, but also human resources.

What is the focus of Linc Energy’s Oil and Gas Division?

The Oil and Gas Division is focused on three things. Firstly, we have to find good assets to buy. This sounds simple, but you need to have a willing seller, a fair price and the geographic location of the assets has to make sense. Secondly, there has to be an immediate upside to the assets purchased. Buying properties is expensive in today’s $100 per barrel environment. If we can significantly increase production in the short term by spending a little bit more money, we can effectively lower our purchase price on a dollar paid per barrel produced basis. Simply put, we have to buy smart. Thirdly, we need to have potential for Enhanced Oil Recovery (EOR). The long term strategic goal of the company is to be a player in the EOR business. Not all oil and gas properties have EOR potential.

Linc Energy has been busy identifying and acquiring productive oil assets. What is the strategy behind this?

One of the global strategies for the Oil and Gas Division is to be close to sources of carbon dioxide for future EOR. Ultimately, the source of carbon dioxide will be the ‘waste’ product from UCG operations. Initially we began looking for assets that were relatively close to our coal positions. In recent times we had to get a bit more creative in our search for strategic assets. The second part of this overall strategy is geography. As we continue to grow we need to have certain key areas we are going to focus on in order to be the best operator in those areas. Right now our key focus areas in the United States are the Rocky Mountain region, the Gulf Coast, and Alaska.

What is EOR and how will it benefit Linc Energy’s effort to fuel the future?

When an oil field is discovered and production has commenced only 20 per cent of the original oil in place will be produced. This is called the primary production phase. Secondary production occurs when fluids, typically water, are injected into the reservoir to maintain reservoir pressure and help ‘sweep’ more oil out of the nooks and crannies in the rock. This process will recover another 20 per cent of the original oil in place. At this point, 60 per cent of the known oil is still in the reservoir. EOR involves injecting a different type of fluid into the reservoir, something beyond the water that was injected in the secondary phase. Carbon dioxide is one of the best things to inject into a reservoir because it acts as a solvent to get more of the remaining oil out. An additional 10 to 20 per cent of the original oil in place can be recovered with carbon dioxide.

Today there are over 100 successful carbon dioxide EOR projects in the United States as there is very little technical risk in their implementation. The risk is in how much oil we will get out of the ground and how much that process costs. With risks being economic in nature, we need to ensure that each project is well researched. Implemented well, carbon dioxide EOR projects will fuel this company for years to come.

How will the program for EOR progress over the next 12 months?

We have begun a work program in one of our Glenrock assets to get wells in a condition where we can inject carbon dioxide. Since the appropriate volumes of carbon dioxide will not be produced by Linc Energy’s UCG projects initially, we are looking for other sources and are getting close to doing so. In the next 12 months we hope to be injecting in the South Glenrock B field. We would hope to see an oil response within the first six months of carbon dioxide injection.

Where do you see Linc Energy in the next five years?

At the beginning of this year Chief Executive Officer Peter Bond set the first Oil and Gas goal – our mission was to be at 10,000 barrels of oil per day by the end of the year. Considering we did not have an oil producing property in the company at the time, this was a huge task. I believe we can get there. In the next five years I would like to think we could be five times that, with more acquisition EOR projects. I think the goals are quite clear. We are not just here to start a business; we are here to grow it.