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Norwest Energy Begins Testing To Unlock Arrowsmith-2 Potential

Norwest Energy (ASX: NWE) has started highly anticipated operations to determine the ability of the Kockatea shale at its Arrowsmith-2 unconventional well to flow oil and gas.

The Perth Basin well has already started producing oil and gas as it undergoes clean-up and flow back activities to enable flow rates to be established from the Kockatea, the shallowest of the intervals at Arrowsmith-2.

During previous testing after fracture stimulation operations were completed, the Kockatea had flowed waxy oil with estimated gravity of 37 degrees API.

Norwest was required to temporarily shut-in the well while suitable surface containment equipment and the necessary Department and Mines and Petroleum approvals were arranged to manage the handling of oil to surface.

Once the testing program is completed, the Kockatea Shale interval will be sealed off and flow back will then recommence on the lower intervals, the Carynginia Formation and the Irwin River Coal Measures, with the ultimate objective being to establish gas rates for contingent resource calculations from each of the individual formations.

While a gas rate was not confirmed initially due to limited flow back time, the Lower and Middle Carynginia and the Irwin River Coal Measures all remain highly prospective as potential shale gas producers.

The Irwin River Coal Measures was slower to deliver gas compared to the other zones though this is believed to be a product of the flow back strategy used on this zone rather than an indication of its ability to produce gas.

The High Cliff Sandstone, a tight sandstone target, is expected to deliver a significantly higher rate than the reported rate of 777,000 cubic feet of gas per day once the zone is fully cleaned up.

An extended well test will then be required to determine the areal extent of the HCSS target. It is expected that this program of work will run for 3-4 months, depending upon results.

Other work

Norwest has also started planning for a 3D seismic program over the permit area to be carried out in early 2013, subject to results from the current testing program, and joint venture approval.

The 3D seismic results will allow for greater understanding of the sequences under investigation.

More detailed maps and other information derived from the 3D seismic will be instrumental in assisting with selecting locations for future drilling programs.

A Scoping Study is also currently being developed regarding requirements for the construction of the Arrowsmith Gas Pipeline between the Arrowsmith location and the main gas pipeline.

Although pipeline construction is contingent upon positive results from the testing program, Norwest considers that planning in advance is a positive step towards the earliest possible delivery of gas into the domestic gas market and the resulting revenue stream.

Partners in EP 413 are operator Norwest with 27.945%, AWE Limited (ASX: AWE) with 44.252% and India's Bharat PetroResources (27.803%).

Perth Basin

The U.S. Energy Information Administration had in 2011 estimated the Perth Basin could hold 59 trillion cubic feet of gas within the Kockatea Shale and Carynginia Formation.

This estimate is likely to rise higher if the Irwin River Coal Measures, which was not included in the estimate, proves to be commercial.

Analysis

Norwest is on the brink of potential early cash flows from the Arrowsmith-2 well if the Kockatea Shale proves to be capable of producing oil at a commercial rate.

This is also likely to provide the impetus for the company and its partners to drill further wells in EP 413.

Just as exciting for investors is the potential for large volumes of gas to be unlocked in the Carynginia Formation, Irwin River Coal Measures and High Cliff Sandstones, the last of which could also provide another potential source of early income.

EP 413 sits close to existing infrastructure and with Western Australia's growing demand for gas, Norwest will have little difficulty finding buyers for any gas it finds.

These are all catalysts for a major re-rating in Norwest.

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