Pre-Feasibility Study for Methane Drainage and Utilization at the Conchas Mine Complex, Coahuila, Mexico


U.S. EPA

Coalbed Methane

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Pre-Feasib lity Study for Methane

Drainage and Utilization at the
Conchas Mine Complex

Coahuila, Mexico

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Pre-Feasibility Study for Methane Drainage and Utilization at the

Conchas Mine Complex
Coahuila, Mexico

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Sponsored by:

US Environmental Protection Agency, Washington, DC USA

Prepared by:

Advanced Resources International, Inc.

September 2015

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Disclaimer

This publication was developed at the request of the United States Environmental Protection Agency
(USEPA), in support of the Global Methane Initiative (GMI). In collaboration with the Coalbed Methane
Outreach Program (CMOP), Advanced Resources International, Inc. (ARI) authored this report based on
information obtained from the coal mine partner, Minera del Norte S.A. de C.V. (MINOSA).

Acknowledgements

This report was prepared for the USEPA. This analysis uses publicly available information in combination
with information obtained through direct contact with mine personnel, equipment vendors, and project
developers. USEPA does not:

a)	make any warranty or representation, expressed or implied, with respect to the accuracy,
completeness, or usefulness of the information contained in this report, or that the use of any
apparatus, method, or process disclosed in this report may not infringe upon privately owned
rights;

b)	assume any liability with respect to the use of, or damages resulting from the use of, any
information, apparatus, method, or process disclosed in this report; nor

c)	imply endorsement of any technology supplier, product, or process mentioned in this report.

ii

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Table of Contents

Disclaimer	ii

Acknowledgements	ii

Table of Contents	iii

Table of Exhibits	iv

Executive Summary	1

1	Introduction	2

2	Background	3

2.1	The Mexican Coal Industry	3

2.2	Coal Mine Methane in Mexico	4

2.3	MINOSA	4

3	Summary of Mine Characteristics	5

4	Gas Resources	9

4.1	Overview of Gas Resources	9

4.2	Proposed Gas Drainage Approach	10

4.3	Estimating Production from Vertical Pre-Drainage Boreholes	11

4.3.1	Simulation Model	11

4.3.2	Model Preparation and Runs	12

4.3.3	Model Results	17

5	Market Information	19

6	Opportunities for Gas Use	20

7	Economic Analysis	20

7.1	Project Development Scenario	20

7.2	Gas Production Forecast	21

7.3	Project Economics	21

7.3.1	Economic Assessment Methodology	21

7.3.2	Upstream (CMM Project) Economic Assumptions and Results	21

7.3.3	Downstream (Power Project) Economic Assumptions and Results	22

8	Conclusions, Recommendations and Next Steps	23

Works Cited	25

iii

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Table of Exhibits

Exhibit 1: Coal Production in Mexico	4

Exhibit 2: Location Map of Conchas Mine Complex	5

Exhibit 3: Main Geological Units of the Project Area	6

Exhibit 4: Characteristics and Resources of Coal in Mexico by Basin [after Flores-Galicia (1991) as

presented in Querol-Sune (2006)]	7

Exhibit 5: Sabinas Sub-Basin Stratigraphic Section	8

Exhibit 6: Conchas Mine Complex Proposed Mining Plan	8

Exhibit 7: Profile of MINOSA's Mines V, VI, and VII (USEPA, 2015)	9

Exhibit 8: Gas Concentration of Lower and Upper Seams	10

Exhibit 9: Proposed Degasification Plan for the Conchas Mine Complex	11

Exhibit 10: Example Layout for Vertical Pre-Drainage Borehole Simulation Model	12

Exhibit 11: Reservoir Parameters for Vertical Pre-Drainage Borehole Simulation	13

Exhibit 12: Methane Isotherm Used in Vertical Pre-Drainage Borehole Simulation	14

Exhibit 13: Relative Permeability Curve Used in Simulation	15

Exhibit 14: Representative Stratigraphic Column at the Conchas Mine Complex	16

Exhibit 15: Simulated Gas Production Profiles for Vertical Pre-Drainage Boreholes	17

Exhibit 16: Summary of Pre-Drainage Simulation Results for Single Well	18

Exhibit 17: Simulated Reduction in In-Situ Gas Content for Seam A	18

Exhibit 18: Simulated Reduction in In-Situ Gas Content for Seam B	18

Exhibit 19: Gas Production Forecast by Development Scenario	21

Exhibit 20: Summary of Input Parameters for the Evaluation of Upstream Economics (CMM Project).... 22

Exhibit 21: Breakeven Gas Price	22

Exhibit 22: Summary of Input Parameters for the Evaluation of Downstream Economics

(Power Project)	22

Exhibit 23: Breakeven Power Price	23

iv

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Executive Summary

The U.S. Environmental Protection Agency's (USEPA) Coalbed Methane Outreach Program (CMOP) works
with coal mines in the U.S. and internationally to encourage the economic use of coal mine methane
(CMM) gas that is otherwise vented to the atmosphere. The work of CMOP and USEPA also directly
supports the goals and objectives of the Global Methane Initiative (GMI), an international partnership of
42 member countries and the European Commission that focuses on cost-effective, near-term methane
recovery and use as a clean energy source. An integral element of CMOP's international outreach in
support of the GMI is the development of CMM pre-feasibility studies. These studies provide the cost-
effective first step to project development and implementation by identifying project opportunities
through a high-level review of gas availability, end-use options, and emission reduction potential.

Minera del Norte S.A. de C.V. (MINOSA), a leading coal company in Mexico and a subsidiary of Grupo
Acerero del Norte (GAN), was selected as the recipient for a pre-feasibility study for CMM drainage at
their Conchas Mine Complex in the southern Sabinas Basin of Mexico. The objectives of this pre-feasibility
study are to perform an initial assessment of the technical and economic viability of methane drainage
utilizing vertical pre-drainage boreholes drilled from the surface, and to identify end-use options.

The Conchas Mine Complex covers an area of 27 square kilometers (km2) and includes three mines named
Mine IX, Mine X, and Mine XI. The coal mines in this region are notoriously gassy and MINOSA's existing
mines are among the gassiest. Specific emission rates of about 50 cubic meters per tonne (m3/t) of coal
mined are projected for the Conchas mines. While MINOSA has implemented drainage programs at their
mines in the northern portion of the Sabinas Basin, the Conchas Mine Complex is relatively new and does
not currently employ pre-drainage techniques. MINOSA was ultimately selected for this pre-feasibility
study based on the level of commitment they have demonstrated to employ modern degasification
methods and methane abatement technologies, and the high likelihood of project implementation and
resulting methane reductions.

The primary market available for a CMM utilization project at the Conchas Mine Complex is power
generation using internal combustion engines. Given the relatively small CMM production volume,
constructing a pipeline to transport the gas to demand centers would be impractical. Based on gas supply
forecasts, the mine could be capable of operating as much as 72 megawatts (MW) of electricity capacity.

Pre-drainage boreholes are assumed to begin production three to five years prior to the initiation of
mining activities. Gas production profiles were generated for a total of four project development cases:

• Case 1: 60 acre well spacing with 3 years of pre-drainage

• Case 2: 60 acre well spacing with 5 years of pre-drainage

• Case 3: 120 acre well spacing with 3 years of pre-drainage

• Case 4: 120 acre well spacing with 5 years of pre-drainage

The proposed pre-drainage project will target both the A and B seams with vertical boreholes drilled from
the surface. With a project area of 6,672 acres (ac) (27 km2) a total of 112 and 56 wells could be drilled
under the 60 ac and 120 ac well spacing cases, respectively. At an assumed drilling rate of four wells per
month, drilling of the entire project area would require 28 months and 14 months for the 60 ac and 120
ac well spacing cases, respectively.

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Based on the forecasted gas production, the breakeven cost of producing CMM through vertical pre-
drainage boreholes is estimated to be between $2.67 and $4.09 per million British thermal units (MMBtu).
The results of the economic assessment indicate the lowest pre-drainage costs are associated with the
120 ac well spacing case, with 5 years of pre-drainage (Case 4) preferred over 3 years (Case 3).

In terms of utilization, the power production option is economically feasible under the optimal
development scenario. More rigorous engineering design and costing would be needed before making a
final determination of the best available utilization option forthe drained methane. The breakeven power
sales price, inclusive of the cost of methane drainage, is estimated to be between $0,089 and $0,114 per
kilowatt-hour (kWh). The results of the economic assessment indicate the lowest power price is
associated with the 120 ac well spacing case, with 5 years of pre-drainage (Case 4). With electricity rates
for medium-size industry in Mexico averaging $0.095/kWh over the first half of 2015, utilizing drained
methane to produce electricity would generate profits of $6 per megawatt-hour (MWh) of electricity
produced, based on the breakeven power sales price for Case 4 of $0.089/kWh.

A CMM-to-power utilization project at the Conchas Mine Complex is economically feasible, and removing
the cost of mine degasification from downstream economics, as a sunk cost, would reduce the marginal
cost of electricity and improve the economics even further. Net emission reductions associated with the
destruction of drained methane are estimated to average just over 722,000 tonnes of carbon dioxide
equivalent (tC02e) per year.

1 Introduction

The U.S. Environmental Protection Agency's (USEPA) Coalbed Methane Outreach Program (CMOP) works
with coal mines in the U.S. and internationally to encourage the economic use of coal mine methane
(CMM) gas that is otherwise vented to the atmosphere. Methane is both the primary constituent of
natural gas and a potent greenhouse gas when released to the atmosphere. Reducing emissions can yield
substantial economic and environmental benefits, and the implementation of available, cost-effective
methane emission reduction opportunities in the coal industry can lead to improved mine safety, greater
mine productivity, and increased revenues. The work of CMOP and USEPA also directly supports the goals
and objectives of the Global Methane Initiative (GMI), an international partnership of 42 member
countries and the European Commission that focuses on cost-effective, near-term methane recovery and
use as a clean energy source.

An integral element of CMOP's international outreach in support of the GMI is the development of CMM
pre-feasibility studies. These studies provide a cost-effective first step to project development and
implementation by identifying project opportunities through a high-level review of gas availability, end-
use options, and emission reduction potential. In recent years, CMOP has sponsored feasibility and pre-
feasibility studies in such countries as China, India, Kazakhstan, Mongolia, Poland, Russia, Turkey and
Ukraine.

Minera del Norte S.A. de C.V. (MINOSA), a leading coal company in Mexico and a subsidiary of Grupo
Acerero del Norte (GAN), was selected as the recipient for a pre-feasibility study for CMM drainage at
their Conchas Mine Complex (mines IX, X, and XI) in the southern Sabinas Basin of Mexico. The coal mines
in this region are notoriously gassy and these mines are among the gassiest. Specific emission rates of
about 50 cubic meters per tonne (m3/t) of coal mined are projected forthe Conchas mines. While MINOSA
has implemented drainage programs at their mines in the northern portion of the Sabinas Basin, the

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Conchas Mine Complex is relatively new and does not currently employ pre-drainage techniques. The
objectives of this pre-feasibility study are to perform an initial assessment of the technical and economic
viability of methane drainage utilizing vertical pre-drainage boreholes drilled from the surface, and to
identify end-use options.

MINOSA was ultimately selected for this pre-feasibility study based on the level of commitment they have
demonstrated to employ modern degasification methods and methane abatement technologies, and the
high likelihood of project implementation and resulting methane reductions. MINOSA's gas drainage
program entails a range of degasification methods including surface vertical pre-drainage wells, surface
to inseam directional drilling, surface gob wells, and in-mine long hole directional boreholes, which is
proving very effective. On the utilization and abatement side, MINOSA has installed flaring units at three
of its mines in northern Mexico, Mine VII (Sabinas Basin), the Esmeralda Mine (Saltillo Basin), and Mine VI
(Sabinas Basin). Additionally, MINOSA recently signed an agreement with Caterpillar to purchase six 1.5
megawatt (MW) reciprocating engines to generate power from the produced gas.

This pre-feasibility study is intended to provide an initial assessment of project viability. A Final
Investment Decision (FID) should only be made after completion of a full feasibility study based on more
refined data and detailed cost estimates, completion of a detailed site investigation, implementation of
well tests, and possibly completion of a Front End Engineering & Design (FEED).

2 Background

2.1 The Mexican Coal Industry

Compared to petroleum and natural gas, coal is a relatively small component of Mexico's energy
production and consumption. While oil and natural gas represented 45 percent and 40 percent of total
primary energy consumption in 2014, respectively, coal accounted for only eight percent (BP, 2015). The
primary use for coal in Mexico is steel production and electric power generation. While natural gas is still
the dominant feedstock for electricity generation, coal-fired power generation is on the rise having
increased to 320 trillion British thermal units (Btu) in 2013 from just under 250 trillion Btu in 2008 (EIA,
2014).

At the end of 2014, Mexico's total proved reserves of coal were 1,211 million tonnes (Mt) (ranked 24th
globally), with 71 percent being anthracite or bituminous coal and the remaining 29 percent being sub-
bituminous or lignite (BP, 2015). According to USEPA (2015), the majority of Mexico's coal reserves are
located in the northeast in Coahuila State, with additional resources located in Sonora (in northwest
Mexico) and Oaxaca (southern Mexico).

In 2014, Mexico ranked 23rd in global coal production with 13.8 Mt of production (BP, 2015). Between
1981 and 2014, Mexico's coal production increased by 10.8 Mt for a compound average growth rate
(CAGR) of 4.7 percent (Exhibit 1). However, year-over-year production is down 8.9 percent, and current
production is down 27 percent from the peak of 19.0 Mt reached in 2011.

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Mexico Coal Production, 1981-2014

million tonnes

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Exhibit 1: Coal Production in Mexico

2.2	Coal Mine Methane in Mexico

Despite the small scale of Mexico's coal industry, the coal mines of northern Mexico are notoriously gassy.
Estimates of emissions related to coal mining activities in Mexico fluctuate annually, and also vary
depending on the organization producingthe estimate. USEPA (2012) estimates Mexico's CMM emissions
to range between 121 million cubic meters (Mm3) to 159 Mm3 per annum, while independent experts in
Mexico estimate annual CMM emissions upwards of 208 Mm3 (Santillan, 2013). To put these numbers
into perspective, the international standard for a "gassy" mine is 10 m3/t, whereas the estimated 208 Mm3
represents an average specific emission rate of approximately 50 m3/t of coal mined (CDM, 2014). Based
on the high specific emission rate of Mexico's coal mines, it is evident coal producers face significant
challenges related to the management of methane. As a result, coal companies such as MINOSA are
working to address methane issues through the employment of a holistic approach targeting gas drainage
systems and mine ventilation air (USEPA, 2015).

According to the GMI International CMM Projects Database, two active CMM recovery projects and three
proposed CMM recovery projects are currently underway in Mexico. Four of the five projects target
underground mines, where the active projects use captured methane for boiler fuel and flaring, while the
proposed projects are designed to use captured methane for power generation and flaring (GMI, 2015).
Specific details regarding active CMM projects in Mexico - as well as additional information on CMM
emissions and development potential, opportunities and challenges to greater CMM recovery, and
profiles of individual mines - can be found in USEPA's Coal Mine Methane Country Profiles1, which were
developed in support of GMI.

2.3	MINOSA

Minera del Norte S.A. de C.V. (MINOSA), Mexico's principal producer of metallurgical coal is a subsidiary
of Altos Hornos de Mexico (AHMSA), a large integrated steel company based in Coahuila state, which is in

1 USEPA (2015). Coal Mine Methane Country Profiles: Chapter 21 - Mexico. Updated June 2015, available:
http://www.epa.gov/cmop/docs/cmm country profiles/Toolsres coal overview ch21.pdf

4

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turn controlled by Grupo Acerero del Norte (GAN), a corporation focusing on steel production, and the
mining of coal and copper. MINOSA was formerly the name of the subsidiary operating AHMSA's iron ore
mines and Minerales Monclova (MIMOSA) operated AHMSA's coal interests. GAN now operates all
company-owned mines under MINOSA. The GAN mines together produced about 82 percent of Mexico's
coal in 2013 (USEPA, 2015).

MINOSA currently operates underground and open pit mines located in the Sabinas sub-basin. In addition
to the mines, the company also operates two coal washing plants. The coal is medium to high volatile in
rank and is used to supply steelmaking operations owned by GAN in the city of Monclova, located 140
kilometers (km) from MINOSA'S mines. MINOSA'S coal reserves in the Sabinas sub-basin are estimated
at 240 Mt and reserves in the Saltillito Basin are estimated at 60 Mt (Aguirre, 2008).

MINOSA operates five underground mines in the gassy coals of the Upper Cretaceous Los Olmos
Formation in the state of Coahuila in northern Mexico and has been draining the coal beds prior to mining
through in-seam horizontal boreholes since 1992 (Brunner, 1999). MINOSA has several active CMM gas
drainage projects and has been very progressive in their pursuit of reducing methane emissions from their
mining operations. In addition to a boiler operation at the Esmeralda Mine, MINOSA began operating the
first CMM flare at an active coal mine in September 2011 (CDM, 2014).

3 Summary of Mine Characteristics

MINOSA is currently planning to develop a new mine area, "Conchas Sur", which is located in the southern
Sabinas Basin of Mexico near the city of Sabinas (Exhibit 2). This new mine area, referred to as the Conchas
Mine Complex throughout this report, covers an area of 27 km2 and includes three mines named Mine IX,
Mine X, and Mine XI. The coal mines in this region are notoriously gassy and MINOSA's existing mines are
among the gassiest. Specific emission rates of about 50 m3 per tonne of coal mined are projected for the
Conchas mines. While MINOSA has implemented drainage programs at their mines in the northern
portion of the Sabinas Basin, the Conchas Mine Complex is relatively new and does not currently employ
pre-drainage techniques.

Exhibit 2: Location Map of Conchas Mine Complex

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The geological history of Mexico shows that there have been three events that were suitable for the
development and formation of coal beds. The first event happened from the Upper Triassic to Middle
Jurassic Epochs; the second event took place at the end of the Late Cretaceous Epoch during the
Maestrichtian Age; and the third event occurred during the Eocene Epoch, Lutetian - Bartonian Age (see
Exhibit 3) (Aguirre, 2008).

The anthracitic coals of Oaxaca and Sonora belong to the Triassic-Jurassic event and have little economic
importance because of its structural set up. The coals of the basins known as Sabinas and Fuentes-Rio
Escondido in Coahuila, Ojinaga and San Pedro Corralitos in Chihuahua, and Cabullona in Sonora belong to
the Cretaceous event. The lignite seams of Colombia-San Ignacio in Coahuila belong to the latest event of
the Eocene (Querol-Sune, 2006). Due to their economic potential, the Maestrichtian coals in the Coahuila
State have been the most explored and developed coals in Mexico. Most of the coals in the Sabinas and
Monclova sub-basins are metallurgical, whereas the coals from the Fuentes - Rio Escondido basins are
steam coals, which are used to generate electricity (Aguirre, 2008). Exhibit 4 presents typical coal
characteristics by basin (Querol-Sune, 2006).

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Exhibit 3: Main Geological Units of the Project Area

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SITE

CARBON

%

VOLATILES

%

ASH

%

TOTAL
SULPHUR

%

H20

%

CALORIFIC
VALUE
BTU/ lb

RESOURCES IN
SITU
(MILLION t)

SABINAS-
SALTILLITO-
MONCLOVA SUB-
BASINS, COAHUILA

45.61

16.97

40.43

1.0

1.26

13,000

2556

FUENTES-RIO
ESCONDIDO BASIN,
COAHUILA

32.07

30.50

33.27



4.16

8,246

1216

COLOMBIA-SAN
IGNACIO BASIN,
COAHUILA

32.4

42.6

44.0

3.5

4.10

11,140

252

MIXTECA BASIN.
OAXACA. AREAS:
- PLAZA DE LOBOS
-PLANCHA-EL
CONSUELO
-SAN JUAN VIEJO

31.11

29.75
40.14

6.92

6.02
10.07

60.30

63.11
49.13

0.26

0.25
0.28

1.05

0.82
0.47

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1625

BARRANCA BASIN,
SONORA

77.3

4.8

10.6

0.37

8.0

11500

143

CABULLONA BASIN,
SONORA

67.45

9.92

18.86

0.00

3.76

9055

80

SAN PEDRO
CORRALITOS
BASIN, CHIHUAHUA

27.37

26.75

45.86

0.34

18.2

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90

TOTAL













4432

Exhibit 4: Characteristics and Resources of Coal in Mexico by Basin [after Flores-Galicia (1991) as presented in Querol-Sune

(2006)]

The Sabinas sub-basin is known to contain gassy coals, and two mineable seams, colloquially known at
the "Double Seam" (see Exhibit 5), are present at shallow depth (less than 500 meters, m), are well
cleated, and have high natural fracture permeability. Gentzis, Klinger, Murray & Santillan (2006)
characterize the Sabinas coals as follows:

•	Average total coal thickness of 2.2 m with high ash content (32 wt%)

•	High vitrinite content (>86 vol%) showing high diffusivity (average tau value is 56 hours)

•	High natural fracture permeability (>30 md) in the mine sites

•	Average desorbed gas content of this medium-volatile bituminous coal (R0max = 1.30%) is highest
in Mine V (Esmeralda Mine at >9.0 cm3/g)

•	Maximum methane adsorption at an equivalent depth of 300 m is 15 cm3/g (as-received basis)

•	Gas concentration is mainly methane (98%) with a heating value of 38.21 MJ/m3 (1026 Btu/ft3)

•	Coal is under-pressured, likely undersaturated, and reported to be dry, with possibly free gas in
the cleat/fracture system

Mine characteristics and reservoir parameters specific to the Conchas Mine Complex are discussed in
more detail in the reservoir simulation section (see section 4.3.2Model Preparation and Runs).

7

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Exhibit 5: Sabinas Sub-Basin Stratigraphic Section

To initiate development of the resources at the Conchas Mine Complex, MINOSA has developed a
preliminary mining plan covering 27 km2. As shown in Exhibit 6, the mine plan is laid out to include Mine
IX, Mine X, and Mine XI, with a proposed mine life of 25 years. No additional details about the mining
method proposed for the Conchas mines are available. However, it is likely that development at mines
IX, X, and XI will proceed in a similar manner as MINOSA's other nearby mines such as mines 5, 6, and 7.
Under this assumption, the Conchas mines would most-likely utilize a longwall mining system designed
for panels between 800 m to 2,800 m in length by 200 m to 300 m in width. Exhibit 7 profiles MINOSA's
mines 5, 6, and 7, and based on the historical production observed at these mines, it is reasonable to
assume coal production for the three mines at the Conchas Mine Complex will be on the order of 5 Mt/yr.

8

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MINOSA Mines - 5, 6, and 7

Mine Status
Mining Method
Depth of Seams
No. of Seams
Seam Thickness
2008 Coal Production

Active
Longwall
120-150 m
2 - Olmos Fmtn
1.2-3.5 m (total)
3.5 million tonnes

Mine Owner
Parent Company
Location

2008 VAM Volume
2008 Drained CH-i Volume
2008 Utilized CH-t Volume

MINOSA Mines

Altos Hornos de Mexico

Sabinas Coal Basin. Coahuila

128. Mm3

6.41

0

Coal Production (thousand
tonnes/yr)

Methane (million m3/yr)

Emitted from ventilation systems
Liberated from drainage systems
Total Methane Emissions

2000	2001	2002

1714.6	2093.7	1910.9

42.40	81.13	107.73

3.90	4.82	13.44

46.3	85.95	121.17

2003	2004	2005

1319.7	1814.2	1641.9

101.18	107.7	128.2

20.11 4.82	13.4

121.29	112.52	141.6

Coal Production (thousand
tonnes/yr)

Methane (million m'J/yr)

Emitted from ventilation systems
Liberated from drainage systems
Total Methane Emissions

2006	2007	2008

2676.9	1897.2	2586.9

118.1	102.3	128.4
20.1	14.18	6.41

138.2	116.4	134.8

2009*	2010'	2011*

3,992	3,641	4,008

111.3	111.3	111.3
22.1	22.1	22.1

133.4	133.4	133.4



2012*

2013*

2014*

Coal Production (thousand
tonnes/yr)

5,654

4,603

5,444

Methane (million m3/yr)

0

0

0

Emitted from ventilation systems

111.3

111.3

111.3

Liberated from drainage systems

22.1

22.1

22.1

Total Methane Emissions

133.4

133.4

133.4

'Projected from Mina La Esmeralda, Mina VI, and Mina VII (CMI, 2010)

Exhibit 7: Profile ofMINOSA's Mines V, VI, and VII (USEPA, 2015)

4 Gas Resources

4.1 Overview of Gas Resources

Based on both historical evidence and current desorption testing, the Sabinas sub-basin in northern
Mexico contains gassy coals in the Upper Cretaceous Los Olmos Formation (Gentzis, Murray, & Klinger,
2005). Degasification of coal for mining purposes was first tested in the 1940's and in the early 1990's a
degasification program was implemented at the Pasta de Conchos Mine to help reduce the methane
concentration of the mine's ventilation air, which at the time was greater than one percent. Additionally,
Petroleos Mexicanos (PEMEX) has studied the coalbed methane (CBM) potential of the Coahuila coals,
but the data has not been released publicaliy (Querol-Sune, 2006).

Mexico's CBM resources are concentrated in the northern states of Coahuila and Sonora (USEPA, 2015).
CBM resource estimates for the Sabinas and Saltillito basins vary from between 4.2 trillion cubic feet (Tcf)
to 7.5 Tcf, with some estimates as high as 8.8 Tcf (Querol-Sune, 2006). MINOSA reports in situ gas
contents in the Sabinas Basin ranging from 343 standard cubic feet per ton (scf/ton) to 480 scf/ton, with

9

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in situ gas contents in the Saltillito Basin ranging from 411 scf/ton to 618 scf/ton (Querol-Sune, 2006).
Despite the limited amount of data available on the CMM and CBM resources in Mexico, the basins of
Coahuila are the most prospective for methane recovery projects based on their relatively high gas
contents, moderate permeability, and relatively shallow depth (USEPA, 2015).

Based on the results of gas desorption tests performed in conjunction with the coring program, the coal
seams of the Conchas Mine Complex are gassy. As shown in Exhibit 8, the gas content of the upper seam
(Seam A) ranges from 4.59 m3/t to 15.92 m3/t, with the gas content of the lower seam (Seam B) ranging
from 5.88 m3/t to 16.85 m3/t (MINOSA, 2014).

Lower seam

Upper seam

9.00

7.00

12.00

15.00

Wslmmgm

16.85

5.88

9.00

12.00

15.00 4_59-

15.92

I V ,

Gas concentration

m3/ton

;.ui -i1

Exhibits: Gas Concentration of Lower and Upper Seams

4.2 Proposed Gas Drainage Approach

The objectives of this pre-feasibility study are to perform an initial assessment of the technical and
economic viability of methane drainage utilizing vertical pre-drainage boreholes drilled from the surface,
and to identify end-use options. The gas production profiles generated for the vertical pre-drainage
boreholes will form the basis of the economic analyses performed in Section 7 of this report. Additionally,
estimating the gas production volume is critical for planning purposed and the design of equipment and
facilities.

Exhibit 9 illustrates the conceptual gas drainage approach proposed for the Conchas Mine Complex. In
this example, gas drainage is accomplished through the utilization of vertical boreholes drilled in advance
of mining. The boreholes will target seams A and B, and two well spacing scenarios will be assessed (60
ac and 120 ac well spacing).

-------
Exhibit 9: Proposed Degasification Plan for the Conchas Mine Complex

4.3 Estimating Production from Vertical Pre-Drainage Boreholes

Two reservoir models designed to simulate gas production volumes from vertical pre-drainage boreholes
were constructed. The following sections of this report discuss the construction of the gas drainage
borehole models, the input parameters used to populate the reservoir simulation models, and the
simulation results.

4.3.1 Simulation Model

A total of two dual-layer reservoir simulation models were constructed in order to calculate gas
production from a single well located within the project area. The models were designed to simulate
production from vertical pre-drainage boreholes drilled from the surface and spaced according to two
well spacing cases: 60 ac and 120 ac. The models were each run for ten years in order to simulate gas
production rates and cumulative production volumes from a typical borehole within the project area.

Model grids were created to accommodate each of the well spacing scenarios. Each model grid consisted
of 13 grid-blocks in the x-direction, 13 grid-blocks in the y-direction, and two grid-blocks in the z-direction.
The grid block dimensions were 124.4 feet (ft) by 124.4 ft for the 60 ac well spacing case and 175.9 ft by
175.9 ft for the 120 ac well spacing cases. An example of the model layout for a vertical pre-drainage
borehole is shown in Exhibit 10.

11

-------
Matrix Methane, scf/cuft
2.4468 3.4035 4.3601 5.3168 6.2734 7.2301 8.1867 9.1434 10.1000

minimi hiiiiiiiiiiiiiiiihiiiiiih	miiiiiiiiiiir

Exhibit 10: Example Layout for Vertical Pre-Drainage Borehole Simulation Model

4.3.2 Model Preparation and Runs

The input data used to populate the reservoir models were obtained primarily from the geologic and
reservoir data provided by MINOSA. Any unknown reservoir parameters were obtained from analogs
within the Sabinas Basin. The input parameters used in the reservoir simulation study are presented in
Exhibit 11, followed by a brief discussion of the most important reservoir parameters.

12

-------
Reservoir Parameter

Value(s)

Source / Notes

Avg. Coal Depth, ft
Seam A
Seam B

820
853

Analog (La Esmeralda Mine)

Avg. Coal Thickness, ft
Seam A
Seam B

10.10
5.28

Based on mine data

Coal density, ton/ac-ft

1836

Assumption

Pressure Gradient, psi/ft

0.310

Analog (field test at nearby property in 1990)

Initial Reservoir Pressure, psia

260

Calculated from avg. depth and pressure
gradient

Initial Water Saturation, %

20

Analog (Gentzis, Klinger, Murray, & Santillan,
2006)

Langmuir Volume, scf/ton

534

Analog (La Esmeralda Mine)

Langmuir Pressure, psia

297

Analog (La Esmeralda Mine)

In Situ Gas Content, scf/ton

237

Analog (La Esmeralda Mine); equivalent to
95% saturation

Desorption Pressure, psia

238

Calculated from isotherm and in-situ gas
content

Sorption Times, days

2.4

Analog (field test at nearby property in 1990)

Fracture Spacing, in

0.04

Analog (field test at nearby property in 1990)

Absolute Cleat Permeability, md

33.6

Analog (field test at nearby property in 1990)

Cleat Porosity, %

0.5

Analog (La Esmeralda Mine)

Relative Permeability

see Exhibit 13

Analog (La Esmeralda Mine)

Pore Volume Compressibility, psi 1

7.3E-05

Analog (La Esmeralda Mine)

Matrix Shrinkage Compressibility, psi 1

4.4E-07

Analog (La Esmeralda Mine)

Gas Gravity

0.575

Analog (Gentzis, Klinger, Murray, & Santillan,
2006)

Water Viscosity, centipoise (cP)

0.44

Assumption

Water Formation Volume Factor,
reservoir barrel per stock tank barrel
(RB/STB)

1.00

Calculation

Completion and Stimulation

Assumes skin factor of -3 (vertical, fracture stimulated wells)

Well Operation

Wells are pumped off utilizing a bottom-hole pressure
constraint of 25 psia

Well Spacing

60 ac per well based on mine degasification plan (base case)
and 120 ac per well (alternative case)

Exhibit 11: Reservoir Parameters for Vertical Pre-Drainage Borehole Simulation

13

-------
4.3.2.1 Permeability

Coal bed permeability, as it applies to production of methane from coal seams, is a result of the natural
cleat (fracture) system of the coal and consists of face cleats and butt cleats. This natural cleat system is
sometimes enhanced by natural fracturing caused by tectonic forces in the basin. The permeability
resulting from the fracture systems in the coal is called "absolute permeability" and is a critical input
parameter for reservoir simulation studies. Absolute permeability data for the coal seams in the study
area were not provided. For the current study, permeability values were assumed to be 33.6 millidarcy
(md) based on the results of field tests conducted at a nearby property.

4.3.2.2 Langmuir Volume and Pressure

Laboratory measured Langmuir volumes and pressures for the study area were not available. However,
Langmuir volume and pressure values used in reservoir simulation history matching conducted for the La
Esmeralda Mine were utilized in the current study. The corresponding Langmuir volume used in the
reservoir simulation models for the project area is 534 scf/ton and the Langmuir pressure is 297 pounds
per square inch absolute (psia). Exhibit 12 depicts the methane isotherm utilized in the vertical pre-
drainage borehole simulations.

500

450

400

z 350
p

J 300

z 250

UJ
—

S 200

» 150
100
50
0

0 200 400 600 800 1000 1200

PRESSURE (PSI)

Exhibit 12: Methane Isotherm Used in Vertical Pre-Drainage Borehole Simulation

4.3.2.3 Gas Content

Gas desorption analyses performed during the coring program indicate a high level of dispersion. Based
on data provided by the mine, the methane gas content of the upper seam (Seam A) ranges from 162
scf/ton to 562 scf/ton and the methane gas content of the lower seam (Seam B) ranges from 208 scf/ton
to 595 scf/ton. For modeling purposes, a gas content of 237 scf/ton was used, which represents a gas
saturation of 95% (Exhibit 12). This assumption is based on reservoir simulation history matching
conducted for the La Esmeralda Mine.

4.3.2.4 Relative Permeability

The flow of gas and water through coal seams is governed by permeability, of which there are two types,
depending on the amount of water in the cleats and pore spaces. When only one fluid exists in the pore
space, the measured permeability is considered absolute permeability. Absolute permeability represents

Initial Gas Content: 237 scf

VL: 534.2 scf/ton

PL: 297.3 psi

-------
the maximum permeability of the cleat and natural fracture space in coals and in the pore space in coals.
However, once production begins and the pressure in the cleat system starts to decline due to the removal
of water, gas is released from the coals into the cleat and natural fracture network. The introduction of
gas into the cleat system results in multiple fluid phases (gas and water) in the pore space, and the
transport of both fluids must be considered in order to accurately model production. To accomplish this,
relative permeability functions are used in conjunction with specific permeability to determine the
effective permeability of each fluid phase.

Relative permeability data for the coal of the project area was not available. Therefore, the relative
permeability curve used in the simulation study was obtained from the results of reservoir simulation
history matching performed in association with a CMM project at the La Esmeralda Mine. Exhibit 13 is a
graph of the relative permeability curves used in the reservoir simulation of the study area.

1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0

Exhibit 13: Relative Permeability Curve Used in Simulation
4.3.2.5 Coal Seam Depth and Thickness

Based on data from nearby mines, the coal seams of the Conchas Mine Complex range in depth from 820
ft to 860 ft with coal seams ranging between 5.3 ft and 10.1 ft in thickness. The model assumes two
individual zones, corresponding to the A and B seams, will be hydraulically fractured in each well. Based
on mine data, the coal thickness is taken to be 10.10 ft and 5.28 ft for Seam A and Seam B, respectively.
The depth to the top of the coal reservoir was assumed to be 820 ft and 853 ft for the A and B seams,
respectively. Exhibit 14 presents a representative stratigraphic column for the project area.

-O-KRW

—O— KRG

0 0.2 0.4 0.6 0.8 1

-------
Interseam

10.00 meters

sandston<

sandstoni

shall

shal<

coal

shal

tud
coa
tuff

shal

1.61 meters

Seam "A"

3.08 meters

Seam "B"

sandstone:

Exhibit 14: Representative Stratigraphic Column at the Conchas Mine Complex

4.3.2.6 Reservoir and Desorption Pressure

Using a hydrostatic pressure gradient of 0.310 pounds per square inch per foot (psi/ft) and the midpoint
depth of the coal seams, an initial average reservoir pressure of 260 pounds per square inch absolute
(psia) was computed for the vertical pre-drainage borehole model. Because the coal seams are assumed
to be undersaturated with respect to gas, an average desorption pressure was calculated using the
methane isotherm. The resulting desorption pressures used in the model was 238 psia.

4.3.2.7 Porosity and Initial Water Saturation

Porosity is a measure of the void spaces in a material. In this case, the material is coal, and the void space
is the cleat fracture system. Since porosity values for the coal seams in the project area were not available,
a value of 0.5 percent was used in the simulations, which is based on porosity values used in reservoir
simulations for the CMM project at the La Esmeralda Mine. The cleat and natural fracture system in the
reservoir was assumed to be 20 percent water saturated, This assumption is based on work by Gentzis et
al. (2006), which reported the coal of the Sabinas sub-basin to be dry, with possibly free gas in the
cleat/fracture system.

4.3.2.8 Sorption Time

Sorption time is defined as the length of time required for 63 percent of the gas in a sample to be
desorbed. In this study a 2.4 day sorption time was used, which was based on field test results at a nearby
mine. Production rate and cumulative production forecasts are typically relatively insensitive to sorption
time.

4.3.2.9 Fracture Spacing

A fracture spacing of 0.04 inches (in) was assumed in the simulations, which is consistent with data from
field tests conducted at a nearby mine. In the model, fracture spacing is only used for calculation of
diffusion coefficients for different shapes of matrix elements and it does not materially affect the
simulation results.

-------
4.3.2.10 Well Spacing

Based on the proposed degasification plan a base well spacing case of 60 ac was utilized in the simulations.
Additionally, due to the high permeability present in the coal seams, an alternative well spacing case of
120 ac was run.

4.3.2.11 Completion

Vertical wells are projected to be drilled and completed to a depth of roughly 875 ft and completed in two
stages corresponding to the A and B seams. Nearly all coal seams require some type of stimulation in
order to initiate and sustain economic gas production. For modeling purposes, a skin value of -3 is
assumed.

4.3.2.12 Well Operation

In the current study, wells were pumped off utilizing a bottom-hole pressure constraint of 25 psia. In coal
mine methane operations, low well pressure is required to achieve maximum gas content reduction. The
wells were allowed to produce for a total of 10 years.

4.3.3 Model Results

As noted previously, two reservoir models were created to simulate gas production for the study area
located at the Conchas Mine Complex. Each of the models was run for a period of 10 years and the
resulting gas production profiles and reduction in methane of the coal seams were calculated. Simulated
gas production rate and cumulative gas production for an average well within the project area are shown
in Exhibit 15, and Exhibit 16 presents a tabular summary of the simulation results for the vertical pre-
drainage borehole model.

350

¦§ 250

420

0 12 24 36 48 60 72 84 96 108 120

Month

60 Acre Gas Rate 120 Acre Gas Rate

60 Acre Cumulative Gas 120 Acre Cumulative Gas

Exhibit 15: Simulated Gas Production Profiles for Vertical Pre-Drainage Boreholes

-------
Well Spacing

ac

60

120

Peak Gas Rate

Mscfd

312

323

Cumulative Gas
Production







1 Year

MMscf

76

82

3 Year

MMscf

155

194

5 Year

MMscf

198

270

10 Year

MMscf

252

385

Methane Concentration

%

98%

98%

CH4-ln-Place

Bcf

401

802

Recovery Factor (10-Yr)

%

63%

48%

Exhibit 16: Summary of Pre-Drainage Simulation Results for Single Well

One of the benefits of pre-drainage is the reduction of methane content in the coal seams prior to mining.
Exhibit 17 and Exhibit 18 show the simulated reduction in in-situ gas content in Seam A and Seam B,
respectively, overtime utilizing vertical pre-drainage boreholes.

250

200

J2. 150

100

60 ac	120 ac

Well Spacing

Exhibit 17: Simulated Reduction in In-Situ Gas Content for Seam A

250

200

J2. 150

100

Fk

50

60 ac	120 ac

Well Spacing

7^

n





Initial
i After 1 Yr
I After 3 Yrs
After 5 Yrs
I After 10 Yrs

Exhibit 18: Simulated Reduction in In-Situ Gas Content for Seam B

18

-------
5 Market Information

As noted in USEPA's CMM country profile of Mexico (USEPA, 2015), methane captured from coal mines
would compete directly with other supplies of natural gas, which come from various natural gas basins
and as associated gas from increasing onshore and offshore oil production. CMM and CBM prices are
expected to be competitive with natural gas and other resources, including coal, due to rising natural gas
prices and increasing gas demand for expanding power generation capacity.

Currently, markets for CMM in Mexico are limited due to legal requirements that hydrocarbon resources
be handled through contracts with PEMEX, which is the state owned oil and gas monopoly. CMM projects
under development in Mexico are currently limited to utilization in coal mine operations or local power
generation and not to pipeline sales. However, the Mexican government has recently proposed new
regulations for the oil and gas industry which are intended to further liberalize the sector and promote
private investment and development. The passage of this new legislation should provide added incentives
for CMM and CBM development projects (USEPA, 2015). The recent market reforms are highlighted in
the following excerpts from USEPA's CMM Country Profiles2 and white paper on CMM ownership policy3:

• Mineral exploration and mining in Mexico are regulated by the Mining Law of 1992 (as amended
in 2006), which establishes that all minerals found in Mexican territory are owned by the Mexican
nation, and that private parties may exploit such minerals (except oil and nuclear fuel minerals)
through mining licenses, or concessions, granted by the Federal Government.

• Until the change in the mining law in 2006, only PEMEX had the right to exploit Mexico's natural
gas resources, including CBM. Therefore, coal mines did not have the right to sell CMM or to use
CMM to generate heat or electricity on site.

• Following a methane-related explosion at the Pasta De Conchos Mine in February 2006, Mexico's
Congress and Senate amended the Mining Law (April 2006), allowing coal mines to recover and
use CBM, CMM, abandoned mine methane (AMM), and ventilation air methane (VAM) from their
coal mining operations for any purpose. The amendment also allowed the concessionaires to sell
the gas to PEMEX through a contract (Flores, 2007).

• The regulations were further adjusted by an amendment to the Mining Law on June 26, 2006,
which allows holders of coal mineral concessions to recover and use methane in order to stop
methane venting. Methane can be used on-site and/or delivered to PEMEX, which is required to
pay justifiable market rates for recovery, transportation, operation, and maintenance plus a
reasonable profit. Holders of CMM concessions are contracted to report on the start and
suspension of any activities, collect geological data, report on discovery of non-associated gas,
and deliver captured, non-self-consumed CMM to PEMEX (Flores, 2007; Latin Petroleum, 2006).

• A new law, "Safety for Underground Mines" (NOM-STPS-032-2008), was passed in 2008 and
contained rules for obtaining permits and authorizations that grant the use and recovery of
coalmine gas (Cabrera, 2009; Briseno, 2009). The Secretaria de Energfa (SENER) is the agency in
charge of authorizing and monitoring CBM/CMM activity, and issues permission for the recovery
and utilization of CBM. SENER will also issue contracts for the delivery of gas to PEMEX, establish

2 USEPA (2015). Coal Mine Methane Country Profiles: Chapter 21 - Mexico. Updated June 2015, available:
http://www.epa.gov/cmop/docs/cmm country profiles/Toolsres coal overview ch21.pdf

3 USEPA (2014). Legal and Regulatory Status of CMM Ownership in Key Countries: Considerations for Decision
Makers. July 2014, available: http://www.epa.gov/cmop/docs/CMM-Ownership-Policv-White-Paper-Julv2Q14.pdf

-------
terms for payment for the delivery of gas, and is charged with developing policies for recovery
and utilization of CBM (Roldan, 2009).

• The Mexican government recently staked out three large regions and designated them for CBM
development. This is in response to the changes to the Mining Law passed in 2006, and seeks to
assert the primacy of CBM resources in these areas. Until the concessions are put up for auction,
the reservation of these areas will be an impediment to other mining development (Wood, 2007).
One of the designated regions encompasses much of Coahuila state, including the Conchas Mine
Complex project area.

6 Opportunities for Gas Use

CMM, which is essentially natural gas, is the cleanest burning and most versatile hydrocarbon energy
resource available. It can be used for power generation in either base load power plants or in combined
cycle/co-generation power plants, as a transportation fuel, as a petrochemical and fertilizer feedstock, as
fuel for energy/heating requirements in industrial applications, and for domestic and commercial heating
and cooking.

Given the relatively small CMM production volume, constructing a pipeline to transport the gas to demand
centers would be impractical. As noted in the Market Information section, the primary market available
for a CMM utilization project at the Conchas Mine Complex is power generation using internal combustion
engines. Based on gas supply forecasts, the mine could be capable of operating as much as 72 MW of
electricity capacity.

Generating electricity on site is attractive, because the input CMM gas stream can be utilized as-is, with
minimal processing and transportation. Additional generating sets can be installed relatively cheaply and
infrastructure for the power plant is already planned.

7 Economic Analysis

7.1 Project Development Scenario

In order to assess the economic viability of the degasification options presented throughout this report,
it is necessary to define the project scope and development schedule. Pre-drainage boreholes were
assumed to begin production three to five years priorto the initiation of mining activities. Gas production
profiles were generated for a total of four project development cases:

• Case 1: 60 ac well spacing with 3 years of pre-drainage

• Case 2: 60 ac well spacing with 5 years of pre-drainage

• Case 3: 120 ac well spacing with 3 years of pre-drainage

• Case 4: 120 ac well spacing with 5 years of pre-drainage

The proposed pre-drainage project will target both the A and B seams with vertical boreholes drilled from
the surface. With a project area of 6,672 ac (27 km2) a total of 112 and 56 wells will be drilled for the 60
ac and 120 ac well spacing cases, respectively. At an assumed drilling rate of four wells per month drilling
of the entire project area would require 28 months and 14 months for the 60 ac and 120 ac well spacing
cases, respectively.

-------
7.2 Gas Production Forecast

Gas production forecasts were developed using the simulation results (Exhibit 15) and the development
cases discussed above. The gas production forecast for each project development case is shown in Exhibit
19.

6000
5000
4000

o 3000

¦| 2000

1000
0

12345678

Year

60acspacing; 3yrs pre-drainage — — 60acspacing; 5yrs pre-drainage
120 ac spacing; 3 yrs pre-drainage ~ — 120 ac spacing; 5 yrs pre-drainage

Exhibit 19: Gas Production Forecast by Development Scenario

7.3 Project Economics

7.3.1 Economic Assessment Methodology

For each of the proposed project development cases, discounted cash flow analyses were performed for
the upstream portion (i.e., CMM production) and the downstream portion (i.e., electricity production). A
breakeven gas price was calculated in the upstream segment where the present value of cash outflows is
equivalent to the present value of cash inflows. The breakeven gas price was then used in the downstream
segment to calculate the fuel cost for the power plant. Likewise, a breakeven electricity price was
calculated for the downstream segment, which can be compared to the current price of electricity
observed at the mine in order to determine the economic feasibility of each potential development case.
The results of the analyses are presented on a pre-tax basis.

7.3.2 Upstream (CMM Project) Economic Assumptions and Results

Cost estimates for goods and services required for the development of the CMM project associated with
the Conchas Mine Complex were based on a combination of known average development costs of
analogous projects in the region and the U.S., and other publically available sources (USEPA, 2011). A
more detailed analysis should be conducted if this project advances to the full-scale feasibility study level.
The capital cost assumptions, operating cost assumptions, and physical and financial factors used in the
evaluation of upstream economics are provided in Exhibit 20.

-------
CaDital Cost





Well Capital

300

$,000 per well

Facilities Capital

200

$,000 per well

Total Capital

500

$,000 per well

ODeratina Cost



Well Tending & Pumping

1050 $/well/mo

Field/Facilities Opex

0.5 $/Mcf

Field Fuel Use

3%

Phvsical & Financial Factors



Royalty

0%

Price Escalation

0%

Cost Escalation

0%

Calorific Value of Gas

1000 Btu/cf

Exhibit 20: Summary of Input Parameters for the Evaluation of Upstream Economics (CMM Project)

The economic results for the CMM pre-drainage project are summarized in Exhibit 21. Based on the
forecasted gas production, the breakeven cost of producing gas through vertical pre-drainage boreholes
is estimated to be between $2.67 and $4.09 per million British thermal units (MMBtu). The results of the
economic assessment indicate the lowest pre-drainage costs are associated with the 120 ac well spacing
case, with 5 years of pre-drainage (Case 4) preferred over 3 years (Case 3).



Breakeven



Gas Price

Project Scenario

$/M M Btu

60 ac spacing; 3 yrs pre-drainage

4.09

60 ac spacing; 5 yrs pre-drainage

3.45

120 ac spacing; 3 yrs pre-drainage

3.37

120 ac spacing; 5 yrs pre-drainage

2.67

Exhibit 21: Breakeven Gas Price

7.3.3 Downstream (Power Project) Economic Assumptions and Results

The drained methane can be used to fuel internal combustion engines that drive generators to make
electricity for use at the mine. The major cost components for the power project are the cost of the
engine and generator, as well as costs for gas processing to remove solids and water, and the cost of
equipment for connecting to the power grid. The assumptions used to assess the economic viability of
the power project are presented in Exhibit 22.

Power Plant AssumDtions





Generator Cost Factor

1300

$/kW

Generator Efficiency

35%



Run Time

90%



Power Plant Operating Cost

0.02

$/kWh

Exhibit 22: Summary of Input Parameters for the Evaluation of Downstream Economics (Power Project)

The economic results for the power project are summarized in Exhibit 23. The breakeven power sales
price, inclusive of the cost of methane drainage, is estimated to be between $0,089 and $0,114 per

22

-------
kilowatt-hour (kWh). Based on a breakeven gas price of $2.67/MMBtu (Case 4), the mine could generate
power at a price equivalent to $0.089/kWh. With electricity rates for medium-size industry in Mexico
averaging $0.095/kWh over the first half of 2015 (SIE, 2015), a CMM-to-power utilization project at the
mine would be economically feasible.

Project Scenario

Breakeven
Power Price
$/kWh

60 ac spacing; 3 yrs pre-drainage
60 ac spacing; 5 yrs pre-drainage
120 ac spacing; 3 yrs pre-drainage
120 ac spacing; 5 yrs pre-drainage

0.114
0.096
0.113
0.089

Exhibit 23: Breakeven Power Price

8 Conclusions, Recommendations and Next Steps

As a pre-feasibility study, this document is intended to provide a high level analysis of the technical
feasibility and economics of the CMM project at the Conchas Mine Complex. The analysis performed
reveals that methane drainage using vertical pre-drainage boreholes is feasible, and could provide the
mine with additional benefits beyond the sale of gas or power, such as improved mine safety and
enhanced productivity.

Based on the forecasted gas production, the breakeven cost of producing CMM through vertical pre-
drainage boreholes is estimated to be between $2.67 and $4.09/MMBtu. The results of the economic
assessment indicate the lowest pre-drainage costs are associated with the 120 ac well spacing case, with
5 years of pre-drainage (Case 4) preferred over 3 years (Case 3).

In terms of utilization, the power production option is economically feasible under the optimal
development scenario. More rigorous engineering design and costing would be needed before making a
final determination of the best available utilization option forthe drained methane. The breakeven power
sales price, inclusive of the cost of methane drainage, is estimated to be between $0,089 and $0.114/kWh.
With current industrial electricity rates in Mexico averaging $0.095/kWh over the first half of 2015,
utilizing drained methane to produce electricity would generate profits of $6 per megawatt-hour (MWh)
of electricity produced, based on the breakeven power sales price of $0.089/kWh, which is associated
with the optimal development scenario (Case 4).

The power production option is economically feasible, and removing the cost of mine degasification from
downstream economics, as a sunk cost, would reduce the marginal cost of electricity and improve the
economics even further. In addition, net emission reductions associated with the destruction of drained
methane are estimated to average just over 722,000 tonnes of carbon dioxide equivalent (tC02e) per year.
Should MINOSA wish to continue with the proposed drainage plan, ARI recommends the following steps:

Step 1: Refine Pre-feasibility Analysis

Review the data and determine if more detailed and accurate data are required or are necessary. In
addition, it will be beneficial to obtain more accurate costing information for Mexico, including costs for
drilling and completion for vertical pre-drainage wells and installed capital costs and operating costs for
packaged gas engines.

23

-------
Step 2: Detailed Engineering & Design

If the results of the refined prefeasibility study are promising, the next step is to move forward with
detailed engineering and design for a pilot well program.

Step 3: Pilot Well Program

The pilot well program would likely take the form of one or more 5-well clusters drilled on a fairly tight
spacing (40 acres or less). Contiguous well patterns are important indicators of full scale production
potential because they quickly achieve efficient dewatering of the continued well, an important criterion
for coalbed methane production. Detailed plans should be developed for all phases of the drilling program
including drilling, completion, stimulation, artificial lift, water disposal, and production operations.

Step 4: Full Feasibility Study including Field Development Plan

The results of the project will inform the development of a full feasibility study. In addition to further
defining the elements of the pre-feasibility study including the project economics, the feasibility study
should include reservoir simulation and data analysis to support the construction of the full field
development plan.

24

-------
Works Cited

Aguirre, J. R. (2008). Ventilation Planning at the Minerales Monclova's Mines. 12th U.S./North American
Mine Ventilation Symposium 2008 - Wallace (ed).

BP. (2015, August 11). Statistical Review of World Energy 2015. Retrieved from BP Web Site:
http://www.bp.com/statisticalreview

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