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Highlands Natural Resources plc: Highlands Water Resources and Montana update

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Oilfield Technology,

This wholly owned subsidiary has been formed to facilitate a range of initiatives focused on easing the water shortage currently being experienced across the US oil and gas industry, and particularly in arid states such as Colorado. With this in mind, Highlands has become a distribution partner to Epiphany Water Solutions, a Pennsylvania based manufacturer of water purification/desalination systems, to distribute its proven E10X modular solar-powered water recycling units to operators across a range of key US States.

Water Recycling Solutions

A significant amount of clean water is required to complete a successful hydraulic fracturing operation. The oil and gas industry’s average cost of obtaining clean water is usually US$2 - 3/bbl of water. During the operation, produced water is recovered and must be disposed of in a manner consistent with regulations. The produced water contains a mixture of salt and chemicals and is most often pumped into a separate disposal well at a cost of US$2 - 6/bbl. According to IHS Markit, the annual water management costs for the Permian Basin alone are expected to reach US$25 billion in the next five years.

Epiphany’s pad-based water treatment technology has been previously tested and proven to be effective. It provides a more economic and environmentally friendly solution to water disposal and usage compared to current methodologies. The units remove most salt-based and chemical-based impurities with 95 - 100% efficiency, making the water produced during the fracking process reusable in further fracking operations. Consequently, the savings for operators can be considerable.

As previously announced on 20 September 2018, the Company has already mobilised two E10X modular water recycling units to its East Denver location and is receiving revenues from the operator in return for its services. The Company receives a fee for recycling the produced water and an additional fee for re-selling the treated water for re-use in the same hydraulic fracturing operations at the location. The combined fee is US$2.60/bbl of water. Two E10X units currently treat 500 bbls of water per day at East Denver.

Following this successful deployment, Highlands plans to secure additional customers for Epiphany’s technology in revenue-sharing arrangements. The Company is working with Epiphany to become a distribution partner of Epiphany’s proven pad-based produced water distillation units in Colorado, New Mexico, Wyoming, Texas and Oklahoma. There is no upfront cost to Highlands in becoming a distributor or supplying the units.

Montana Eagle formation flow back

As previously announced on 1 February 2018, the Helios Two Well was stimulated in the Eagle Formation using a combination of water and foam-based stimulation agents in three separate stages. Opening of two of the three stages have resulted in natural gas production rates peaking at 216 000 ft3/d.

The first stage of the fracturing operation, which was left unopened, was stimulated with 8000 bbls of water from the Muddy Formation and was shut in to soak for ten months. This inexpensive experiment was conducted to gather further valuable information about the formation to improve the economic potential of the asset with minimised costs. The opening of the first stage resulted in initial production rates averaging 58 000 ft3/d. The Highlands team is now installing autonomous systems for continuous long-term monitoring of gas rates and further data collection.

Given the thickness of the formation, Highlands believes that it could stimulate the formation with potentially up to a dozen stages and achieve economic production. The ongoing testing will confirm over time the commerciality of the project.

Montana Muddy Formation Water / Powder River Basin Project

During the work on the Helios Two Well, Highlands has also established that its 220 000 acre Muddy formation Montana asset, prospective for natural gas and helium, potentially contains billions of barrels of accessible water suitable for oil and gas hydraulic fracturing operations.

The proximity of the Montana asset to the Powder River Basin, a major US basin that covers parts of southern Montana and northern Wyoming, makes it an ideal water source for use in hydraulic fracturing operations in the area. Providing water resources in the Powder River Basin could make the development of the Company’s natural gas and helium project in the Muddy formation more economical. Selling the produced water to operators and water companies in the Powder River Basin will provide an additional revenue stream for Highlands and significantly reduce disposal fees. Highlands is in talks with various technical and financial parties for the development of its Montana Muddy formation water resources.

Highlands Chairman Robert Price said, “Clean water is a precious and vital resource to the US oil and gas industry and the lack of creative solutions available for disposing of water produced through fracking and the limited availability of water resources, exacerbated by the recent drought, has created an opportunity for innovators in the oil and gas services industry. We are excited to be working with Epiphany to develop an economically and environmentally sound solution to the complex problem of water resources management for the energy industry.

“We are already receiving revenues from our initial programme with Epiphany at East Denver and we will now look to leverage our extensive regional industry network to secure additional customers for this innovative and potentially game-changing water recycling technology. In addition, we expect to deliver updates from Montana as we focus on exploring the potential of delivering water from this expansive project area. Through these initiatives, we believe that we can help alleviate the pressure of delivering significant volumes of water in order to complete a successful fracking operation.”

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