Technology analysis and Promotion Strategy for Coalbed … Metano de Carbó… · Technology analysis and Promotion Strategy for Coalbed Methane Developments in Colombia Executive

Technology analysis and Promotion Strategy for Coalbed

Methane Developments in Colombia

Executive Summary

Bogota, June 9, 2011

Prepared for

AGENCIA NACIONAL DE HIDROCARBUROS Arthur D. Little, Inc.

1600 Smith Street, Suite 3960

Houston, TX 77002

Telephone +1 281 404-9856

Fax +1 713 655-0726

www.adl.com

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As a first step to developing an effective promotional strategy, we characterized all the

CBM basins of Colombia

Phase I

1

Phase II

2

Phase III

3

Characterization of CBM Deposits in

Colombia

Define the principal

characteristics of CBM deposits in

Colombia

Identify the characteristics of

CBM deposits that will define the

technological priorities (in E&P

and other adjacent processes)

Identification of technologies and

principal providers

Analyze and validate different

available CBM technologies in

E&P and other adjacent

processes

Identify technologies that are

most suitable for CBM deposits in

Colombia

Identify and define the principal

providers of these technologies

Promotion of new technologies

Develop strategy to assure

technology providers participation

in allocation of CBM blocks

Promotion to Incorporate New Technologies Associated with Coal Bed Methane

Executive Summary – Project Tasks

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Colombia is divided into 12 regions that contain coal reserves

Source: Ingeominas, ADL Analysis

Colombian Basins

Phase I – Colombia CBM Overview

1. Guajira

2. Cesar

3. Cordoba

4. Antioquia

5. Valle del Cauca

6. Huila

7. Cundinamarca

8. Boyaca

9. Santendar

10. Norte de Santendar

11. Borde Llanero

12. Llanuna Amazonica

1

2

3

4

56

7 89

1011

11

1212

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Mineable coal in place indicates that Colombia has significant coal reserves that have

a coal rank suitable for CBM

Region

Mineable

Coal in

Place

(Gmt)

Potential

Total Gas

in Place

(TCF)

Coal Rank

Anthracite

Low

Volatile

Bitum

Medium

Volatile

Bitum

High

volatile

A Bitum

High

volatile B

Bitum

High

volatile C

Bitum

Sub

Bitu

m A

Sub

Bitu

m B

Sub

Bitu

m C

Lignite

Cesar 6.6 2.3 – 6.3

Guajira 4.5 2.5 - 10

Boyacá 1.7 2.1 - 5

Cundinamarca 1.5 2 - 5

Valle del

Cauca0.2 0.1 – 6.2

Norte De

Santander0.8 0.9 – 1.2

Cordoba 0.7 0.4 – 0.5

Antioquia 0.5 0.3 – 0.4

Santander 0.8 0.5 - 0.7

Total

Minieable Coal

potential

17.3 11.1 – 35.3

Colombian Basins

Mineable coal in place no deeper than 300 m


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Comparative analysis shows that Cesar, La Guajira, Boyaca and Cundinamarca are

more attractive than the rest of the basins for CBM development

Geology Coal Rank Coal Thickness Gas Content Gas Potential

Cesar

La Guajira

Boyaca

Cundinamarca

Valle del Cauca

Norte De Santendar

Cordoba

Antioquia

Santendar

Favorable UnfavorableSource: ADL Analysis


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Drummond was awarded first CBM contracts in 2000 and 2004 for La Guajira (Rio

Rancheria) and Lo Loma (Cesar) respectively

Source: Ingeominas, ADL Analysis

Drummond’s Concessions


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In the second phase of the project we described the key CBM technologies and

identified potential vendors and CBM operators around the world

Phase I

1

Phase II

2

Phase III

3


Colombia



Colombia






principal providers




processes



Colombia









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In order to conduct the various activities in each of the phases, a number of different

technologies are applied

Initial Study &

Pilot Testing

1

Drilling

2

Completion

3

Production

4

Coring & Lab Analysis

– Corehole Drilling

– Corehole Lab

Analysis

Logging (Petro-physical

Analysis)*

– Open-hole

– Cased hole Log

Basin Modeling

Drilling

– Vertical Drilling

– Horizontal Drilling

– Multilateral Drilling

– SIS Drilling

– Coiled Tubing

Casing

Cementing

Perforation

– Shaped Charge

Well Stimulation

– Acidizing

– Hydraulic Fracturing

– Water, Slick Water

– Gel, Cross-linked

Gel, Foam

– Explosive & Gas

Fracturing

Under-reaming

Jetting Laterals

Artificial Lift

– Hydraulic Pumps

– Electric Submersible

Pumps

– Gas Lift

– Progressing Cavity

Pumps

– Rod Pumps

Water Management

– Water Re-injection

– Stream Discharge

– Evaporation

Enhanced CBM

Source: Arthur D. Little Analysis* Logging is also run in other phases of CBM extraction

Phase II - CBM Technologies & Their Application in Colombia

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Drilling Completion ProductionInitial Study & Pilot

Through Coring and Lab Analysis, engineers, geologists and petro-physicists gain

access to accurate and representative reservoir information to enhance the geological

and petro-physical models

Coring

Definition of

Coring

Purpose of

Coring

Coring is the removal of continuous formation sample from a wellbore. To the extent possible,

core samples are recovered undamaged, preserving the physical and mechanical integrity of the

rock. The formation material may be solid rock, friable rock, conglomerates, unconsolidated sands,

coal, shales, gumbos, or clays. Coring can be conducted by various methods with a variety of tools

in a wide range of hole sizes.

Laboratory measurements performed on core samples recovered from hydrocarbon reservoirs

provide reservoir properties and descriptive data not available from any other source. While well

logs play a very important role in reservoir characterization, core material is needed to add a

high degree of certainty in calibrating the data obtained from these tools.

Evaluation data gained from core samples fall into several general categories:

– geological, petrophysical, completion/production, engineering

Differences

With

Conventional

Oil & Gas

Conventional cores are typically tested for porosity, permeability, saturations (oil, gas & water)

and lithology. Coal cores are not typically measured for porosity nor permeability. Coals

samples are used mainly for measuring gas-content, cleat-spacing (a qualitative measurement

of permeability), gas composition, coal composition, isotherm determination (gas content

capacity versus pressure), and calibration of log estimates of coal properties & thicknesses.


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Well logging is used to collect geological and geophysical measurements such as

lithology, permeability, saturation etc. through various phases of CBM extraction

Well Logging

Well logging, is the practice of making a detailed

record (a well log) of the geologic formations

penetrated by a borehole. The log may be based

either on visual inspection of samples brought to

the surface (geological logs) or on physical

measurements made by instruments lowered into

the hole (geophysical logs).

Open-hole Logging

– Open hole operations involves the deployment of tools into a

freshly drilled well. As the tool-string traverses the wellbore,

the individual tools gather information about the surrounding

formations. A typical open hole log will have information about

the density, porosity, permeability, lithology, presence of

hydrocarbons, and oil and water saturation

Cased-hole Logging

– Cased hole operations focuses on the optimization of the

completed oil well through mechanical services and logging

technologies. At this point in the well's life, the well is encased

in steel pipe, cemented into the well bore and may or may not

be producing. A typical cased hole log may show cement

quality, production information, formation data, etc.

For conventional logs, a resistivity tool is usually run to

determine oil, gas or water in the pore space which is not

required in CBM as it does not measure coal*.

Differences with Conventional Oil & Gas

Source: USGS, US Department of Energy, Arthur D. Little Analysis

*Geologist usually like running this tool because of tool familiarity & to know more about lithology Engineers usually do not favor running this tool


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Conventional vertical drilling is commonly used on CBM wells that are easily

accessible or laminated

Conventional Vertical Drilling

Conventional coal-bed methane wells are drilled

vertically into the coal seam

CBM drilling often uses less expensive water well

drilling technology

Vertical drilling technology is used for wells that are

less risky, more easily accessible, and relatively more

laminated

Challenges

– Shallow depth of coalbed methane resources, new

innovations and technological advances, and

incongruent geological basins make use of this

technology economically challenging

CBM drilling does not use blow out preventer except

for the rotary head and use air instead of mud.

Majority of vertical drilling wells drilled for CBM use air

instead of mud


Source: USGS, ADL Analysis


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Horizontal drilling is a more expensive technology with great exploitation potential.

Currently majority of CBM wells are drilled using horizontal drilling technology

Horizontal Drilling

Horizontal drilling involves drilling down into the coal seams

that hold the methane and then gradually turning the well bore

90 degrees, punching through the coalbed

More expensive than vertical drilling

Short-, medium-, and long- radius wells exist, though medium-

radius are most widely used and productive due to shallow -

medium depth range of CBM resources

Horizontal drilling offers great exploitation potential for

reservoirs that are thin, have low to medium permeability, and

are compartmentalized or fractured

Associated benefits are repeatability, faster recovery, high

ultimate recovery, economies of scale, and lessened

environmental impact

In typical oil & gas lateral well, fracturing is performed.

However typically in CBM lateral wells, fracturing is not

performed possibly because most CBM target zones are too

thin to economically justify stimulation


Source: www.geology.wisc.edu/courses/g115/oil/4.html, ADL Analysis


http://www.geology.wisc.edu/courses/g115/oil/4.html

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Acidizing operations involve the introduction of acids into the formation cervices to

increase the flow capacity to the pay zone

Acidizing

Acidizing operations involve the introduction of acids into the

formation cervices to increase the flow capacity to the pay zone

Acidizing is usually performed by an acidizing service company

and may be done before the rig is moved off the well; or it can

also be done after the rig is moved away.

The acidizing operation basically consists of pumping anywhere

from fifty to thousands of gallons of acid down the well. The acid

travels down the tubing, enters the perforations, and contacts the

formation. Continued pumping forces the acid into the formation

where it etches channels - channels that provide a way for the

formation’s oil or gas to enter the well through the perforations

Acidizing helps clears cement debris from the perforation

channel

For CBM wells the amount of acid pumped is lower (few

hundred to few thousand of gallons)


Source: Article: http://mpgpetroleum.com/images/cementguide.jpg, http://www.oilfielddirectory.com/oilfield/images/acidize.gif


http://mpgpetroleum.com/images/cementguide.jpg

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Hydraulic fracturing is a method used to increase oil and gas production primarily in

‘tight’ reservoirs

Hydraulic Fracturing

Hydraulic fracturing is used to create additional passageways in the oil or gas reservoir that can facilitate the flow of oil or gas to a producing well

– Primarily applied to “tight” reservoirs, where oil or gas containing rocks have restricted pore volume and connectivity

– Commonly fractured by injecting a fluid containing sand or other “proppant” under sufficient pressure

Hydraulic Fracturing can be used in a number of challenging environments including:

– Conventional and Unconventional oil, gas, and condensate reservoirs

– Sandstone, carbonate, shale, and coal formations

– Horizontal, deviated, and vertical wells

– Openhole and case hold completions

– High temperature, high-pressure, H2S and CO2 environments

Because the coals are very shallow and temperatures are really low usually enzymes are used instead of catalytic breakers


Source: ADL Technology Briefs, ADL Analysis


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Artificial lift is needed in wells when there is insufficient pressure in the reservoir to lift

the produced fluids. It is also used to increase the flow rate in naturally flowing wells

Artificial Lift

Source: ADL Analysis

Description of

Artificial Lift

Purpose of

Artificial Lift

Differences

With

Conventional

Oil & Gas

Artificial lift refers to the use of artificial means to increase the flow of liquids, such as crude oil

or water, from a production well. Generally this is achieved by the use of a mechanical device

inside the well or by decreasing the weight of the hydrostatic column by injecting gas into the

liquid some distance down the well.

Artificial lift is needed in wells when there is insufficient pressure in the reservoir to lift the

produced fluids to the surface, but often used in naturally flowing wells (which do not technically

need it) to increase the flow rate above what would flow naturally. The produced fluid can be oil

and/or water, typically with some amount of gas included.

A conventional well operator will not be too concerned about fluid level, however the CBM

operators try to keep the fluid level at the minimum possible to increase the production of gas


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Many options exist on how to manage the produced water

Water Management: Water Injection

Produced water could become a significant

replacement resource in many industrial

processes e.g. hydraulic fracturing, cooling

water, etc. as long as the quality of the produced

water remains adequate.

Reinjection into an underground formation

represents the most commonly used approach

for onshore management of produced water.

Some produced water is injected solely for

disposal. Most produced water is injected to

maintain reservoir pressure and hydraulically

drive oil toward a producing well.

Produced water is discharged to surface water

bodies

Another option is of injecting produced water into an

underground formation where it can be withdrawn later for reuse.

This process is known as aquifer storage and recovery (ASR).

Evaporation is a natural process for transforming water in liquid

form to water vapor in the air. Evaporation depends on local

humidity, temperature, and wind. Drier climates generally favor

evaporation as a waste management technique.

Perhaps the most significant barrier to using produced water for

agricultural purposes involves the salt content of the water. Most

crops do not tolerate much salt, and sustained irrigation with salty

water can damage soil properties. In addition, if livestock drink

water containing too much salt, they can develop digestive

disorders.

Source: Article: EIA, FD Capital - Coal Bed Methane – CBM Sector Overview

Water Injection For Enhanced Oil Recovery

Water Injection For Future Water Use

Evaporation

Water Discharge

Industrial Use

Agriculture Use


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Initial Study & Pilot

TestingDrilling Completion Production

Coring

& Lab

Analysis

Logg-

ing

Basin

ModelingDrilling

Casing &

Cementing

Perfora-

tion

Well

Stimulation

Under

Reaming

Jetting

Laterals

Artificial

LiftECBM

Water

Management

Allied

Cementing

Company

Altela

Apex

Petroleum

Engineering

American

Casing &

Equipment

Ancell Energy

Baker Hughes

Blackwarrior

Wireline

Borehole

Mining

International

Core

Laboratories

Cudd Services

Technology Companies Profiled

Source: Complete if required

Phase II – CBM Technology Providers

We profiled both major oil field service companies as well as niche players to identify

the technology providers

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Coring

& Lab

Analysis

Logg-

ing

Basin

ModelingDrilling

Casing &

Cementing

Perfora-

tion

Well

Stimulation

Under

Reaming

Jetting

Laterals

Artificial

LiftECBM

Water

Management

Cementrite

Calfrac Well

Services

US Oil & Gas

Corp.

Gardes Energy

Services

GE Water

Global Energy

Services

Halliburton

Quality

Logging

Harvest Tool

Company

Sample Technology Companies




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Coring

& Lab

Analysis

Logg-

ing

Basin

ModelingDrilling

Casing &

Cementing

Perfora-

tion

Well

Stimulation

Under

Reaming

Jetting

Laterals

Artificial

LiftECBM

Water

Management

ICI Artificial

Lift

Intertek

IRIS

Jet Drill Well

Services

J-W Wireline

Company

Lemigas Core

Lab

LDD Drilling

Log-tech Inc

Magna Energy

Services

Mitchell

Drilling Intl

Maverick

Stimulation

Company






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Coring

& Lab

Analysis

Logg-

ing

Basin

ModelingDrilling

Casing &

Cementing

Perfora-

tion

Well

Stimulation

Under

Reaming

Jetting

Laterals

Artificial

LiftECBM

Water

Management

MI Swaco

Perf-O-Log

Permedia

Platte River

Associates

Pense Bros.

Drilling

RadJet Inc

Rod Services

Raven Ridge

Schlumberger

Scientific

Drilling

International





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Coring

& Lab

Analysis

Logg-

ing

Basin

ModelingDrilling

Casing &

Cementing

Perfora-

tion

Well

Stimulation

Under

Reaming

Jetting

Laterals

Artificial

LiftECBM

Water

Management

Sitter Drilling

Target Drilling

United Survey

Veolia Water

Weatherford

Well

Enhancement

Services

Wood Group

Zetaware






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Three groups of energy companies were analyzed to identify key CBM participants:

Majors, Integraged and Diversified Oil Companies and Niche CBM Players

Type Of Company

Majors

Integrated Oil Companies &

National Oil Companies

Niche CBM Players

Large multinational energy companies that have operations across the oil

and gas value chain such as Shell, BP, Chevron, etc. that have interest in

coalbed methane

Medium sized integrated energy companies such as BHP Billiton, Devon,

etc. that have interest in coalbed methane

National oil companies such as Ecopetrol

Smaller companies that are involved in unconventionals with primary focus

on coalbed methane

Source: Arthur D. Little Analysis

Phase II – CBM Operators

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We applied several prioritization filters to assess which CBM players would be best

suited to invest in CBM opportunities in Colombia

Strategic Fit

Prioritized List

Of Operators

1. Recent CBM Player2. Experience in limited geographies3. Experience in different but well known geographies4. Experience in diverse less well known geographies

Possible Companies

Non Prioritized List of Options

CBM Experience?

Source: Arthur D. Little Analysis

Opportunity Fit?

International Presence?

Energy Presence in Colombia?

1. Only invest in CBM for coal mining purposes2. Invest in big CBM plays (>5 TCF)3. Invest in big plays with limited investment in small plays4. Invest in smaller plays

1. Local presence2. Limited International Presence (2 regions)3. International presence in developed CBM regions4. International presence in growing CBM regions

1. No Presence2. Prior Presence3. Presence excluding CBM4. CBM Presence

Average of priority filters


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Our prioritization shows that players who currently have CBM or Conventional Energy

presence in Colombia may be the most likely candidates to invest in CBM opportunities

Country TypeCBM

Experience

Opportunity

Fit

International

Presence

Energy

Presence in

Colombia

Strategic

Fit

Drummond USA Niche Player

Ecopetrol Colombia National Oil Company

BP UK Major

Chevron USA Major

Exxon USA Major

BHP Billiton Australia Integrated Independent

Arrow Energy Ltd Australia Niche

Nexen Canada Integrated Independent

Geomet USA Niche



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In addition, certain independents and niche players may also be interested

Country TypeCBM

Experience

Opportunity

Fit

International

Presence

Energy

Presence in

Colombia

Strategic

Fit

Shell Netherlands / UK Major

GDF Suez France Integrated Independent

Marathon Oil

CorpUSA Integrated Independent

Suncor Energy Canada Integrated Independent

Essar Oil Ltd. India Integrated Independent

ConocoPhillips USA Major

Quicksilver

ResourcesUSA Niche

Apache Corp USA Integrated Independent

BG Group UK Integrated Independent

Great Eastern

EnergyIndia Niche



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Country TypeCBM

Experience

Opportunity

Fit

International

Presence

Energy

Presence in

Colombia

Strategic

Fit

El Paso USAIntegrated

Independent

Penn West

EnergyCanada

Integrated

Independent

Range

ResourcesUSA

Integrated

Independent

Anadarko

PetroleumUSA

Integrated

Independent

Canadian Natural

ResourcesCanada

Integrated

Independent

Devon Enegy USAIntegrated

Independent

Encana CanadaIntegrated

Independent

ENI ItalyIntegrated

Independent

CUCBM China Niche



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Country TypeCBM

Experience

Opportunity

Fit

International

Presence

Energy Presence

in Colombia

Strategic

Fit

Petrobras Brazil National Oil Company

Repsol SpainIntegrated

Independent

Total France Major

Eastern Star Gas AustraliaIntegrated

Independent

AGL Energy AustraliaIntegrated

Independent

Gazprom RussiaIntegrated

Independent

CSM Energy AustraliaIntegrated

Independent

UK Coal Mining

CompanyUK

Integrated

Independent

Statoil NorwayIntegrated

Independent

Santos AustraliaIntegrated

Independent



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In the third phase of the project we recommended a promotional strategy to attract

CBM technology vendors and operators to Colombia

Phase I

1

Phase II

2

Phase III

3


Colombia



Colombia






principal providers




processes



Colombia









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For a CBM strategy to be successful in Colombia, it is critical that the investors can

determine that the potential rewards of investment will outweigh the risks

Risks Rewards

Phase III - Marketing & Promotional Strategy

Regulatory Risk

Exploration Risk

Security Risk

Economic Risk

Commercial Risk

Economic profit from CBM

development

Opportunities for further

investment

Ability to book CBM reserves


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Therefore it is critical that ANH develops a holistic market strategy and promotional

campaings that capture all the key elements needed to ensure successful

developments of Colombia‘s CBM opportunities

Economic Attractiveness

Regulatory Policy Fiscal Policy

Environmental

PolicySafety

Opportunity

Potential

In order to conduct an effective marketing and promotional campaign, it is critical to have all

the above elements in place such that it makes the CBM opportunities in Colombia attractive


Marketing & Promotional Strategy


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While allocating blocks for CBM development, ANH needs to ensure that individual

blocks have sufficient total gas in place to be economically attractive

CBM Blocks Allocation

Typically minimum gas in place that generates interest is approximately 1 TCF or greater

– However, smaller niche players may have an interest in blocks that have a minimum potential of 0.5 TCF

Therefore ANH needs to divide the basins into blocks such that individual blocks have economic attractiveness

Example Illustrative

801

802803

804

801, 802 & 803

804

801: Checua – Lenguazaque

(0.53 TCF)

802: Suesca – Albarracín (0.22

TCF)

803: Tunja – Paipa – Duitama

(0.30 TCF)

804: Sogamoso – Jericó (1.59

TCF)

Current ANH Division Preferred Division


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ANH needs to make sufficient technical data available to ensure investors have enough

information for a proper assessment of the CBM opportunities

Technical Data Requirements

Core hole drilling & Lab Analysis are typically needed to develop basic information for economic

analysis:

– Gas content

– Isotherms

– Desorption tests

– Hydrology data

– Permeability data

– Coal Seam Thickness

– Coal Rank

Rather than entering directly into E&P contracts for CBM developments, ANH could consider other

options to develop additional information and increase investors interest:

– Drill core holes and conduct lab analysis itself prior to bidding rounds in order to make this

information available to relevant investors. Typically one to two core holes per basin would provide

enough data for investors. Rough estimate of cost per hole is around $0.5 Million.

– Instead of directly signing an E&P contract, sign a Technical Evaluation Agreement (TEA) with an

investor in which the investor is required to drill core holes and conduct lab analysis


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Marking and Promotional

Communication

CBM Operators

Technology and

service providers

Mining Companies

Local Communities,

authorities and

NGOs


The marketing and promotional plan should be targeted to all the stakeholders

involved, including CBM operators, technology and service providers, mining

companies, local authorities, communities and NGOs

Universities and

research institutes


Documents

Technology analysis and Promotion Strategy for Coalbed … Metano de Carbó… · Technology analysis and Promotion Strategy for Coalbed Methane Developments in Colombia Executive