Coal Bed Methane ( China)

1. The PROJECT:
In China, TPC will have three main products: coalbed methane (CBM), electricity, and
carbon credits. The markets for CBM and electricity in China are large and growing
rapidly; and by satisfying these markets in an environmentally-friendly way can
generate a large supply of carbon credits.

Over the last quarter century, the Chinese economy has performed much better than
the world average and also than most developed countries. This has resulted in China
becoming the world's second largest consumer of energy products, after the United
States, with about consumption of 1.4 billion tonnes of oil-equivalent in 2005
(approximately one tonne per person).
However, the composition of energy production is unbalanced. China's energy industry
is dominated by coal, which accounted for more than 65 percent of total energy
production during 2000-05. By contrast, natural gas amounted to only 2.4 percent of
total primary energy production. The Government has set a target for the share of
natural gas in total energy production in 2010 of eight percent. Along with the serious
environmental issue caused by the heavy reliance on coal, scarcity of energy is
another important issue. It has the potential to act as a serious constraint on
economic development, since the country's economic growth is mainly built on an
economic structure characterized by high-energy consumption and low energy-
efficiency.

China possesses the world's third largest reserves of CBM. The total volume of CBM
resources at depth 300-2,000 meters in onshore bituminous and anthracite coal fields
is almost 32 trillion cubic meters, of which 10 trillion cubic meters can be exploited.

It is TPC's intention to apply the company's extensive resources and capabilities in

CBM development to activities in developing countries that have significant CBM
potential and also offer significant opportunities for carbon emission reduction via
mine emission reduction and the replacement of coal-generated electricity with
methane-generated electricity.

TPC regards China as the market with most potential for CBM development. It is
conducting promising negotiations with two national petroleum companies (Petro
China and Sinopec), and has won active support from key industry players in the
Xinjiang Autonomous Region.

TPC's strategy in China is to create value and cash flow by exploiting oil and gas
reserves. The company will rely on its experience, expertise, contacts and creative
abilities to identify, evaluate, acquire, and implement profitable projects. Since value
and cash flow generation with minimal risk is the goal, multi-faceted projects will be
considered.

2. THE PRODUCT
a. Coalbed Methane
Coalbed methane (CBM) is a type of non-conventional natural gas. It contains virtually
100 percent methane (CH4) and is often sourced in the shallow depths of coal seams
with high water pressure. It is generated either from a biological process involving
microbial action or from a thermal process associated with increasing heat as the
depth of the coal seam increases. Unlike conventional energy sources such as coal
and oil, CBM is a clean-burning fuel. It can be directly used as both household and
industry fuel.

Although it is sold and used in the same way, the production of CBM is totally different
from that of natural gas. Since CBM travels with ground water in coal seams, its
extraction involves pumping water from the seam in order to reduce the water
pressure that holds gas in the seam. CBM has very low solubility in water and readily
separates as pressure decreases, allowing it to be piped out of the well separately
from the water. The movement of water from the coal seam to the well bore
encourages gas migration toward the well. A successful well can produce a steady
flow of CBM for about 40 years.

CBM development is most advanced in the United States, where production had
reached 38 billion cubic meters in 2000. The utilization rate of drained CBM has
reached 80 percent.

In China, the primary technique used to exploit CBM is underground extraction.

However, compared with developed countries, CBM extraction in China is relative
backward. TPC will cooperate with RAM Energy to explore for CBM in China. The
competitive advantage of the team lies in its use of the most advanced CBM
identification and extraction technologies and the in-depth experience of its personnel,
a combination that guarantees high and growing production of CBM.
b. Electricity Generation
CBM can be used to generate electricity. In China, 76 percent of electricity is
generated from coal and oil, while nuclear and hydro generate five percent and 19
percent respectively. The use of CBM as a fuel could lead to a restructuring of
electricity generation and make a substantial contribution toward meeting China's
rapidly growing demand for electricity.

One cubic meter of CBM generates about 3.2 kilowatts of electricity. The price of
electricity in China, which is strongly influenced by regional governments, depends on
both the time and manner of its consumption. Prices of electricity are divided into
selling price and grid price according to the current policies on electricity charges.
For power generation enterprises, the prices of electricity relate directly to their
profits. In 2004, the average selling price of electricity was RMB 0.416 yuan/kWh while
the average national selling price of industrial electricity was RMB 0.393 yuan/kWh
and the average commercial selling price of electricity was RMB 0.782 yuan/kWh. In
2004, the average national grid price of electricity was RMB 0.29 yuan/kWh. Coal
prices in China's domestic market have been following a strongly rising trend. In 2004,
the comprehensive selling price of commercial coal was RMB 206 yuan/t while the
price of power coal for key contracts was RMB 161 yuan/t, an increase of RMB33 yuan/t
and RMB23 yuan/t respectively compared with the corresponding rates in 2003. In
2004, the average consumer price of natural gas was RMB 1.6 yuan/m3 and the
average price of industrial natural gas was RMB 1.9 yuan/m3. The price of CMM for
civil and industrial consumption is much lower than that of natural gas in China.

CBM can be converted into electricity by generation plants such as reciprocating

engines or gas turbines. In order to improve generating efficiency, a combined cycle
generation system may be the optimal choice. One well provides enough CBM to
power a 2,000-kilowatts power plants, and TPC anticipates that, at full production,
each field will have about 20 such plants.
c. Carbon Credits
Greenhouse gases include carbon dioxide, methane, nitrous oxide, sulfur hexafluoride,
HFCs, and PFCs. The average world temperature has risen substantially over the past
century, mainly because of increasing greenhouse gases. Released methane, a major
kind of greenhouse gas, produces about 18 percent of all greenhouse gas.

The Kyoto Protocol is an agreement made under the United Nations Framework
Convention on Climate Change (UNFCCC). Under that agreement, which came into
force on February 16, 2005, the industrialized countries commit to reduce their
collective emissions of greenhouse gases by 5.2 percent compared with the level in
1990. The aim is to lower overall emissions of six different greenhouse gases. The
Clean Development Mechanism (CDM) is an arrangement under the Kyoto Protocol
allowing industrialized countries with a greenhouse gas reduction commitment to
invest in emission-reducing projects in developing countries.

Under the CDM, a developed country can undertake a greenhouse gas (GHG) reduction
project in a developing country where the cost of GHG reduction project activities is
usually much lower than in the home country. The developed country would be given
credits (Carbon Credits) for meeting its emission reduction targets, while the
developing country would receive the capital and clean technology to implement the
project.

The CBM Market

China possesses the world's third largest reserves of CBM. The total volume of CBM
resources at depth 300-2,000 meters in onshore bituminous and anthracite coal fields
is about 31 trillion cubic meters, of which 10 trillion cubic meters can be exploited
(China profile).

Approximately 56 percent of China's CBM resources are located in the northern part of
the country. The northwestern, southern and northeastern regions contain 28 percent,
14 percent and one percent, respectively (NDRC). As is shown in the map below,
China's CBM resources are spread over 24 provinces, municipalities or autonomous
regions, including Xinjiang, Shanxi, Henan, Inner Mongolia and Shaanxi (CUCBM).

CBM is mainly exploited in Ordos in Inner Mongolia, Qinshui in Shanxi and the Junggar
and Tuha Basins in Xinjiang. In approximately 14 basins, total CBM resources exceed
500 billion cubic meters. Among these, nine basins, such as the Ordos, Qinshui, Tuha
and Junggar basins, contain more than one trillion cubic meters.

Many foreign investors have entered the CBM industry in China because of the
country's huge potential market for clean energy. For foreign investors, the joint
operating model has been preferred. Initially, most foreign investors formed
partnerships with China United Coal Bed Methane (CUCBM), because the latter had a
monopoly of the right to cooperate with foreign companies to explore and develop
CMM/CBM resources. Since September 2007, China National Petroleum Corporation
and Sinopec also have the right to cooperate with foreign firms to run CMM/CBM
projects. TPC will cooperate with PetroChina and Sinopec to develop CBM in Xingjiang
and Shanxi provinces.

The Geographical Distribution of CBM in China

& TPC Project Target Areas
© 2008 Truestar Petroleum Corporation