Caracara will develop and operate a strategic acid gas treatment and sequestration facility in the Delaware Basin of West Texas. The new, centralized amine treating facility will operate in conjunction with an acid gas injection (“AGI”) well.

Raw natural gas will be treated to remove carbon dioxide (CO2) and hydrogen sulfide (H2S) to produce ‘sweet’ natural gas. Once removed, CO2 and H2S will be condensed to a dense phase liquid and the harmful compounds sequestered in a depleted reservoir deep underground to permanently render the compounds harmless to life, the environment and the atmosphere.

Carbon dioxide (CO2) and hydrogen sulfide (H2S) pose challenges when found in significant quantities in raw natural gas.

CO2 is dangerous to humans and is a primary contributor to climate change. When in the presence of water, CO2 forms an acid that introduces risks of equipment failure and safety concerns.

H2S is a poisonous gas that can, in certain conditions, negatively impact equipment, piping and is harmful to humans.

As a result of these potential negatives impacts, both CO2 and H2S are removed from the natural gas before processing. Caracara Services focuses on those raw natural gas streams with very high concentrations of CO2 and H2S. By capturing and sequestering these compounds, Caracara Services’ facilities protect the environment, human health and equipment, allowing E&P companies to free stranded resources.

Sour gas is natural gas containing significant amounts of hydrogen sulfide (H2S). While the terms ‘acid gas’ and ‘sour gas’ are sometimes inaccurately used interchangeably, strictly speaking, sour gas is any gas that specifically contains hydrogen sulfide in significant amounts, while acid gas is any gas that contains significant amounts of any acidic gases, such as carbon dioxide (CO2) or H2S.

Brazos Amine Treater will implement the industry’s standard amine treatment process to remove hydrogen sulfide (H2S) and carbon dioxide (CO2) from the raw natural gas, also known as amine scrubbing. Through a chemical reaction, the amine solution absorbs H2S and CO2 from the sour gas in a contactor to produce a sweetened gas stream and an amine solution rich in the absorbed acid gases. The resulting amine solution is repeatedly recycled and reused in the treatment process.

Once the hydrogen sulfide (H2S) and carbon dioxide (CO2) compounds are removed from the natural gas stream, they will be compressed into a dense phase for sequestration in a deep well, isolated by an upper impermeable geologic formation 3.5 miles below the earth’s surface, to permanently render the compounds harmless to life and the atmosphere.

Carbon dioxide (CO2), which can be formed naturally by decomposing organic matter, forest fires or even a volcanic eruption. In addition, CO2 can be man-made by burning fossil fuels and is a known greenhouse gas that contributes to climate change. Prior treatment processes released CO2 into the atmosphere and destroyed hydrogen sulfide (H2S) by means of combustion or catalytic reduction, creating negative environmental effects. By condensing and sequestering the acid gases in a deep well, the Brazos Amine Treater will significantly reduce harmful emissions.

Phase 1 of the Brazos Amine Treater will be capable of treating 30 million standard cubic feet (MMscf) of raw natural gas per day at a 10% acid gas content. The Brazos Amine Treater Joint Venture is planning a second treater to maximize the current well capacity of 5 million standard cubic feet per day (MMscfd).

Traditionally, acid gas treatment facilities exist either at the wellhead or at a downstream processing plant.

The high quantity of acid gas makes it uneconomical and often impractical for Exploration & Production (E&P) companies to invest significant capital. Midstream operators are often reluctant to make their capacity available for high concentrations of acid gas.

Seated in the middle of the value chain between operators and processors, the Brazos Plant solves these challenges by centrally locating its treatment facilities to operator leaseholds; thereby, unlocking stranded hydrocarbon assets.

Several benefits can be derived by operators, including:

• cost savings

• ability to meet their ESG mandates

• greater control over their production

• access to highly specialized, experienced talent

• avoid upfront capital expenditures and facility maintenance

Caracara’s consultative approach provides clients with custom solutions built where the customer needs it and to their unique specifications. Operators avoid significant capital outlay and time delays associated with large infrastructure projects. E&P companies will be able to concentrate on increasing reserves and production.

Preliminary design for the Brazos Amine Treater is complete and major long-lead items have been ordered. Final design engineering is underway. Groundbreaking is expected in May 2022, with a target in-service date of March 2023.

Caracara Services has made significant progress toward key milestones:

• Caracara has entered into a Joint Venture Agreement with a wholly owned subsidiary of Houston-based Battalion Oil Company (NYSE American: BATL) to develop the Brazos Amine Treater.

• Battalion has committed to a minimum average volume per day and a 20-year acreage dedication for treating all their gas in the Monument Draw.

• An Engineering, Procurement and Construction (EPC) contract is secured, and Front-End Engineering Design (FEED) is complete.

• Final design engineering is underway.

• At completion, the facility will employ the latest technology for process controls and monitoring systems promoting safe and efficient operations.

• The closed-loop process for removing the harmful compounds will allow for rapid final permitting.

• The facility will be designed to qualify for 45Q tax credits for carbon capture and sequestration when new carbon minimum rules are adopted, changed, or growth meets the current limits established by the Internal Revenue Code.

We plan to hire 10 employees for the facility. We expect to begin hiring the plant manager in the second quarter of 2022 and the remaining staff in the second half of 2022.

Given the increased focus operators have on eliminating flaring of gas and sequestering carbon, we anticipate high demand in many basins. Our growth strategy is to support these operators as they strive to meet their ESG mandates and achieve carbon neutrality.