As a result, Netherland, Sewell & Associates, Inc., a leading firm of international petroleum consultants (www.netherlandsewell.com), has assessed PEL 238 to contain 8.7 TCF (trillion cubic feet) of possible resources (P3) and 17 TCF of Gas-In-Place within the Maules Creek coal measures alone. By way of comparison, these figures are of similar orders of magnitude with some of the gas fields on Australia’s North West Shelf.
Recent, and widely reported, gas production problems at Moomba in South Australia have highlighted the potential vulnerability of supply of natural gas to industrial and domestic consumers in New South Wales. The extensive natural gas resources within PEL 238 when developed potentially provide the needed gas production security and redundancy to the State.
There are a number of commercial CBM groups in production in Australia including Oil Company of Australia (Peat and Dawson Valley), Santos (Scotia) and Tipperary (Fairview) together with a number of projects under development. The United States has the most developed CBM industry where approximately 8% of gas consumption of approximately 23 TCF per annum is currently CBM sourced.
Hillgrove acquired its 32.5% interest from the Canadian listed company, Gastar Exploration Limited, (Gastar), (TSE: YGA and GSREF.PK). The farmin comprised an initial payment by Hillgrove of US$1.0 million in Januuary 2004 to earn a 2.5% interest, a further amount of US$2.0 million paid on 21 February 2004 to earn a 12.5% interest and a staged combination of contributions to work programmes totaling $2.250 million over a three year period being AUD$750,000 by 1 October 2004, AUD$1.0 million by 1 October 2005 and AUD$500,000 by 1 October 2006 to earn a total of 17.5%. After the Project moves into commercial production, two further payments of US$2.5 million and US$2.5 million each are payable when certain substantial coal bed methane commercial production targets have been met. At the same time, Eastern Star Gas Limited (ASX: ESG) (www.easternstar.com.au ), who will operate the Project, is earning a 32.5% interest in the Project. The first stage of the farm in agreement has been completed and planning for the second and third stages, which will also be completed in 2004, is well underway.
A number of critical factors distinguish the Project for early development:
• the existence of two overlying sets of coal measures and the large thickness of coal within both these formations - the Early Permian Maules Creek Formation and the Late Permian Black Jack Formation.
• the main coal seam in each formation is regionally extensive and well understood and attains a thickness of up to 15 metres, with other significant coal seams in both formations ranging in thickness from 3-6 metres.
• the coals are fully gas saturated, highly permeable, slightly over-pressured and respond well to fracture stimulation.
• thick coals with high gas contents result in high gas-in-place volumes and forecast resources recovered per producing well.
• The ability to move rapidly into a production pilot phase as a pre-cursor to commercial gas production distinguishes this project from other projects, which are at earlier stages of appraisal maturity and / or experiencing substantial delays in demonstrating commercial gas producability and achieving certified gas reserves.
Work programmes will be completed within an area of 215 km² Bohena Project Area targeting a resource of up to 3 TCF of gas and, if successful, will move much of this gas resource into the proven reserve (P1) and probable resource (P2) category leading the way to gas sales agreements being negotiated. It is expected that the drilling program will be completed later this year and that a minimum 9 to12 months of continued test gas production will be required before gas reserves can be independently certified.