Chairmans Letter to Shareholders
As our production test results to date have outperformed my expectations, I have taken this opportunity to write to shareholders to convey my increasing confidence based on this recent progress.
The true potential of Reid's Dome, in which your board had strong faith, is now beginning to be revealed. Despite the best efforts of the COVID-19 pandemic and a La Nina induced wet season, the Company's progress over recent months has been remarkable, particularly with the addition of ATP 2062 ("Rolleston West") which was awarded to State Gas by the Queensland Government in only September 2020. The new acreage is contiguous with Reid's Dome/PL231 and adds substantially to the critical mass and upside potential of State Gas' coal seam gas (CSG) acreage.
As with any new CSG province, a large amount of effort is required initially to "crack the code" of the new coals. Reid's Dome was no different. We now have confidence that we have settled on the fundamentals of the right completion technique for the Reid's Dome coal beds. Our pumps are now designed for the temperature, pressure and coal quality regime we are encountering, culminating in instantaneous gas flow rates approaching 500,000 scft/day. A truly encouraging result: the indicative threshold for an economic well is commonly taken as 100,000 cubic feet per day.
During the half year, the Company commenced Phase 2 of exploration and appraisal of the Reid's Dome Project. The aim of this phase was to establish the Nyanda area as one capable of early economic development as well as to prove that economic CSG acreage extends from the Nyanda area in the South, to the north of PL231. Phase 2 consists of drilling and completion of Nyanda 7 and 8 and Aldinga East 2, as well as bringing on-stream Serocold 1 and Nyanda 4, following their work-over and implementation of the learnings of the new completion techniques derived from Phase 1.
Importantly, Phase 2 also incorporates two core holes to the North East of Reid's Dome in ATP 2062 at Rougemont to confirm the CSG potential of the Bandanna coals which, in economic terms, would be an extension of the Aldinga/Reid's Dome discovery. "Cracking the code" of the Bandanna coals in ATP 2062 should be relatively straightforward given the well-known analogues at nearby Mahalo and Arcadia. The team is keen to validate this new Bandanna CSG field at ATP 2062 via the results of the Rougemont core holes. To ensure a seamless development path, a Pipeline Survey Licence 2049 has been obtained, allowing the Company to explore both the northern and southern route for a roughly 50 kilometre pipeline required to connect our Reid's Dome and Rolleston West acreage to the nearest gas trunkline.
We expect to have all necessary approvals to commence the Rougemont boreholes in ATP 2062 by the last week of April. By the end of the current financial year, the Company is aiming to achieve a properly appraised PL 231 and confirmation of potential at Rougemont, establishing the prospect of being able to confirm a single, wide-scale economic development of our contiguous acreage, including ATP 2062.
This timing could not be more propitious in the light of the ACCC Gas Inquiry of January 2021 confirming the urgent need for new gas supplies in 2023, which is predicted to become critical in 2024. The fact that the Federal ALP draft policy platform also confirms the criticality of gas in a world transitioning towards a lower carbon future is a promising sign of bi-partisanship on this issue. The Federal Government has already named gas as one of its five economic planks to ensure Australia has a robust economic pathway out of the COVIDinduced recession.
It would be an understatement to say that the results of our Phase 2 programme have been encouraging: at the time of writing (10 March) with de-watering still underway, Nyanda-4 is producing 252,000 cubic feet per day, Nyanda-7 is producing 6,000 cubic feet per day, and Nyanda-8 producing 26,000 cubic feet day. The gas flow rates are steadily increasing as the de-watering continues.
I look forward to updating you again soon as our gas production tests continue at Reid's Dome and the drilling commences in the Bandanna coals at our nearby Rolleston West CSG project.
STATE GAS LIMITED
About State Gas Limited
State Gas Limited (ASX:GAS) is a Queensland-based developer of the Reid's Dome gas field, originally discovered during drilling in 1955, located in the Bowen Basin in Central Queensland. State Gas is 100%-owner of the Reid's Dome Gas Project (PL-231) a CSG and conventional gas play, which is well-located 30 kilometres southwest of Rolleston, approximately 50 kilometres from the Queensland Gas Pipeline and interconnected east coast gas network.
Permian coal measures within the Reid's Dome Beds are extensive across the entire permit but the area had not been explored for coal seam gas prior to State Gas' ownership. In late 2018 State Gas drilled the first coal seam gas well in the region (Nyanda-4) into the Reid's Dome Beds and established the potential for a significant coal seam gas project in PL 231. The extension of the coal measures into the northern and central areas of the permit was confirmed in late 2019 by the Company's drilling of Aldinga East-1A (12 km north) and Serocold-1 (6 km to the north of Nyanda-4).
State Gas is also the 100% holder Authority to Prospect 2062 ("Rolleston-West"), a 1,414 km2 permit (eight times larger than PL 231) that is contiguous with the Reid's Dome Gas Project. Rolleston-West contains highly prospective targets for both coal seam gas (CSG) and known conventional gas within the permit area. It is not restricted by domestic gas reservation requirements.
The contiguous areas (Reid's Dome and Rolleston-West), under sole ownership by State Gas, enable integration of activities and a unified super-gasfield development, providing economies of scale, efficient operations, and optionality in marketing.
State Gas is implementing its strategic plan to bring gas to market from Reid's Dome and Rolleston-West to meet near term forecast shortfalls in the east coast domestic gas market. The strategy involves progressing a phased appraisal program in parallel with permitting for an export pipeline and development facilities to facilitate the fastest possible delivery of gas to market. State Gas' current focus has been to confirm the producibility of the gas through production testing of the wells.
State Gas Limited