End of Year Update
Brisbane, Dec 20, 2022 AEST (ABN Newswire) - State Gas Limited (ASX:GAS) (STGSF:OTCMKTS) is pleased to provide an update on a series of matters prior to the end of the 2022 calendar year.
Response to regulatory intervention
The Company's Board of Directors and management believe that its recently announced CNG Project is unaffected by the $12/GJ gas price cap and its underlying project economics remain attractive. In particular, the Company's CNG production is currently planned to be sold into the spot market - which is not governed by the announced price cap and, moreover, project operating costs are estimated to be less than $12/GJ.
Notwithstanding these project-specific positive commercial drivers, State Gas stands with other resource industry participants and commercial leaders in Australia in challenging both the intent and approach of the regulatory intervention in the gas industry. This intervention allows the government to dictate the contracted price of gas for the next 12 months and significantly influence it thereafter.
As pointed out in our submission to the consultation process on 13 December 2022 (attached as Appendix 1*), we believe that these actions will have a significant negative impact on investor sentiment in the energy sector and perversely exacerbate the existing challenges of reliable energy supply.
In our view, it is supply-side factors which are driving the price of domestic gas and the implementation of pricing caps will not alleviate that situation. State Gas will continue to lobby against this regulatory intervention as part of the wider industry response and will keep its shareholders updated on the impact of the regulatory intervention as detail becomes clearer over the coming quarter.
The Company continues to make good progress on achieving its deadline of delivering first gas production from its natural gas reserves located on PL231 in March 2023. As previously reported, it is State Gas' intention to compress and truck the gas to a location where it can decant the gas into existing pipeline infrastructure ("the CNG Project"). All critical equipment has now been ordered and engineering design is well progressed to allow in-field construction and commissioning to be undertaken during February 2023.
The CNG Project will initially produce nearly 1TJ of gas per day, which State Gas intends to sell into the spot market. As noted above, the Company is strongly of the view that the proposed regulatory intervention will result in increased volatility in spot market activity with positive price effects. State Gas Directors and management remain of the view that the CNG Project is unaffected by the $12/GJ gas price cap and underlying project economics remain attractive.
Rougemont Well Production Testing
As advised to the market on 23 November 2022, State Gas has commenced production testing of the Rougemont-2 and Rougemont-3 well pair. De-watering activities have commenced after the successful completion of two lateral Rougemont 3 wells which connect with the vertical Rougemont-2 well. These interconnected wells provide direct access to ~ 2,400 metres of Bandanna coals, a formation under commercial production in the nearby Arcadia Valley.
The production test is being undertaken to confirm the gas production potential of the Rougemont area within State Gas' 100%-owned Rolleston-West Project (ATP 2062). As a positive early indicator of permeability, water production has exceeded initial expectations and the Company is therefore confident of encouraging gas production results as testing activities continue over the next three months.
*To view tables and figures, please visit:
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