Quarterly Activities Report
Brisbane, Jan 31, 2024 AEST (ABN Newswire) - State Gas Limited (ASX:GAS) (STGSF:OTCMKTS) is pleased to provide this update for the quarter ended 31 December 2023 ("the Quarter").
During the Quarter, the Company completed the majority of civil and construction activities associated with development of the Compressed Natural Gas Facility ("CNG Facility") and is now in the final stages of mechanical completion and commissioning.
Challenging weather conditions on site, during December 2023 and January 2024, including extreme rain events associated with Cyclones Jasper and Kirrily, have impacted the Company's original commissioning timetable and project costs. However, the CNG Facility is now in the final stages of completion and commissioning and State Gas is confident of shipping initial cargoes of compressed natural gas in February 2024. This is a first of its kind facility in Australia and State Gas has created valuable intellectual property for the Company as it has dealt with the establishment costs that are inevitable with projects of this type.
The Company now requires a period of successive dry weather days to allow mechanical completion activities and the introduction of hydrocarbons into the CNG Facility to be efficiently undertaken. State Gas currently anticipates improved weather conditions on site later this week and resources mobilised to undertake final completion activities on Monday 5 February 2024. In accordance with this timetable, and subject to successful mechanical completion sign-offs, hydrocarbons will be introduced into the plant in the following week. Once gas is introduced and processed through the CNG facility, it will be immediately captured in virtual pipeline ("VP") trailers and will be capable of delivery to State Gas' initial customer.
Field activities completed during the period
The Company and its contractors have delivered an exceptional construction outcome during some of the most extreme weather conditions experienced in central Queensland for several years. To date, approximately 3,600 hours of civil and mechanical construction activities have been delivered, with zero lost time or reportable incidents. This is a remarkable achievement, with productivity impacted initially by bushfires and then periods of significant rain. Activities were conducted in conjunction with comprehensive site access plans agreed with the local landowner and indigenous representatives of the Karingbal people.
The site has experienced more than 261 millimetres of rain since October 2023, with greater volumes in some areas of the site. In response to the challenging ground conditions, the Company chose to invest additional capital in weather-proofing the access road and CNG facility pad. While outside of the original project scope and cost, it has meant that more extensive delays during the construction process have been mitigated but, more importantly, State Gas will be able to maintain continuous truck access to the facility, which will be critical for continuity in its future gas supply obligations.
Compressed gas off-take
The Company will commence initial gas sales using its virtual pipeline ("VP") as soon as commissioning gas is processed through the CNG facility and the Company's first customer is ready to receive cargoes.
State Gas is advanced in finalising the commercial terms of this gas supply arrangement and over time will demonstrate the efficacy of the CNG technology's application to CSG and can underpin further expansion and application of the unique technology and process which State Gas has developed.
In the first instance, the CNG Facility will intake and dehydrate gas provided by the gathering system connected to State Gas' Rougemont 2/3 CSG well, which can conservatively produce around 0.5TJ of gas per day. Initial cargoes of compressed gas will be sold in the first instance to a local coal mine, that is in advanced stages of trialling diesel/gas hybrid mining truck engines, as part of wider strategies to reduce the emissions profile of its operations. The need for environmentally superior bridging fuel sources (such as natural gas) will be required as the wider economy makes the long-term transition to renewables.
The CNG technology developed by State Gas provides it with significant first mover advantage to support increased demand for natural gas to support the ongoing orderly de-carbonisation of industrial activities, such as coal mining.
CNG Project adds long term value
The application of existing gas industry know-how to capture and compress CSG close to the well-head is unique. The physical properties of CSG (being generally high in moisture and originating from relatively low formation pressure coal environments) has required State Gas to develop a unique processing approach and adapt traditional dehydration and compression methods to achieve safe, reliable and economically sustainable CNG production volumes. When implemented in conjunction with virtual pipeline ("VP") trailer technology, the CNG Facility will be able to deliver up to 1.7TJ/day of pipeline quality natural gas to end users in the Southern Bowen Basin and surrounding areas. This technology has a range of benefits and potential use cases:
- delivers substantial environmental benefits to gas producers, as it provides a reliable method for capturing and commercialising production testing gas which has historically been released to the atmosphere;
- provides a new path to market for pipeline quality natural gas which the Company believes will become increasingly important across a range of industries, including critical minerals, while the economy continues its long-term transition to renewable energy sources;
- is modular and can be efficiently expanded and easily relocated to support gas testing and processing opportunities in new locations; and
- provides access to a new fuel source for end users who are seeking access to smaller, flexible quantities of natural gas, but don't have access to traditional pipeline infrastructure and need to accelerate a transition away from diesel.
The significant investment in designing and developing this unique application of compression and dehydration technology means the Company is eligible for grant funding, including through the R & D incentive regime.
The Company has already established a substantial resource base across its portfolio of acreage in the Southern Bowen Basin. As such, the Company is focussed on investment in activities which will support conversion of those existing resources into 2P reserves, which will support further project development.
During the Quarter, the Company undertook initial planning activities for further appraisal wells at Rougemont West in close proximity to Rougemont 2/3 and the CNG facility. A priority for the Company is to drill at least two new exploration and appraisal wells which, if successful will assist in further geological delineation of the Company's resource base and provide additional production testing gas which can be processed through the CNG Facility. The Company is evaluating whether it is in shareholders' interests that these activities are accelerated by pursuing a farm-out strategy. The aim would be to support 2P reserve accreditation for a portion of the Company's existing 2C resources associated with the Rougemont West project and enable it to rapidly pursue more permanent production tenure.
Establishing a substantial 2P reserve is an important step in demonstrating the commercial viability of a larger gas project at Rougemont West and will also enable the Company to evaluate the development of traditional pipeline infrastructure which could connect the CNG plant into the Gladstone to Wallumbilla pipeline network. Over time and at higher production volumes, the processing capacity of the CNG Facility can be efficiently upgraded, to allow a direct pipeline connection to operate in conjunction with the Company's CNG/VP distribution solution. Alternatively, the modular nature of the plant would also permit efficient relocation or duplication of the CNG facility to support new project areas.
The Company's existing plan is to hold the conventional gas accumulation at Reid's Dome in reserve for later delivery through construction of a small pipeline system, connected directly to the CNG Facility.
In the Company's view, the operating environment remains challenging, with the regulatory framework for supporting new project development remaining highly uncertain. Pleasingly however, there have been some new large gas project approvals early this year and an increasing recognition, both politically and commercially, that natural gas remains a critical bridging fuel source on the road to 2050 renewable targets.
East coast domestic gas demand is increasing as expected and global gas supply market conditions remain volatile in response to northern hemisphere conflicts and more protectionist gas export policies.
State Gas' view remains unchanged that increased domestic gas supply is essential to the East Coast's energy security and for keeping the cost of energy at a sustainable level for industrial and commercial consumers, while the contribution to total supply from renewable energy sources increases.
From an environmental standpoint, natural gas remains a superior fuel source to coal and diesel and, in the Company's view, remains essential to an orderly transition of Australia's energy grid to greater reliance on renewable energy sources. Reduced reliance on coal and the adoption of new hybrid engine technologies with a lower demand for diesel, requires investment today and natural gas is the only reliable, available bridging fuel source to support this transition, particular for energy intensive industrial applications such as critical mineral processing.
The early sale of gas from Rougemont 2/3 will enable the Company to demonstrate that the Rolleston West Project has the hallmarks of a world class development asset and, importantly, begins to unlock part of the substantial value inherent in the Company's asset base. State Gas is confident that it is on the path to delivering improved returns to shareholders by generating initial revenues from its existing assets and being more strategic around how further exploration capital is invested. Increasing gas production capability up to the maximum processing capacity of the CNG Facility of 1.7TJ/day will be the Company's operational focus over the coming quarter.
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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.