Gas for the Gold Coast

COAL seam methane junior Metgasco aims to tap into one of Australia’s fastest growing energy markets – southeast Queensland and northeast New South Wales, managing director David Johnson told the Excellence in Energy conference in Sydney this morning.
Gas for the Gold Coast Gas for the Gold Coast Gas for the Gold Coast Gas for the Gold Coast Gas for the Gold Coast

Metgasco, listed on the Australian Stock Exchange for just two years, has not only put its foot on the biggest gas reserves in NSW but is located just 70km from one of the fastest growing population areas in Australia – Queensland’s Gold Coast.

Metgasco founder and managing director David Johnson describes the northern NSW area as being one of the last remaining energy “gaps” on the east coast of Australia.

“If you get a map of Australia and look at the east coast pipelines you’ll find there is no gas that’s supplied anywhere between Newcastle and the Gold Coast,” he said.

“It’s probably one of the last major urban areas on the east coast of Australia that is yet to have gas delivered to customers, either industrial or residential. Without an embedded energy supply the opportunities are numerous.

“Exactly how we begin to make the most of these opportunities remains to be seen, but we do have a very significant reserve position now at our South Casino CSM project and it gives us a lot of flexibility in being able to do long-term planning in terms of supplying gas to the region.”

Metgasco’s initial ideas revolve around building a 30MW gas-fired power station, fed from its own coal seam methane gas reserves, which currently total 21 billion cubic feet, in the Clarence-Moreton Basin near Lismore in northern NSW.

Metgasco's gas field was only 2km from a ice-cream factory that used $15,000 of gas every 10 days, Johnson said.

Metgasco is currently sitting on about half the reserves needed to power the planned 30MW power plant but has so far tested only the top 510m coal seam at South Casino. There are five other seams that occur below that have not had reserve classification so sufficient gas does not appear to be a problem.

According to Johnson, Metgasco’s plan is to start design construction around January next year, which would require full financial funding to be in place shortly before. It aimed to begin power production in 2008.

“In the next six to nine months we need all of our approvals, which include land, petroleum production licence and development application approval, which we would hope to finish by December this year,” he said.

“We have a lot of other related issues like network connection agreements, power purchase agreements that we would choose to deal with during that time. We also have to undertake the field development which we would hope to commence around December this year too, although we are doing planning for that now.

“Most immediately at the moment we have to finalise our FEED (front-end engineering design) and our definitive cost estimates, which we hope to complete around September of this year.”

What all this means is a rather substantial news flow in the next nine months and most likely a lot of stock market attention as investors recognise Metagasco’s positioning as one of Australia’s newest gas and power producers.

“The fact that we’re in one of the last energy gaps on the east coast of Australia is very significant because it means that we have an ability to sell virtually every gigajoule of gas we can produce,” Johnson said.

“Because there exists no pipeline, the quickest and most efficient way of generating cash to become a self-supporting company is to build, own and operate power stations to deliver power into the local grid.

“We have an agreement with Country Energy to sell roughly 30MW depending on the final network configuration studies. We also have a heads of agreement with the Northern Meats Cooperative Company for a combined cycle unit for about 15MW.

“If we can achieve that, it means that we can look forward to becoming a cash flow positive company and that limits any further equity dilution or more specifically, it aggregates value to existing equity holders.”

During recent reserve exploration drilling at South Casino, the first two horizontal wells have been drilled and dewatering is continuing, so in coming weeks the wells should start to show their true performance.

The reservoir model developed by the company’s consulting engineers, however, is suggesting a peak rate of somewhere between 450,000 cubic feet and 750,000cf per day.

Johnson is no stranger to the Walloon Coal Measures which host the South Casino project, having identified the geological setting in 1997. He has spent a great deal of time looking at the measures and understanding the geology before settling on the project area in the Clarence-Moreton Basin.

Johnson said the company was now beginning to make the transition from exploration to production.

“We’ve currently got 1 trillion cubic feet of gas in the 3P reserve category and 20 billion cubic feet in the upgraded category of 2P. Once we begin to convert a majority of the 3P reserves into 2P, I can see that there is potential for us to undertake some fairly dramatic growth.

“Energy demand on the east coast of Australia, and in particular northern NSW and the Gold Coast, is increasing at a rapid rate, and gas – especially that sourced from CSM – is one of the key energy answers for the region.

“As long as we can continue to demonstrate that we are building reserves, and we are building production, there is no shortage of work to be done, and there is likely to be no shortage of interest from the markets and investors.”