The area in the Eastern Otway Basin covered by the ESG exploration licence (EL 4507) was previously evaluated to contain vast quantities of brown coal, estimated between 10 to 12 billion tonnes.

The coals are at relatively shallow depths, although not amenable to traditional mining extraction. Based on comparisons with similar gas-productive coals in the USA, estimates of the gas potential within EL 4507, between Altona and Bacchus Marsh, range as high as 500 petajoules.

The Licence area was targeted by ESG because of its close proximity to the Melbourne market, currently supplied exclusively by gas from Bass Strait, and the existing, adjacent pipeline infrastructure.

The approval of the test production program by the Victorian Department of Natural Resources and Environment paves the way for the trial development of Victoria's first brown coal seam gas project.

The company plans to undertake an initial six month pilot program, aimed at establishing gas production from within EL 4507, which covers an area of approximately 1,249 sq kms.

ESG proposes drilling five wells into the Maddingly brown coal seam that is the second largest accumulation of brown coal in Australia. It is anticipated that pump testing over several months will be necessary to determine whether the wells are capable of sustained gas production and at commercially viable rates.

Commenting on the announcement, the Managing Director of Eastern Star Gas, Mr Dennis Morton, said:

"Our investment in the Eastern Otway basin is a foundation asset for Eastern Star which we believe may offer considerable prospects for coal seam gas if our pilot drilling program is successful. We are encouraged by the huge volumes of coal within the licence area, exceeding 10 billion tonnes of brown coal and largely contained within one thick seam.

"We selected this area because of its close proximity to both markets and pipeline infrastructure. We anticipate becoming a supplier to a small group of industrial users and have had positive initial discussions with several groups," he said.

The move follows the recent announcement of an increase in the Company's interests in PEL 238 containing the proven Coonarah Gas Field in central NSW, anticipated to be developed as the first commercial gas field in NSW.

During the most recent quarter the company entered an access agreement with land-owners at a site within EL 4507, where known coal thickness, as well as access to power and existing dams, will speed the implementation of a proposed five well production trial.

Water that will be produced during the test production from the coal seam has been found to be suitable for stock use and irrigation of surrounding farmland, which will assist in management of the produced water.