In addition to drilling vertical production wells on the Kay Park property, south of Johndilo, Sydney Gas said it would also be testing horizontal drilling techniques to see if the substantial increases in production experienced in the US could be replicated in the Sydney Basin.

Following the signing of a Memorandum of Understanding with Bulga Coal Management, Sydney Gas also told the market that work is now underway in the Hunter Valley that will lead to the extraction of coalbed methane from Bulga's coal mines.

Sydney Gas said together with Bulga Coal, it would also be drilling several core holes this month to jointly assess the feasibility of developing another energy project in the Hunter.

Last month, Sydney Gas raised $7 million through a convertible note issue to fund this upcoming drilling and coring program. So far Sydney Gas has drilled 20 wells however it needs to drill 25 wells in order to qualify for a major finance deal from Westpac Bank.

In August of last year, Westpac agreed to set up a $22 million finance facility for Sydney Gas to fund the drilling of the next 25 wells (bringing the total to 50) as well as gas-gathering, compression and dehydration facilities and a pipeline to connect the gasfield to trunklines.

Westpac Bank indicated it would provide up to $80 million to help the company reach its target of 300 wells within three years.