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Location, location, location

METGASCO believes it has grabbed some prime real estate – highly prospective exploration blocks in one of eastern Australia's least explored basins and close to the growing markets of northeast NSW and southeast Queensland.

Location, location, location

Giving the opening company presentation for this year's Excellence in Oil & Gas Conference in Sydney this morning, Metgasco managing director David Johnson said his company holds the largest certified gas reserves in NSW.

The company has achieved certification of more than 1.3 trillion cubic feet of proven, probable and possible (3P) coal seam methane reserves, and 195 billion cubic feet of 2P reserves.

In addition, it has now made a commerical gas discovery at its Rifelbird E-14 well.

"This well has now confirmed the presence of gas bearing sands in the Clarence Moreton Basin which has significant positive implications for exploration prospectivity in the basin," Johnson said.

"The potential gas reserves of the basin as a whole are huge."

What's more, these CSM and conventional gas resources are on the doorstep of the large southeast Queensland energy market and in the midst of one of NSW's fastest-growing regions.

"We've got substantial quantities of gas and we're only 80 kilometres from the Gold Coast as the crow flies," Johnson said.

"The pipeline we're planning to Swanbank, near Brisbane, will be 145 kilometres. Compare that to some of the Surat and Bowen Basin fields and their distance from markets, or to the Roma to Brisbane pipeline, which is approximately 450 kilometres long.

"We also offer an alternative supply source for major gas users. Diversity of physical supply is a big benefit for major utilities as they need to spread their supply risk."

This combination of a substantial gas resource and proximity to market has attracted the interest of two cross-border customers - Queensland energy generator and retailer CS Energy and petroleum refiner BP - who have been impressed enough to sign supply deals with the explorer.

In what the two companies have named their Stratheden Joint Venture, CS Energy has farmed-in to a section of Metgasco's PEL 16 permit near Casino.

The power company is earning a 15% stake in order to prove 540 petajoules of 2P gas reserves to underpin the supply of 18PJ per year to CS Energy's Swanbank power station in Ipswich, Queensland.

Metgasco, which will build and own a new Casino-to-Ipswich gas pipeline to supply gas to Swanbank, says this represents a gas sale value of more than $1 billion over the proposed 20-year term.

Meanwhile, Metgasco and BP have agreed to conduct a feasibility study on the supply of 15-22PJ of gas per year to BP's Bulwer Island refinery at the Port of Brisbane. This would involve extending the company's planned Casino-to-Ipswich pipeline to the Port of Brisbane.

In addition, Metgasco has its own Richmond Valley Power Station project, a proposed 30MW plant using gas from an adjacent CSM field to generate electricity for the regional power network. The NSW Government has declared the development a major project.

"Richmond Valley will be the first of our gas commercialisation projects to come online," Johnson said.

"We are seeking approvals and financial close and expect it to be operating in about 16 months."

Metgasco is working hard to expand its 2P reserves and to build a base of all-important 1P (proved) reserves to confirm that it can meet supply for Richmond Valley and for its Stratheden JV with CS Energy.

This effort is being driven by two current production pilot programs. Drilling has been completed on these schemes and the company is now dewatering and flaring the production wells.

In the South Casino program, Metgasco is aiming to expand 2P reserves by 100PJ to establish sufficient gas supplies for Richmond Valley. In the Stratheden program, the company is aiming to establish up to 540PJ of 2P reserves for its supply deal with CS Energy.

"Our pilots are progressing well and we're showing we can identify 3P reserves quickly, then build up 2P through core drilling and testing, and then translate this into 1P when and as required," Johnson said.

"Once we begin to convert 3P reserves into 2P and also build up some 1P reserves, there is potential for us to experience some fairly dramatic growth."

Metgasco is using a state-of-the-art ADR 100 rig owned by Ensign International Energy Services that enables improved well design and reduces the time taken to complete a hole. Johnson says the rig will allow Metgasco to drill about 40 holes per year, weather permitting.

The rig is now undertaking surface-to-inseam (SIS) drilling, which involves drilling L-shaped wells. Initially, a 500m-deep vertical bore is drilled, and then the rig drills horizontally along the coal seam for up to 1km.

"It's complex work, but our coal seams have relatively low permeability, so we need to create sufficient exposure of the coal to the wellbore," Johnson said.

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