Quarterly Activities Report
Brisbane, Jan 25, 2023 AEST (ABN Newswire) - The December 2022 Quarter (Quarter) and the subsequent month of January 2023 have been eventful for both the energy sector and State Gas Limited (
ASX:GAS) (STGSF:OTCMKTS).
- International and domestic gas markets continued to perform strongly with global energy demand, particularly for gas, remaining high;
- State Gas has remained focussed on developing its projects and commercialising its resource base as quickly as possible. We continue to work towards enhancing the value of the Company's assets and generating an attractive return on capital through commercialising the Company's projects over the short to medium term.
- Federal Government intervention into domestic gas pricing has created an environment of uncertainty for the industry while attracting significant criticism from industry participants and the Australian business community more generally; and
- Notwithstanding the disruption created by regulatory price intervention, demand for domestic gas remains high and is expected to remain so for the foreseeable future as there are no reliable supply-side drivers capable of boosting supply in the short to medium term. The government's price caps will probably have the unintended consequence of increasing price volatility, thereby benefitting suppliers of spot gas.
Rougemont Well Production Testing
State Gas' Rolleston-West Project (ATP 2062) is targeting the Bandanna Formation coal measures. These are the same coal measures already in commercial production at Arcadia Valley to the south-east and under development at Mahalo to the North. Rougemont-3 consists of two laterals well drilled sub-horizontally through highly permeable coal seams identified by the previously-drilled Rougemont-2 well. The laterals connect to the Rougemont-2 vertical well, enabling the vertical - dual horizontal well system to be tested as a single unit.
Rougemont 2/3 has been on production testing since 21 November 2022 with the water being drawn down at a rate of around 2 metres per day. The well has been drawn down consistently and predictably to 120 metres (the first coal seam is at 356 metres depth) and we are consistently producing small quantities of gas - a good sign. The production test is producing a larger quantity of water than was initially prognosed, indicating high permeability in the coal seams within the two lateral wells, and therefore, potentially higher gas production from these coals once the water level has been reduced.
CNG Trucking ('Virtual Pipeline') Project
The Company made substantial progress towards achieving its deadline of delivering first gas production from its natural gas reserves located near the northern end of PL 231 with the compressor scheduled to arrive in February 2023. The project will see State Gas compress, truck and then decant the gas into existing pipeline infrastructure ("the CNG Project"). The CNG Project will allow State Gas to generate a modest positive operating cashflow and build up to delivering approximately 1TJ per day of new gas into what we expect will continue to be an under-supplied market. Engineering, design and preliminary pre-fabrication activities were completed during the quarter, allowing in-field construction and commissioning to commence in late February 2023. Gas from the CNG Project is planned to be sold into the spot market - which is not governed by the announced price cap of $12/GJ. Project operating costs are estimated to be substantially less than $12/GJ.
Proposed Federal Government Intervention into gas pricing
During the quarter, State Gas responded to substantial regulatory price intervention in the gas industry in conjunction with other industry participants and business leaders. This intervention allows the Federal Government to dictate the contracted price of gas for the next 12 months and significantly influence it thereafter. In our view, it is supply-side factors that are driving the price of domestic gas and the implementation of pricing caps will not alleviate that situation over the medium-term. We believe that price intervention will have a significant negative impact on investor sentiment in the energy sector and, perversely, exacerbate the existing challenges of reliable energy supply.
Whilst State Gas is exempted from the price caps announced in Canberra just before Christmas, the Company believes that the Government's attempts at price control - to the extent that they are effective - will stimulate domestic gas demand, exacerbating gas price volatility.
State Gas' pioneering efforts to create a demand-responsive ('capital lite') trucking solution may well be a net beneficiary of the unintended consequences of this policy.
State Gas will continue to lobby against this regulatory intervention as part of the wider industry response and will keep its shareholders updated on the impact as detail becomes clearer over the coming quarter. A copy of our submission seeking further consultation and debate was released to the ASX on 13 December 2022.
*To view the full quarterly report, please visit:
https://abnnewswire.net/lnk/KR770NK6
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.
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