Quarterly Activities Report
Brisbane, Oct 31, 2024 AEST (ABN Newswire) - State Gas Limited (
ASX:GAS) (STGSF:OTCMKTS) is pleased to provide this update for the quarter ended 30 September 2024 ("the Quarter"). The Company achieved the major milestone during the Quarter of delivering first revenues from gas sales.
In addition to the long-term value created through its traditional exploration and development activities, the Company now owns and operates a strategic asset and related IP - a "first-of-its-kind" in Australia, High Density Natural Gas ("HDNG") production plant ("the Plant"). The Plant sources raw gas feedstock from the Company's Rougemont 2/3 dual lateral well system ("Rougemont 2/3") within ATP 2062 and in conjunction with virtual pipeline ("VP") trailer technology, enables State Gas to deliver up to 1.7TJ/day of pipeline quality natural gas to end users in the Southern Bowen Basin and surrounding areas.
State Gas believes that the HDNG technology will create substantial opportunities for natural gas (an environmentally superior fuel source to diesel) to be used in a range of commercial applications which support lower carbon emissions. In addition to the environmental benefits which arise from capturing production testing gas, the HDNG production plant will allow State Gas to grow an organic revenue stream which will enable it to self-fund an increasing share of its ongoing exploration and development activities.
The alternative fuel supply opportunity utilising HDNG will realise revenue significantly in advance of the commercial timetable applicable to traditional gas project development and at lower capital intensity.
In conjunction with the Company's ongoing exploration and development strategy for its underlying natural gas projects within PL231 and ATP 2062, State Gas is now in a stronger position to deliver its vision and sustainable value to shareholders.
Exploration Activities
The Company is focussed on converting a substantial portion of its contingent resources into 2P reserves, which will, in turn,support long term project investment in the Rolleston West Project. Of particular focus is gaining access to pipeline infrastructure which can connect the Rolleston West Project to the Gladstone to Wallumbilla pipeline network.
As previously reported, State Gas has secured $5.5 million of exploration grant funding through the Queensland Government's Frontier Gas Exploration Program ("the Grant"). The Grant will be used to further delineate gas resources and reserves within the Rolleston West Project area, by drilling two new vertical wells which are close to Rougemont 2/3 in an area that has proven gas content and good permeability. State Gas' HDNG plant will enable it to immediately capture and commercialise production testing gas from these new wells.
During the quarter the Company completed planning and preparatory activities to commence the drilling program for the two new exploration/appraisal wells to be funded by the Grant. The Company experienced delays to mobilisation of the rigs because of the rigs not being released by the previous user in line with the original timetable. The Company is now in the process of completing preparatory civil works to allow mobilisation of the drill rigs to site. The Company is in the process of optimizing access arrangements to facilitate completion of the planned drilling activities as soon as practicable.
HDNG Sales
Post commissioning the HDNG production plant in late May 2024, the Company commenced supplying HDNG in accordance with its initial offtake agreement to a local coal mine. State Gas' customer is using HDNG as part of the ongoing trial of hybrid (diesel/natural gas) mine-truck engine technology that can assist in reducing carbon emissions.
During the quarter, State Gas and its partners identified and resolved a range of technical and operational issues associated with early stage of operation of the HDNG plant and to increase the scope of the HDNG supply arrangement. The Company also participated in planning activities to support further expansion of the trial to six mining haul trucks, in accordance with the customer's previously stated intentions. The HDNG plant and the VP trailers are operating efficiently, and State Gas is delivering increasing daily volumes of HDNG. This reflects improved operating practices at the Plant and more stable performance from the Rougemont 2/3 well system. On an overall basis, the hybrid engine trial (reliant on HDNG) is also demonstrating favourable results with gas for diesel substitution rates in line with expectations. To enable more efficient unloading of HDNG from the VP Trailers and support use of HDNG by a larger number of mining trucks, the customer will need to invest in improvements to its existing on-site infrastructure. State Gas and its partners are working with the customer to assist in delivering these improvements and support further extension of the trial.
State Gas and its partners continue discussions with a number of other coal mines in close proximity to Rolleston West about HDNG supply. Those discussions also include the broader application of the Company's HDNG technology to capture fugitive emissions associated with de-gassing coal mine development.
Financial Position
Post year-end, State Gas raised $5.3 million through a placement and entitlement offer of 105,071,959 new shares to sophisticated investors and existing shareholders. A further 13,207,421 new shares will be issued to Directors subject to shareholder approval.
During the quarter, the Company expended approximately $1.8 million on construction and commissioning costs to complete the HDNG Project and $0.5 million on the ongoing production testing of the Rougemont 2/3 dual lateral well system. Company overheads were slightly lower than the run-rate observed in previous quarters, reflecting alignment of its activities with the timing of first gas sales and available cash reserves.
Moving forward, the Company's reliance on additional equity capital is expected to progressively reduce with the ramp-up in production and as operating cashflow from HDNG sales increases.
Changes to Board Composition
During the quarter, the Company's Non-executive Chairman, Richard Cottee, indicated his intention not to stand for re-election as a Director at the Company's upcoming Annual General Meeting. The Company thanks Mr Cottee for his valuable contribution to the development of State Gas over the last five years.
This has been a time of significant change for the business and Mr Cottee's experience has been critical to the successful navigation of a range of challenges.
Outlook
The Company is focussed, in the short term, on completing its two well drilling program and continuing to increase its HDNG supply volume. The Company's assets are well positioned to address (in part) the substantial gas shortfall which the ACCC currently forecasts to arise by 2027 and continue to support both an orderly transition to renewables and a sustainable energy security policy for Australia. The Company's portfolio of gas assets possesses the relevant characteristics to underpin long term shareholder value:
1. substantial deposits of pipeline quality gas with a low carbon emission profile sourced from a known gas production region;
2. comparable gas projects, targeting similar coal measures, suggest that the State Gas projects will be low on the cost curve;
3. gas assets are strategically located in close proximity to existing transmission infrastructure;
4. the cost of additional infrastructure to support production is modest; and
5. the Company's HDNG technology enables it to commercialise its gas assets more quickly and potentially build a large alternative fuel supply business, while simultaneously continuing to advance the Company's traditional gas projects.
Anticipated successful drilling and production testing results from the two new wells will enable State Gas to seek accreditation for a maiden 2P reserve of 30-50PJs. Establishing an initial 2P reserve is a critical next step in demonstrating the commercial viability of a substantial gas project at Rougemont West and supporting an application for a petroleum lease over a substantial portion of ATP 2062.
ABOUT THE ROLLESTON WEST PROJECT
The Rolleston West Project (ATP 2062), is 100% owned by State Gas Limited and is focussed on evaluating the viability of conventional and coal seam gas (CSG) production from Bandanna Formation coals, which are extensive across large areas of this and adjoining permits. The capability to produce CSG at commercial levels has already been established at the Arcadia Valley field to the south-east, and at Mahalo to the north-east.
The recent drilling program undertaken in the eastern part of the tenement (Rougemont 1,2 and 3) has intersected approximately 8 metres of net coal, with the thickest seams laterally continuous over many kilometres. The gas content of the coals is between 5 and 6 m3/tonne dry ash free. Gas is at or near pipeline quality, between 93.8% and 96% methane.
Production testing has established sustainable commercial gas flow rates and confirmed excellent permeability within the targeted coal seams State Gas is seeking to expand the project ("Rougemont") and move to early-stage production. The Company is currently evaluating a further step-out drilling campaign to confirm the continuity and permeability of the coal down dip of Rougemont 1 and 2 and establish initial gas resource and reserve estimates for the project.
ABOUT THE CNG FACILITY
State Gas has developed a "first of its kind" in Australia CSG to CNG plant ("the CNG Facility"). When implemented in conjunction with virtual pipeline ("VP") trailer technology, the CNG Facility will be able to deliver up to 1.7TJ/day of pipeline quality natural gas to end users in the Southern Bowen Basin and surrounding areas. This technology has a range of benefits and potential use cases:
- delivers substantial environmental benefits to gas producers, as it provides a reliable method for capturing and commercialising production testing gas which has historically been released to the atmosphere;
- provides a new path to market for pipeline quality natural gas which the Company believes will become increasingly important across a range of industries, including critical minerals, while the economy continues its long-term transition to renewable energy sources;
- is modular and can be efficiently expanded and easily relocated to support gas testing and processing opportunities in new locations; and
- provides access to a new fuel source for end users who are seeking access to smaller, flexible quantities of natural gas, but don't have access to traditional pipeline infrastructure and need to accelerate a transition away from diesel.
ABOUT THE REID'S DOME PROJECT
The Reid's Dome Project (PL 231) is targeting conventional and coal seam gas assets associated with the Reid's Dome anticline, an area of sharply uplifted coals, shales and sandstone formations.
State Gas' exploration activities have established in excess of 30 m of net coals, with gas contents averaging a very high 13.75m3/tonne dry ash free. Commercial levels of sustainable production of conventional gas have been established at the Nyanda-4 well and the Company continues to evaluate a range of techniques to successfully liberate gas from the deeper formations.
The Company is now evaluating how to best develop Reid's Dome in conjunction with Rolleston West to most efficiently leverage infrastructure and reduce operating costs.
*To view the full quarterly report, please visit:
https://abnnewswire.net/lnk/47Q96179
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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