Quarterly Activities Report
Brisbane, Jan 31, 2025 AEST (ABN Newswire) - State Gas Limited (
ASX:GAS) (STGSF:OTCMKTS) releases an update for the quarter ending 31 December 2024 ("the Quarter"). Through the end of the quarter the Company successfully resolved an access dispute with the landowner associated with the Rolleston West Project. Whilst this impacted the HDNG production schedule, the Company is looking forward to the execution of planned exploration activities during the March Quarter.
Commenting on the quarter and the outlook for the Company, State Gas Managing Director, Doug McAlpine said:
"Notwithstanding the short-term challenges experienced in recent months, 2025 will be an important and productive year for the Company. We are working towards, in the short term, completion of a two well drilling program and demonstration of the substantial underlying value in the Rolleston West Project.
"We have, with our partners, continued discussions with other coal mines near Rolleston West regarding 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. We remain optimistic 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.
"Based on our ongoing exploration and development strategy for the underlying natural gas projects within ATP 2062 and PL231, we are well-positioned to support the growing energy demand on the East Coast of Australia. The outlook for energy markets in Australia remains positive, with a continuing recognition that natural gas will play a substantial role in the provision of base load power, along with diesel fuel displacement while battery technology continues to improve over the long term. The Company's exploration projects are located close to other successful gas projects and in proximity of existing major pipeline infrastructure.
"There are numerous risks which the Company continues to address, and if those can be successfully mitigated, there are a number of significant value drivers to be realised by the Company over the coming 12 months."
HDNG Sales
During the Quarter, the Company continued to operate its first-of-its-kind, High Density Natural Gas ("HDNG") production plant ("the Plant") as part of the continuing trial of dual fuel engine technology at a local coal mine ("the Trial"). The objective of the Trial is to demonstrate that large mine trucks can operate efficiently on a dual fuel engine with consistent operating performance and a significantly reduced CO2 emission profile.
Production testing gas from the Company's Rougemont 2/3 dual lateral well system ("Rougemont 2/3") within ATP 2062 was captured and processed, and in conjunction with virtual pipeline ("VP") trailer technology, was delivered to support the Trial, which occurs at a location remote from traditional gas infrastructure. HDNG supplied during the Quarter supported two dual fuel mine trucks as part of the Trial, and demonstrated the effectiveness of HDNG as a substitute fuel source, with both diesel substitution rates and truck performance within expected ranges.
Pleasingly, Plant performance during the quarter continued to improve, reflecting refined operating practices and more stable gas production from Rougemont 2/3 as a consequence of daily gas production. Notwithstanding the interruption to production arising from the access dispute which arose during the Quarter, State Gas is encouraged by performance of the Plant during the period and is working with its customer to recommence HDNG supply in late Q1 2025 as part of an expanded trial.
State Gas continues to work with its partners to optimise Plant performance and the volume of gas which can be produced and delivered using VP trailer technology. Based on the continued success of the Trial, planning is now underway to expand HDNG supply to six mine trucks. 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 fuelling infrastructure. State Gas and its partners are working with the customer to assist in delivering these improvements and support further extension of the trial.
Access Challenges
During the quarter, State Gas resolved access issues at its Rolleston West Project which arose as part of a dispute under the Conduct and Compensation Agreement ("CCA") with the Landowner. Actions taken by the Landholder impacted our access to the property temporarily halting HDNG production and pushed back the Company's two well exploration program. On November 18, 2024, a settlement was reached between the parties which allowed site access to resume, while the consequential delays resulted in the exploration timetable approaching the December wet season. The Company took the conservative position of deferring the two well exploration program until early in calendar 2025 when favourable weather conditions would be more certain.
Exploration Activities
The Company remains 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, two new exploration/appraisal wells will be funded from a $5.5 million exploration grant provided by the Queensland Government's Frontier Gas Exploration Program ("the Grant"). 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 for the Rolleston West Project. 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.
The two new vertical wells are located 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, reducing the Company's fugitive emission profile while simultaneously enhancing its revenue generating capacity.
Financial Position
During the Quarter, the Company applied part of the funds from the Quarter 1 capital raise to meet costs associated with the completion and commissioning of the HDNG plant. A further 13,207,421 shares were issued to Directors in accordance with shareholder approval obtained in November 2024.
Given the unanticipated costs arising from the access dispute and the resulting impact of interruption to HDNG sales the Company is currently working on a range of strategies to mitigate these costs and losses including, inter alia, a negotiated outcome with the landowner and claims under the Company's insurance policies. While the Company is confident of a successful outcome in this regard, these processes will take time.
In the short term, a significant cash inflow is expected in late February 2025, under the continued program of grant funding arising from the Company's R & D expenditure incurred in developing the HDNG plant. In conjunction with the Frontier Gas Exploration Program funding for the two new wells, the Company is expected to have sufficient capital to support its current plans over the medium term.
Along with the upcoming drilling program, the Company is focused on recommencing HDNG supply and is evaluating a range of strategies to accelerate and expand its HDNG supply capabilities. A successful ramp-up in operating cashflow from HDNG sales directly reduces the Company's reliance on additional equity capital. The Company has conducted another review of its overhead costs and is operating on a cost structure necessary to support execution of the strategy discussed in this update.
*To view the Quarterly Report, please visit:
https://abnnewswire.net/lnk/7DG96OB3
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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