CSG – a shining light for Eastern Star Gas

Holding one of Australia’s largest onshore gas resources, Eastern Star Gas has emerged as a major coal seam gas player in the Australian gas market. Sarah Robertson reports on the company’s project developments and prospects for growth.

Since 2007, Eastern Star Gas (ESG) has focused its attention on its large coal seam gas (CSG) resources in northern New South Wales. The explorer and producer’s Petroleum Exploration Licence (PEL) 238 is conservatively estimated to contain up to 17 trillion cubic feet (Tcf) of gas and the company is working toward increasing its certified probable (2P) CSG reserves to at least 1,300 petajoules by the end of 2009.

ESG was established in 2000 to explore, develop and produce both conventional natural gas and CSG in eastern Australia. The company soon shifted its focus to New South Wales’ conventional and CSG assets. In 2003 it acquired a 65 per cent CSG interest, with American-based Gastar Corporation, in the Gunnedah Basin’s PEL 238.

ESG Managing Director David Casey says that the company’s technical and commercial wherewithal will enable it to transition quickly from exploration to production. After conventional gas reserves of 11.3 PJ were certified at the Coonarah Gas Field in PEL 238, the company moved to commercialise the gas and constructed the 10 megawatt (MW) gas-fired Wilga Park Power Station, which came online in July 2004.

In total the company has, or is earning, an interest in over 43,000 square kilometres of CSG exploration acreage in New South Wales, and almost 28,000 sq km in South Australia. Current ventures on ESG’s cards include an expansion of the Wilga Park Power Station, gas supply agreements with Macquarie Generation and Babcock and Brown and an exploration and appraisal program – the largest-ever one-year program undertaken in New South Wales – for the Narrabri CSG Project that is targeting increasing its 2P gas reserves.

Following the retirement of company co-founder, Dennis Morton in late October 2007, David Casey, with over 17 years of CSG experience, was appointed ESG Managing Director to strengthen the company’s role as a CSG explorer and producer. ESG vended its conventional exploration acreage into Orion Petroleum, which floated in December 2007. The company established a skilled and experienced executive team, including Peter Lansom and Ashley Edgar, with geological and upstream expertise, Roland Sleeman, with downstream and commercial expertise, and Ian Kirkham, with financial expertise.

Narrabri CSG Project

Two CSG production pilots are in operation at the Narrabri CSG Project, with drilling of a third pilot to commence this month. The first pilot, at Bohena, comprises three wells, two of which were drilled in 1998 and 1999, with the third drilled in 2004.

The second pilot, at Bibblewindi, was completed in 2006 and incorporates nine vertical, fracture-stimulated wells.

The Narrabri CSG Project presently has 21 PJ of independently certified proven (1P) gas reserves, 185 PJ of 2P gas reserves and 1,300 PJ of possible (3P) gas reserves.

The possible gas reserves are equivalent to the quantity of gas earmarked for sale under a Memoranda of Understanding that the Narrabri CSG joint venture has with Macquarie Generation for the supply of 500 PJ, as well as with Babcock & Brown for supply of 40 PJ per year.

The Narrabri CSG joint venture is presently carrying out an exploration and appraisal program to certify at least 1,300 PJ of 2P gas reserves by the end of 2009.

“The present work program builds upon the success of the 2007 corehole program which showed that to the south of the Bibblewindi production pilot the Bohena coal seam is notably thicker, gas saturated and highly permeable,”? says Mr Casey.

The 2008-09 drilling program includes drilling 20 coreholes to investigate prospects across the remainder of the lightly explored PEL 238. To date, five coreholes have been completed to the south and east of Bibblewindi in the Dewhurst area, confirming an average total coal thicknesses of 33 to 42 metres.

The drilling program also includes processing 170 km of new 2D seismic, which was acquired during October using Envirovibe, buggy-mounted vibrators, selected by ESG in view of the Envirovibe’s particularly low environmental impact.

The final component of the 2008-09 drilling program involves drilling four new multilateral production pilots that will take advantage of the unique, vertically-fractured architecture of the Bohena coal seam.

“Eastern Star Gas predicts that by drilling multiple laterals perpendicular to the fracture system of the target coal, communication with the coal, and in turn gas productivity, will be maximised,”? he explains. “We anticipate that the multilateral well design will result in gas production rates up to ten times higher than is achievable with a vertical, fracture-stimulated well.”?

ESG has entered into a three year contract with McDermott Drilling for a new-build Schramm TXD drilling rig, which has the capacity to drill laterals in excess of 2 kilometres long. The new rig will be in-field during November and, following completion of the multilateral pilots, will be used for ongoing production well drilling.

Pipeline to market

Mr Casey recently said that the three prerequisites for the company’s success are certifying its reserves, ensuring access to infrastructure and securing markets for supply. The company is taking a staged approach to managing these interdependencies, with markets developed progressively as reserves come online.

As Mr Casey explains, “The first stage will involve delivery of pilot production gas from the Bohena, Bibblewindi and new multilateral production pilots to the joint venture owned Wilga Park Power Station.”?

Located about 12 km west of Narrabri, the Wilga Park Power Station has four 1 MW gas engine driven generators with a further, 3 MW generator to be installed and ready for operation early in 2009. The Narrabri CSG joint venture has committed to the installation of a 250 mm diameter fibreglass flowline.

“Delivery of pilot production gas to the power station will allow the gas to be monetised and give the joint venture valuable cash flow,”? he says, adding that the plan is to progressively expand the power station to utilise growing quantities of pilot production gas.

“The second step, in terms of gas market development, will be achieved through the installation of a gas pipeline lateral about 100 km long to link into APA’s existing infrastructure to connect to its gas transmission system, giving access to the gas markets of New South Wales and beyond,”? he continues.

“APA’s system could then be progressively expanded, in effect matching pipeline capacity development with gas production and market development,”? says Mr Casey.

The Narrabri CSG joint venture entered into a Heads of Agreement with APA Group in July this year. The APA Group has already commenced front end work, including initial design and route selection, making access to that gas market achievable around 2010,”? explains Mr Casey. He adds that this will mean that gas can be redirected from the Wilga Park Power Station to enable a quick build up in third party gas sales, with Wilga Park then operated opportunistically during peak periods while gas production capability is further expanded.

The third stage of market development will involve a major ramp up in ESG’s gas production capability, coinciding with the development of gas transmission capacity, to deliver gas to the proposed Macquarie Generation and Babcock & Brown power stations.

“Conceptually,”? says Mr Casey, “delivery of gas to these major loads could commence around 2011, with each project ramping up to full capacity over a nominal four year period.”?

Finally, Mr Casey explains that ESG is investigating prospects for major new gas-based project developments to allow the massive potential of the Narrabri CSG Project, together with the company’s surrounding CSG acreage, to be realised. Recognising the lead times associated with project commercialisation, approvals and development, Mr Casey says that the time frame for supply of gas to a project of this scale is post-2012.

Tuning into the environment

As with any CSG project, the key by product of gas production at Narrabri is produced water. ESG has successfully trialled the use of reverse osmosis to treat water produced from its pilot production operations.

Mr Casey says “As the Narrabri CSG Project moves to full-scale production, the joint venture’s reverse osmosis water handling capacity will be expanded and new opportunities for beneficial use of produced water in agricultural, industrial or regional application will be investigated.

“A material benefit of Eastern Star’s proposed multilateral well design, particularly when coupled with the use of the Schramm TXD rig,”? which he says has a particularly small footprint, “is a reduction in the environmental impact of the gas process. The greatly increased drainage area of multilateral wells means less wells will be required to achieve full scale gas production.”?

Future prospects

ESG is looking forward to developing and commercialising its assets.

“The prospect areas being investigated as part of the 2008-09 exploration and appraisal program by themselves have a recoverable gas potential in excess of 4,000 PJ – equivalent to 4 Tcf – ,and that is just from the Bohena coal seam,”? says Mr Casey.

“Eastern Star Gas has identified that the target coal measures extend north from PEL 238 into PEL 427. Within the next few months, we will earn a 50 per cent interest in the coal seam gas rights of PEL 427 through drilling of a corehole in that permit area.”?

Presenting the company’s annual report, ESG Chairman John Anderson said ESG has both a huge, high quality CSG resource and the team to commercialise it. “Although patience will continue to be a virtue,”? he said, “the pathway to success has been mapped out.”?

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