Continuing problems with gas-shipments from Russia to Europe...

Continuing problems with gas-shipments from Russia to Europe have forced European governments to search for alternatives to gas imports. European Gas Limited works at the forefront of this movement and has already consolidated most of the prospective Coal Bed Methane prospects in France. We spoke with managing director Tony McClure about the advantages of the European gas market, its dependence on gas imports and how European Gas Limited could contribute to an easing of tension.

Mr. McClure, your company European Gas Limited is a hydrocarbon producer, developer and explorer of Gas with seven projects in France, Italy and the Benelux states. Why is Western Europe such interesting for European Gas Ltd.?

European Gas Limited was previously called Kimberley Oil NL, a company developed on Canning Basin assets in Western Australia.
The previous board and management directed the company in conventional hydrocarbons including a small amount of oil production, however they weren’t successful.
That was before we took control over the company and changed the board, management and business plan.
From that time on, Kimberley Oil’s interest went to conventional oil and gas assets.

All these assets, which had a size of about 30,000 km² have then been sold to a company called Arc Energy, while EGL is still holding a 2% - 3% royalty interest. In 2003 we were looking at other lower risked options also including the search for Coal Bed Methane (CBM) prospects.

The reason for this step was that we realized that 10% of the whole gas production in the United States comes from CBM.
This type of gas production was also well developed in Australia and Canada, while China, India, the United Kingdom and other areas were in the infancy of extracting gas out of coal.

So we looked for potential assets in Australia, parts of Asia and Eastern Europe and decided to go to Europe for a few simple reasons:

You need good transportation opportunities to get your gas from your facilities to the international energy system.
In Australia you have the problem that the next pipeline might be many 100’s km away, which is a problem that Europe doesn’t have.

The next point is the European gas prices, which are 5 to 7 times higher than those in Australia.

Australia has many successful companies with excellent gas fields, but the companies have big problems with the selling of their reserves.
They need to build liquefied gas terminals to ship the gas out to Asia or elsewhere.
All these infrastructural developments will cost about 8 billion AUD within the next few years if indeed progressed.

Europe’s infrastructure is already built. You have a very strong market here, with high prices and a very positive market outlook.

What strategy does European Gas Ltd. have within Western Europe?

Our primary goal is to find and commercialize CBM and Coal Mine Methane (CMM) in Europe.
That doesn’t mean that we are only focused on Western Europe. In the future we want to become more active in Belgium, Germany and potentially further a field in Eastern Europe, for example in Poland which has large gassy coal fields.
The most interesting potential developments in Europe are the geopolitical issues we have. Europe has a huge reliance on Russian gas for its supplies.
This is a potential risk for the (Western) European communities. If supply is disrupted, governments will have to deal with power restrictions and to hence the opportunities to develop new gas resources in Europe is extremely important. European Gas Limited is at the forefront of these developments.
We got our first licenses granted in 2004, which was our initial entry to France and Europe.
Today we have consolidated most of the prospective CBM prospects in France.

Your most advanced project is the Gazonor Project in northern France, which is already in production.
What kind of project is Gazonor and which advancements have there been reached since the acquisition of the project in December of 2007?

At Gazonor we are currently producing CMM from old underground mine areas. Gazonor covers the largest coal mining area in France.

This area produced approximately 2.5 billion tons of coal until it was closed in the early 1980s. During the mining era the coal miners had major problems with the natural gas content with catastrophic effects with underground explosions.

In the years before we purchased the production permits and production facilities, the French state extracted the gas and sold it locally.
Our permits have a length of about 100 km extending west from the Belgian border in the Nord Pas de Calais. The current annual production is about 80 million m³ of gas, with a methane content of about 54%, what means that we are producing some kind of 40 million m³ of methane gas per annum.
We believe to have the opportunity to increase our production significantly. At the moment there is a feasibility study underway, which will lead to expansion possibilities.
Our main goal at Gazonor is to increase our production several times over.
In addition, there is considerable potential for CBM resource developments, because of the fact that there are still over 20 billion tons of coal in place and all gassy. It’s a substantial target.

So, on the one hand we will further increase our production of CMM and on the other hand we will develop a production of CBM in the longer term.
The feasibility scenarios for the CMM production expansion are in process.

What reserve-base and what production rates do you have at Gazonor at the moment?

At Gazonor we have 1P resources of 1.3 Bm³ of natural gas, 2P resources of 3.7 Bm³ and 3P resources of 10.1 Bm³. In early October we will publish our first CBM resource for Gazonor that is being independently calculated.
This new resource is likely to be significant

Late last year you have been able to make financings of about 36 million Euros through a subsidiary of Compagnie Nationale à Portefeuille S.A., a company controlled by Baron Albert Frère who is the largest shareholder of TOTAL and also the largest shareholder in GDF Suez, outside of the French government.

Your second most advanced project is Lorraine, which is close to the German border, about 15km south of Völklingen in the Saarland, which is a very well-known area for large coal resources.
What kind of operations are you doing there currently and what do you expect from these permits?

Lorraine has a resource base of approximately 28 Bm³ of gas, but we believe it to be significantly larger.
We will reassess this in early October and will also publish an upgraded estimate.

In the past, coal workers had major problems to get rid of the gas within the underground areas.
Over the time there has been made more and more technical work to understand the gas.
At the moment we are working on a production test program at Lorraine.
We should be able to publish further information about how we will perform within the next few months.
In 2009 we plan to start a pilot production program and if successful it will be followed by a development program in 2010.

What kind of support do you get from the French government?

Over time and during the coal mining era, the French state has assembled a very high quality information database of drilling and mining information.
This has been a considerable help to us giving us a strong understanding of the gas and its characteristics.

France’s interest in developing local gas production is very important particularly with continued reliance on imports and often from unreliable sources.
Europe is aware of possible future problems with gas suppliers including Russia, Algeria and Nigeria. Europe has a strong reliance on imported gas with potentially suspect security of supply.

The French government is extremely supportive with what we are doing and is very active in supporting our goals of further gas production in France.

Why did you decide to acquire the Tuscany Permits south of Florence and what is the current status of this project?

The Tuscany permits have potential however they are not as advanced when compared to our projects in France.
When we acquired Tuscany, we knew that there were good coals, but the permitting process is slow.
As such we have not commenced any work on the ground yet, but hope to do so in 2009.

Who are the people leading the company and what experiences did they bring into European Gas Ltd.?

Currently we have a staff of about 30 people mostly locally employed. Our team continues to be built up.
We also utilize a range of local and external consultants. As we are in Europe and we have a very exciting outlook, we are able to encourage high quality staff.
The most important point at this stage is to increase the number of high-quality engineers and geologists.

Why should investors invest in European Gas Ltd. right now?

Most of the company ownership is European based and mostly through European institutions. We have a small retail base in Australia and we are getting strong support from Switzerland and Germany.
I want to point out, that we encourage investors with a long term outlook.
The development of a very large resource base will last a minimum of 3 to 4 years.

As you know there is much pressure on the markets at the moment. But when the market turns, we are the sort of company with a strong long term potential. We are in high quality jurisdictions and have both good infrastructure and high gas prices. Within the next 24 months European Gas Limited will see enormous growth.
In the short term, we will be upgraded our CBM resource base for Gazonor and Lorraine, we have the production test program at Lorraine and we will be expanding our production at Gazonor in 2009. We consider European Gas Limited to be an excellent investment in Europe’s energy future.

Interview at September 11th 2008, 10am EST.

ASX: EP
WKN: A0H09W
ISIN: AU000000EPG0

source: www.dyor.de