European Gas Limited Plans To Live Up To Its Name By Expanding...

European Gas Limited Plans To Live Up To Its Name By Expanding Into Belgium, The Netherlands And Luxembourg In Partnership With Belgian Energy Giant Transcor Astra
When Tony McClure, managing director of European Gas Limited, spoke at the oilbarel.com conference in February, he hinted that more may to be to come from the ASX-listed firm’s new relationship with Compagnie Nationale à Portefeuille (CNP). At that time the Belgian holding company’s subsidiary Transcor Astra Group had just subscribed €36.3 million to convertible notes in European Gas Limited to fund its €26.2 million acquisition of French coal mine methane producer Gazonor and provide working capital.

Now Transcor, which is an international supplier of energy commodities with turnover of €10 billion, and European Gas Limited (EGL) have announced plans to create a 50/50 joint venture company, “Benelux JV�, focused on coal bed methane, coal mine methane and conventional oil and gas opportunities in Belgium, The Netherlands and Luxemburg.

This agreement has the potential to extend EGL’s portfolio beyond France and Italy and gives it access to the commercial and financial skills of the bigger firm. The pairing with Transcor, whose parent company has a market cap of €5.5 billion and is the largest shareholder in French oil giant Total and Gaz de France merger partner Suez, lends real credibility to EGL’s strategy. It would seem that CNP agrees that targeting CBM and CMM gas plays in Western Europe, where high gas prices and burgeoning demand wedded to fiscal encouragement for cleaner-burning fuels (not to mention host governments keen to develop indigenous energy supplies to offset dependence on Russian gas), makes for a compelling business case.

The key now will be for Benelux JV to sign-up attractive projects in the target countries – this being onshore Western Europe, this could take some time as bureaucratic wheels tend to grind slowly here, particularly where oil and gas operations are concerned (note Northern Petroleum’s recent difficulties in The Netherlands, as detailed by MD Derek Musgrove at the most recent oilbarrel.com conference).

EGL, of course, has experience of operating onshore. It continues to progress, albeit slowly, its Lorraine project in eastern France. The results from initial test wells have been encouraging, encountering coal thicknesses and gas contents significantly higher than anticipated. The Folschviller-1 well, for example, encountered four major packets of 10 to 15 metres each, which may not rival the 25 to 40 metre coal packets in the prolific Powder River Basin in Wyoming but does eclipse the coals in Australia. A pilot production test in now underway using lateral completions to counter the low permeability coals and the company is expecting production of between 1 and 2 million cubic feet per day per well. The longer term potential here is significant: this could be a possible 200-well operation at which point Lorraine could be producing between five and ten per cent of France’s domestic gas needs.

The company also has experience of producing and selling gas following the acquisition of Gazonor and the Nord Pas de Calais coal mine methane project. Last year the CMM project generated revenues of €8 million and McClure expects to double this over the next 18 months just by “looking at the cost side and moving about 20 per cent of the production over to electricity generation�. New drilling could add further production while there is longer term upside in the project’s CBM potential.

Some 2.5 billion tonnes of coal were extracted from this historical coal mining region, which is only about 10 per cent of the in situ coal, leaving plenty of CBM potential. “This project’s CBM potential is up there with the size of our Lorraine project,� said McClure. Little wonder CNP was keen to back the ASX junior in the Gazonor deal.