Australia’s European Gas Limited Continues To Build Its...

Australia’s European Gas Limited Continues To Build Its Credentials As European Gas Supplier As €26 Million Gazonor Acquisition Adds Weight To The Portfolio
If 2006 was a year of transition for European Gas Limited, then 2007 has been a year of building on that change. Last year the company formerly known as Kimberley Oil sold its E&P assets in Australia’s remote Canning Basin in order to focus on its coal bed methane and coal mine methane properties in France and Italy, a move that was duly reflected in a name change. This year the ASX-listed company got busy proving its credentials as a viable European-based CBM business.

It started 2007 with a successful coring programme on its most advanced project, Lorraine in eastern France, where the company is targeting almost 1 trillion cubic feet of gas through an initial pilot project. In May EGL secured control of its asset base by completing the acquisition of its partner Heritage Petroleum, then in July it expanded the portfolio through the award of the Lons Le Saunier licence and the following month acquired Gazonor, a 100% subsidiary of Charbonnages de France, for €26.2 million in a public tender.

Gazonor owns the Nord-Pas de Calais coal mine methane (CMM) production field and associated infrastructure in northern France. This portfolio includes two permits, Poissonnière and Désirée, which together cover 578.6 sq km, plus an outstanding application to extend the Poissonnière permit by 187.5 sq km. Coal was mined here from 1820 until around 1950. The extraction of CMM for industrial purposes got underway in 1979 from three main processing sites, Avion and Divion in the Poissonnière permit and Désirée in the Désirée permit. Around 74 billion cubic feet of gas has been extracted and for the last five reported years production has averaged around 2.9 bcf a year. The average methane content is 54 per cent and the gas sells for €21.70 per MWh.

It is reckoned the Nord-Pas de Calais project has remaining proved recoverable reserves of 30.6 bcf, which can be produced over the next 20 years. (It is often said that CBM projects, once up and running, are like annuity plays – the gas keeps coming at modest yet steady rates year after year after year.) The drilling of additional boreholes may increase the recoverable reserve base to 33.6 bcf. The permits expire in 2017 but are renewable.

This takes EGL, which plans a listing on a European exchange in 2008, into a new business line, moving from CBM to CMM, from explorer to producer. CMM involves the degasification of old underground workings by drilling wells into the mine itself. The gas is then extracted under very low mine pressure, gathered and transported to central processing facilities for filtration, compression and onward sale: in this case the gas is piped to local industrial users.

EGL plans to €11.0 million in potential capital works over next two years drill additional boreholes, refurbish the gas processing facilities and redevelop the project to generate electricity, enjoying a premium tariff because the French government counts CMM as a renewable energy.

It also plans to explore the CBM potential of the permits, which could unlock real value from the Gazanor assets. Unlike CMM which extracts methane released as a result of mining activities, CBM involves drilling directly into unworked coal to release the adsorbed to the coal. This has the benefit that the extracted gas is often of very high quality, enabling it to be fed directly into the gas distribution network thereby reducing the filtration and processing costs associated with CMM. On the Nord-Pas de Calais project, only a small part of the coal basin has been exploited by mining and large quantities of coal remain, which contain potentially significant volumes of CBM.

This is a nice addition to the portfolio, bringing in cash flows from existing production, enhancing the company’s profile and reputation as a European gas supplier and providing additional CBM upside. In the meantime, the company continues to advance its Lorraine permit, where it is working towards pilot production, while a promising gas-in-place study has just been completed on its 730 sq km Gardanne Project in southern France, with appraisal drilling planned for next year.

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