Early Strike for big opportunities Steve Rotherham Monday, 27 October 2008
A SUCCESSFUL oil and gas junior is looking to coal-based unconventional energy projects to extend and balance its asset portfolio.
Hybrid Energy Australia managing director Barry Ford
Perth-based Strike Oil is best known for its track record in the conventional oil and gas business where it has built up a $50 million per annum business through success primarily in Texas.
Less known is its unconventional energy projects, which the company has been developing over the past few years.
Managing director Simon Ashton says processes such as underground coal gasification (UCG) and coal-to-liquids (CTL) offer big opportunities for Australian energy companies and for Australia as a whole.
“With global conventional petroleum resources in rapid decline, gasification of coals to synthetic liquid fuels has the potential to play a key role in assisting Australia to be self-sufficient to meet domestic fuel demand,” Ashton said.
Strike Oil’s strategic planning to pursue unconventional energy opportunities was initiated in the 1990s, when it began acquiring coal seam methane (CSM) assets that were subsequently placed into Comet Ridge. Comet was publicly listed in 2004 to operate CSM assets in the Bowen and Galilee basins.
And having recently rekindled its interest in unconventional projects, Strike Oil is now the operator of two substantial projects involving CSM, UCG, CTL and gas-to-liquids (GTL), with further opportunities under investigation, the company says.
Of Strike’s two current alternative energy initiatives – FuturGas and the Southern Cooper Project – FuturGas is the most advanced.
Located in southeastern South Australia, the FuturGas Project has forecast production of 10,000 barrels per day of ultra-pure liquid fuels as well as integrated electricity generation of up to 40 megawatts for export after meeting onsite power needs.
The FuturGas Project is operated by wholly owned Strike Oil subsidiary Hybrid Energy Australia, and is based on an extensive lignite (or brown coal) resource at the northern edge of the Otway Basin, near Kingston, 300 kilometres southeast of Adelaide.
The Joint Ore Reserves Committee-compliant Kingston coal resource of 578 million tonnes (523 million tonnes measured resource and 55 million tonnes indicated resource) was delineated in the 1980s with 550 boreholes and analytic data.
Based on a surface lignite mine and surface gasification plant, the FuturGas Project will produce syngas, primarily for processing and synthesising into ultra-pure diesel fuel, naphtha and electricity.
The University of Adelaide and other specialist consultants will contribute to the current FuturGas feasibility studies, which will assess the proposed development’s viability, according to Hybrid Energy Australia managing director Barry Ford.
“The unique relationship that Hybrid Energy Australia has with the University of Adelaide provides access to considerable research that will help accelerate project evaluation,” he said.
Ashton says he is confident the studies will prove positive.
“The technology to produce the fuels is well understood and ready-market access is assured with the lignite resource being close to major infrastructure including road, rail, gas pipelines and the South Australian electricity network,” he said.
“South Australia will become more dependent upon imported energy as the Moomba gas fields and the Leigh Creek coal fields deplete. New domestic production will enhance security and diversity of fuel supply.”
Ashton says the FuturGas Project is forecast to produce annual revenue of more than $400 million. Completion of the bankable feasibility is expected in 2010 and pilot production planned for 2012.
To technically underpin the environmental sustainability of these new projects, Strike has recruited in-house skills in the area of geosequestration: the long-term storage of carbon dioxide in naturally occurring sub-surface structures.
Strike and Hybrid Energy intend that the CO2 from the gasification plant will be separated, captured and subsequently stored in the North Otway Basin. The company’s second unconventional initiative is the Southern Cooper Project, which has considerable UCG and CSM potential, but is at a much earlier stage of evaluation.
The Southern Cooper Project is located at the southernmost margin of the Cooper Basin, where the basin’s vast coal measures are closest to the surface.
These coals have not been evaluated for their CSM or underground gasification potential as permit processing for the grant has just begun. But these coal measures are known to be gas-rich elsewhere in the Cooper where they have acted as source rock for most of the region’s oil and gas.
While the Southern Cooper is more remote from markets than the FuturGas Project, it is traversed by both gas and liquids pipelines that service the Cooper Basin petroleum production to the north.
Based on the coal intersections in old petroleum exploration wells and seismic surveys in the area, Strike Oil has estimated the coals could hold a potential prospective gas resource of 8-20 trillion cubic feet.
Individual coal seams up to 18m thick have been intersected in wells with composite thickness estimated at up to 80m thick at depths of 1000-1500m.
These coals also have the potential for underground coal gasification leading to gas-to-liquids conversion using similar downstream technology to that being considered for the FuturGas Project, according to Ashton.
“The scale of this liquids project could potentially be two to five times greater than the FuturGas Project due to the substantial coal measures that have been indicated by petroleum wells and seismic surveys in the area,” Ashton said.
Drilling to evaluate the potential of these coals is being planned for mid-2009.
Strike Oil is the operator of this project with a 66.66% interest and partner Energy World Corporation holds the remaining 33.33%.
Meanwhile, Strike has also formed a subsidiary called Sequester. This company is investigating geosequestration sites that could store CO2 from the Southern Cooper and FuturGas Projects.
“The move by governments to consider carbon emissions trading schemes has further stimulated industry interest in geosequestration,” Ashton said.
“We believe our work in this area offers not just the potential to ensure our own projects are near carbon-neutral, but also opportunities to provide services to other companies in what is likely to be a rapidly growing sector.”
Strike says its move into these areas of opportunity is a natural progression given the company’s knowledge of Australia’s basin geology and associated coal measures, its existing acreage position and its experience in drilling and production technology.
In addition, the longer development periods required for unconventional opportunities provides a balance for Strike’s existing shorter-term conventional oil and gas projects.
“The FuturGas Project and Southern Cooper Project have promising futures,” Ashton said.
“We strived to be an early mover in alternative energy conversion and these initiatives have now placed Strike as a front-runner in this emerging industry.”
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