During the quarter Metgasco obtained all necessary approvals to drill the Rosella E01 exploration well including a landholder access agreement. The Company selected Atlas Drilling Services Pty Ltd, a Titan Energy Services Company (ASX: TTN) as its drilling contractor for this well.
Atlas was to commence drilling the Rosella E01 well in mid-April. Unfortunately, drilling was delayed due to wet weather impacting the availability of Atlas Rig 3. Subject to weather and the completion of the rig’s current work program, Rosella drilling activity is expected to commence in May.
The Rosella E01 well will test the conventional and tight gas potential of the larger Greater Mackellar structure and follows the discovery of gas in sands in the Kingfisher E01 well in 2009.
Rosella E01 is not a coal seam gas well.
In addition to progressing the Rosella E01 exploration well during the March quarter, Metgasco also:
- investigated new opportunities to economically supply gas to the Northern Rivers community; and
- continued its community and government contact program to highlight the importance of gas to the NSW community and that the CSG industry is a safe and environmentally sound industry.
Review of exploration activities
Preparation for drilling the Rosella E01 conventional gas exploration well on the Greater Mackellar structure continued during the quarter. Contracts for the drilling activities, geological evaluation and testing services have been completed in readiness for the commencement of site preparations and the spudding of the well.
Shareholders will be aware that Metgasco, like other resource companies in NSW has been subject to protest action associated with the Rosella well. A group of protestors has camped outside the proposed drilling site for some months and has engaged in intimidation and unlawful activity, preventing the farmer gaining access to his property on many occasions. Police support will be necessary to maintain access to the site and Metgasco will face security costs that it should not incur. Metgasco is encouraged by the explicit support from the NSW Government, messages of support from individuals in the Richmond Valley community and the resilient support of the farmer on whose land we will drill.
Metgasco maintains a constant focus on our health, safety, environment and security performance. There were several security incidents during the quarter where protesters illegally entered the proposed Rosella E01 drilling site damaging the landholder’s property and preventing him from entering his own property. The Company will oppose illegal activity, including trespass, at its operations and harassment of or harm in any form to its employees, contractors and the landholders it deals with.
A regional seismic mapping exercise of the basin was undertaken to better understand the structural setting of the Greater Mackellar Trend at the Gatton to Ipswich Coal Measure level and to further assess the early history of gas generation and migration towards the Rosella culmination. This work incorporated aspects of the aeromagnetic survey by Geoscience Australia in 2011, which was the subject of a study carried out on behalf of Metgasco by Archimedes using advanced geophysical data reprocessing techniques.
Please see PDF attached to view table.
During January 2014, the NSW Government confirmed its CSG exclusion zone policy. The reserve figures above represent Metgasco’s best understanding of the effect of the exclusion zones on Metgasco’s reserves.
Metgasco advises that as at 31 March 2014 it had a 100% interest in the following permits:
- PEL 13
- PEL 16
- PEL 426
The permits are located in the Clarence Moreton Basin of NSW. Please see PDF attached to view map.
There have been no changes in the beneficial interest since the last quarterly activities report. No tenements were acquired or disposed of during the quarter.
The Company has no beneficial interest at the end of the quarter in any farm-in or farm-out agreements.
The Company has neither farmed into any new permits nor farmed-out any of its permits during the quarter.
During the period Metgasco transferred the remaining two ponds to the landholders so that they can be used for agricultural purposes. Metgasco completed a thorough analysis of the water in the ponds, which included a complete assessment of environmental issues and veterinarian studies which demonstrated that the water can safely be used for stock watering, and received government approval to transfer the ponds and the water to the landholders for stock use. This is an excellent result for all concerned and is a “beneficial” outcome.
Review of commercial developments
Gas commercialisation strategy
Metgasco has continued its discussions with proponents of compressed natural gas (CNG) and micro- liquified natural gas (LNG) developments. The last few years have seen an increased focus worldwide on the development of small LNG facilities that match Metgasco’s near term development ambitions. Preliminary information indicates that the cost of these facilities is reducing, potentially making them competitive with compressed natural gas plants. The facilities may reduce capital requirements and provide competitive delivered cost compared to supply via pipeline for small, dispersed energy markets. The small footprint
of these facilities and their modular construction have the potential to allow Metgasco to provide competitive supply to replace LPG and diesel supplies for stationary fuel users and diesel supply for transportation users, within the region and beyond. Metgasco is continuing to assess the economics of these small CNG and LNG facilities and market opportunities.
Community and Government engagement
Metgasco has maintained its active engagement program with the local community and the NSW Government. The company’s CEO has provided numerous media interviews to explain our activities and correct ongoing misinformation. Coverage in Sydney media has highlighted the unlawful behaviour of protestors, as well as NSW’s need for gas and the inevitable increase in gas prices.
The actions taken by the company in 2013 to suspend operations and reduce costs continue to result in a significant drop in cash burn with a net cash outflow from operations of $956k in the quarter, down from $2.3m in the prior quarter. Of the quarterly cash flow, more than $400k was associated with final rehabilitation costs and preparation for the Rosella well, with approximately $500k spent on base operations.
The Company ended the quarter with a cash balance of $13.4m and no debt.
At 31 March Metgasco had 449 million shares on issue and 1.2 million options outstanding.
Outlook –planned forward work program next quarter
Metgasco’s focus for the June 2014 quarter will be as follows:
- drilling of Rosella E01 to test the Greater Mackellar structure;
- exploring the potential of CNG and micro-LNG sales to the Northern Rivers region; and
- maintaining a proactive community relations program for the Richmond Valley and Clarence River council areas.