The Lake Galilee Farm-in Area (LGFIA) sits immediately east of Comet Ridge’s Gunn Project Area, in which the company has booked 1,870 petajoules of contingent gas resources. It is located in the southeast of permit ATP 1015P, between the east and west parts of Comet Ridge’s ATP 744P, in which the company has a 100 per cent interest.

Mr McCaul says that the 825 sq km in the LGFIA is a natural addition to the Gunn Project Area, which has an area of approximately 1,400 sq km.

“From an appraisal and development point of view, it makes commercial sense to treat these areas as one large area with Comet Ridge farming-in as the sole operator. This agreement effectively gives Comet Ridge a much bigger footprint and potentially a much larger gas volume to develop,” he says.

Comet Ridge has already built a strong relationship with Queensland Energy Resources (QER), as the two companies have been working collaboratively together as members of the Galilee Basin Operators Forum, a group of CSG explorers whose ultimate aim is to develop a hydrogeological model for the Galilee Basin. The two also undertook seismic surveys in the eastern Galilee Basin in late 2011, sharing contractors to help minimise logistics and other costs.

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At the time of writing, as part of the agreement, Comet Ridge was about to embark on a three-well drilling campaign, with the first well expected to spud in early October 2012.

“The first well will be a production test well in the Gunn Project Area, with the next two wells drilled as core-holes in the LGFIA and forming part of the farm-in arrangement with QER,” Mr McCaul explains. “After we have a chance to analyse results from this year’s drilling, we will then plan out additional wells for next year.”

In addition, Comet Ridge has had discussions with several parties to examine the feasibility of developing gas-fired electricity generation to supply the significant Galilee Basin coal mine province being proposed along the eastern boundary of Comet Ridge’s ATP 744P.

Mr McCaul says “The market for gas in eastern Australia has tightened significantly in the past year or so, and we believe it will continue to tighten. This means that the resource base that Comet Ridge has already established in the Galilee Basin may be extremely attractive to a number of parties, particularly if the company can progress the gas available from resources category to reserves category in the short to medium term.

“Given our position in the eastern Galilee Basin, we think a sizeable gas resource of this nature would lend itself to a short distance tie-in that could supply gas or power to a number of the planned Galilee Basin large-scale coal mines. Gas could also be moved further to the east to connect into the system that will supply gas to Gladstone for a number of large-scale LNG schemes.

“We believe that there will also be domestic gas sales options that become available for Galilee Basin gas. We have had informal conversations with a number of parties who are logical gas or power users, and will continue these discussions and evaluate which of these options – or combination of these options – will provide the most value.”

Co-operation between coal and gas

Mr McCaul believes there is great scope for coal and gas companies to work together in the Galilee Basin across infrastructure, gas and water. He also believes this co-operation could lead to gas flowing from the basin within two years, despite the fact that it has never yielded a commercial flow of oil or gas.

“The Galilee Basin has seen oil and gas exploration wells drilled for the past 50 or 60 years, and some of these wells have seen shows of oil and small gas flows. However, the basin is still only relatively lightly explored," he says.

“Comet Ridge has almost 14,000 sq km under licence and most of this is at the 100 per cent equity level. Queensland and eastern Australia have historically had some of the lowest natural gas prices in the world. It’s only in the past few years that gas prices in eastern Australia have started to move up that exploration over wider parts of Queensland has expanded in earnest. The Galilee Basin is now seen as one of the areas of significant upside for gas in Queensland.

“One other operator is running a pilot in the Galilee Basin, to the west of Comet Ridge’s position, and has recorded gas flows from at least one well. However, we understand the gas rate has not yet been sufficiently high to be called ‘commercial’ and therefore gas volumes there are not yet defined as a ‘reserve’.”

According to Mr McCaul, a mutually beneficial relationship could be established between coal and gas companies. For coal mining companies, they would receive a source of energy and water, which Mr McCaul says is an attractive prospect, given that the alternative to natural gas energy will be several years of burning diesel for power until the grid is developed. For gas developers, they would be receiving a market for their gas that is close, and therefore low-cost and low in complexity to get production started. “Dialogue is required to understand each other’s business drivers, project schedules, and approvals processes with the Queensland and Federal governments,” says Mr McCaul.

Communication key to allaying CSG fears

With the current controversy surrounding CSG exploration, Gas Today took the opportunity to ask Mr McCaul how Comet Ridge approaches landholder liaison.

“Comet Ridge has developed excellent relationships with the landowners it has dealt with in the Galilee Basin,” he responds. “We have often stated that the key to maintaining good relations with landowners – and more generally, the rural community – is close and effective communication, and a clear focus on understanding issues and concerns. We also believe in working closely together to understand each other’s business drivers.

“Naturally, the Galilee landowners have heard the concerns raised elsewhere about CSG, but they also understand that many of the concerns in the media are from vested interest groups who make wild claims with no substantiation. We have been keen to point out that gas production around the Roma area has continued for the past 44 years and CSG production has occurred for the past 16 years – so gas production in Queensland is by no means a new phenomenon and there are many benefits to the rural community. We are always prepared to discuss any issues and provide whatever information/data there is to allay those concerns.

“There is also a significant amount of government regulation applied to CSG companies which gives communities comfort that exploration, appraisal and development will be undertaken to a very high scientific and environmental standard.”

A bright future ahead

CSG currently supplies over 90 per cent of Queensland’s total natural gas requirements and approximately 20 per cent of Queensland’s power – a proportion that Mr McCaul believes will grow, given the relatively clean-burning nature of gas.

“With the recent release of government policies in New South Wales, CSG has the potential to power a big proportion of NSW, especially as the state's current gas contracts expire toward 2017.

“Although both the Galilee and Gunnedah basins are still relatively unexplored compared to other areas of Queensland and NSW, we see these basins as providing significant gas production to both states, and hence, substantial government royalties for both state governments to fund hospitals, schools and infrastructure. Therefore we see a bright future for CSG in eastern Australia.”