Shares in Carbon Energy we expect to open firmer this morning.
This more than doubles the total gas reserves held by the Company and a platform to become a large gas supplier to Australian industrial gas users with to a market that is likely to face gas shortages.
As importantly, it lays a platform for building a Queensland gas business and will support plans to develop its first commercial scale gas project in Queensland, the Blue Gum Gas Project in the Surat Basin.
The Project is located within easy access to markets and close to existing infrastructure.
First gas could be supplied to local industry from 2017, once finding suitable investment partners and receiving State Government approvals.
Based on projected gas prices, the Blue Gum Gas Project could deliver $4 billion in gross revenue to the Company over a 25 year period.
Carbon Energy's CEO Morné Engelbrecht said, "This Reserve upgrade reinforces Carbon Energy's ability to provide the Queensland market with access to a major new gas resource and comes at a time when the east coast industrial and domestic market is facing looming gas shortages.
"We are planning to bring our Reserves onto the market in time to meet the forecast gas shortages towards the end of the decade."
"The constraints on the local gas market are going to hit industry particularly hard. We are in discussions with potential industrial off-take partners to supply them with this new source of gas." Mr Engelbrecht added.
The Company recently submitted a Decommissioning Report to Government which detailed results of more than 2,000 water samples taken over the past 6 years. The results from this rigorous monitoring program demonstrate Carbon Energy's ability to operate its keyseam technology without harm to the environment or impact on beneficial use of the region's groundwater.
The Company is currently preparing a Rehabilitation Plan for its Bloodwood Creek UCG trial site. This is on schedule for lodgement with the Queensland Government by the end of September 2014. Carbon Energy is hopeful that it will receive a decision from the Queensland Government allowing it to proceed with the standard approvals process for the Blue Gum Gas Project shortly after submission of the Rehabilitation Plan.
Developing a New Gas Supply for Queensland Industry
The business model is to commercialise the Surat Basin gas reserves to meet local industrial demand - 5th largest 2P gas reserve in Queensland. This would assist to meet forecast gas shortages with commercially acceptable pricing.
With 5,300 PJ of 3P reserves, Carbon Energy is well placed to meet the increased gas demand.
Recent east coast contracts have been struck at >$8/GJ (Expiring contracts have been as low as $2.50/GJ, historical average of around $3-4/GJ)
The capital and operating costs are likely to competitive with any new source of gas.
This involves negotiating long-term off-take agreements and to unlock vast potential gas reserves through proprietary keyseam technology. Carbon Energy will seek investment by local industrial partners to secure future supply.
In addition, the forward plan involves generating ongoing revenue to support the Blue Gum Gas Project. Further licensing deals will bring further revenue generation. The Approvals in QLD will assist with further licensing of technology.
keyseam® technology is key to unlocking deep uneconomic resources
The keyseam technology was initially developed by CSIRO over 10 years. It is a novel design and approach to UCG including:
- Consistency of gas quality
- Commercial scalability
- Continuous versus "batch" process
- Geotechnical stability of wells
- 6 years of field trials by Carbon Energy > $100 million in R&D
- Proof of concept of keyseam reached through >20 months of continuous production of consistent high quality Syngas
- Over 2,000 samples collected over 6 years reported to government agency monthly to prove environmental standards
The project has a small footprint for the volume of energy recovered. It will preserve groundwater volumes & quality and minimises environmental impact by not excavating, fracking or transporting coal.
The update reserves statement is significant as it changes the face of Carbon Energy as it has now become a major player in the Queensland gas market in terms of gas reserves and potential to supply markets.
Notching the fifth largest reserves of 2P gas in Queensland is valuation accretive today from current $0.023 share price.
Its first commercial project, is being developed is the Blue Gum Gas Project, near Dalby in Queensland. This plant will supply 25PJ of natural gas per annum and is located within easy access to markets, and close to existing infrastructure.
Additionally, Carbon Energy has the potential to supply the growing overseas markets.
A key competitive advantage for Carbon Energy has been the development of its unique keyseam technology. This proven and highly controlled technology enables access to productive gas resources that were previously considered too deep or uneconomic.
It is also likely that capital and operating costs will be competitive with any new source of gas.
That the company is in discussions with potential industrial off-take partners to supply them with this new source of gas provides share price catalysts ahead.
Share price kickers
- Final submission to QLD Government by end of September 2014
- QLD Government approvals
- Secure off-take and Investment in the Project
- Commence Blue Gum Gas Pre-Feasibility Study
- Expand Resource holding through Joint Venture with QLD coal owners
- Generate revenue through licensing of technology
- Commence construction of Inner Mongolia project
The market cap. of around $29 million is undemanding given significant reserves and resources in QLD - compared to peers (CSG listed companies). On our estimates, Carbon Energy is now under-valued by a factor of 60% to 140%.
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