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Empire Oil & Gas To Test 24 Trillion Cubic Feet In Place Shale Gas Potential In The Perth Basin

Empire Oil & Gas (ASX: EGO) will test the shale gas potential of the Lower Cattamarra Coal Measures in the onshore Perth Basin, which could host 24 trillion cubic feet of in place gas in EP 389.

RPS Energy Services had released an independent study that found the Upper Cattamarra, which hosts the conventional Red Gully and Gingin West reservoirs, could have un-risked, undiscovered gas-in-place potential of between 40 and 140 billion cubic feet per square kilometre

This is comprised predominantly of adsorbed and solution gas with minimal free gas being present.

Taking into consideration areas of low volumes and depth limiting factors such as excessive drilling costs below 5,000 metres, Empire estimated there could be total undiscovered gas-in-place of 24 trillion cubic feet present in the interbedded shale/thin tight sand section in the Lower Cattamarra.

Most of this is located along the 60 kilometre Gingin to Bullsbrook Trend, which also contains existing leads and prospects for conventional gas targets.

Testing for potential

Empire is planning to shoot the 100 square kilometre Wannamal 3D seismic survey, which will be helicopter supported to minimise its environmental impact.

This will be followed by the drilling of the Wannamal and Gingin Deep prospects into the potential Lower Cattamarra section.

In addition, once the conventional D Sand gas condensate reserves at Gingin West-1 are depleted, the company plans to deepen the well into the Lower Cattamarra section.

Cores will be cut through the Lower Cattamarra section of these wells for further shale gas studies along with a full suite of electric logs suitable to evaluate the shale gas potential of the Lower Cattamarra and provide calibration with the cores.

Other Perth Basin unconventional prospects

Beyond EP 389, Empire also holds stakes in EP 432, EP426 and EP368, which have unconventional gas objectives within the Triassic aged Lower Kockatea Shale and Permian aged Carynginia Formation and Irwin River Coal Measures.

These are the same targets that Norwest Energy (ASX: NWE) and AWE Limited (ASX: AWE) are testing with their respective fracture stimulation operations at the Arrowsmith-2 and Woodada Deep wells.

EP426 and EP368 are the subject of a farmout with Origin Energy where the 100 square kilometre North Erregulla 3D seismic survey is to be completed in the first quarter of 2013.

Conventional gas condensate progress

Empire has received A$11.34 million as its 68.75% share (plus GST) of the A$15 million payment from Alcoa (NYSE: AA) for the construction of the Red Gully Gas Processing Facility in the Perth Basin.

The payment is the second tranche of a staged A$25 million prepayment to the joint venture to underwrite the cost of the facility, bringing the total payment made by A$20 million.

A third A$5 million tranche may be paid by Alcoa for the commissioning of the Red Gully plant if required.

The prepayment is part of the first part of the gas supply agreement reached with Alcoa with the second, larger part being a standard gas sales agreement.

Earthworks at the Red Gully plant are expected to start in the week beginning Monday 13 August 2012, subject to one final regulatory approval from the Western Australia Department of Mines and Petroleum.

The Red Gully Gas and Condensate Processing Facility is capable of processing 10 million cubic feet of gas and associated condensate from the Red Gully-1 and Gingin West-1.

Condensate produced will be sold to the BP Refinery at Kwinana, Western Australia.

The plant is expected to be commissioned late 2012.

Gingin West-1 flowed 7.5 million cubic feet (MMcf) of gas and 375 barrels of condensate per day during testing while Red Gully-1 flowed 12MMcf of gas and 832 barrels of condensate.

Partners in EP 389 are Empire (68.75%), ERM Power (21.25%) and Wharf Resources (10%).

Analysis

While Empire Oil & Gas is already progressing towards becoming a gas and condensate producer before the end of 2012, confirmation of a large unconventional gas resource will add further value to its assets.

Investors already have their eye on the Perth Basin where Norwest Energy has had early successes with its Arrowsmith-2 well and it will not be a stretch to draw some of that towards Empire's assets.

Norwest and AWE's work will also go a long way towards de-risking EP 432, EP426 and EP368 while the presence of the producing Gingin West and Red Gully reservoirs in the Lower Cattamarra Coal Measures is a positive for that formation in EP 389.

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