Glenaras Gas Project

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The Glenaras Gas Project is contained within ATP 2019 (formerly ATP 529) in the western portion of the Galilee Basin and is highly prospective for coal seam gas (CSG) with an independently certified 3C Contingent Resource of more than 5,300 PJ.

The Glenaras Gas Project was designed to to evaluate the quantity and quality of coal seam gas in the Galilee Basin Betts Creek and Aramac Coal Beds.

The Galilee Basin, and ATP 2019 in particular, has had significant historic exploration activity, which commenced in 1992. The result is an excellent geological database across the entire permit. The geological database includes information on regional structure, coal thickness and CSG properties over the breadth of the permit.

A total of 12 coreholes, two 5-spot production pilots and four step-out production wells and over 700 km of seismic data have been acquired over the permit to date. The following table provides an average of the Betts Creek Coal properties across the core area within the permit.

Coal depth (m) 900 – 1,000
Net coal (m) 19
Gas content (m3/t) 5.3
Permeability (md) 45
Resource concentration (bcf/km2) 5.2

Galilee believes this permit has the potential to become a material new source of gas supply for the east coast of Australia. As observed by a variety of market participants, the Company shares the view that the Eastern Australia gas supply market is structurally short with demand to more than triple with large scale LNG projects GLNG, APLNG and QCLNG all online in the coming months. This provides a significant opportunity for a new entrant to build a significant supply position.

In September 2015 Galilee announced an upgrade of the coal seam gas Contingent Resource estimation following a review by MHA Petroleum Consultants LLC.

As a result of the step out drilling and pilot production testing completed in the permit the 2015 Contingent Resource estimation completed by MHA Petroleum Consultants LLC (MHA) covers a significantly larger area than previously assessed. This includes data from 8 step out wells as well as the pilot and pressure monitoring data from the Glenaras Pilot production completed subsequent to the 2011 SRK Consulting Report.

MHA have attributed the increase in the Contingent Resources to Galilee’s net equity interest (being 100%) in ATP 2019 using the deterministic method to prepare the estimates of the Contingent Resources as at 31 August 2015.

The updated ATP 2019, 2015 Contingent Resource estimation increases contingent resources by 868% (2C) and 388% (3C). The following table summarises the ATP 2019 Contingent Resource.

ATP 2019 Units 2015 (MHA)
Low estimate Contingent Resources (1C) PJ 307.8
Best estimate Contingent Resources (2C) PJ 2,507.5
High estimate Contingent Resources (3C) PJ 5,314.1

Source: MHA Petroleum Consultants LLC (2015) * See Notes to Table below

Any successful CSG development requires three key parameters to be an economic success.

  • Resource Concentration – this is a function of gas content and thickness. In contrast to most wells drilled in the Basin, the gas content in the coals within ATP 2019 is very good. Combined with net coals in excess of 20 metres thick, this provides excellent resource concentration across the permit area.
  • Productivity – this is a function of thickness and permeability. The coals in ATP 2019 appear to have excellent permeability with an average permeability from all tests in the permit of 45 md. Visual evaluation of core and history matching from pressure data at the Glenaras Pilot support this excellent permeability.
  • Pressure drawdown – in order for any CSG project to work, the pressure in the coal must be reduced by dewatering the coal. This has not been achieved in ATP 2019 as a result of well design. Poor well design has allowed connection to other higher permeability water bearing units. The net result being that the water produced to date has predominantly come from these sandstones, preventing pressure drawdown in the coals.

The previous pilot well designs have failed to achieve sufficient pressure drawdown in the coal.  This is primarily due to the application of fracture stimulation.  The induced fractures have grown into interbedded high productivity water bearing zones, as clearly observed in the Rodney Creek 8 pressure monitoring well at the Glenaras Pilot.

As a result the pilot production has been dominated by water production from these sandstone units, and not from the coals, which is required to draw down the pressure in the coal. Despite this, sustained gas production was achieved in all Rodney Creek pilot wells, with flow rates of up to 200 Mscfd from some of Glenaras wells during testing in 2011.

The strong well interference and communication has clearly demonstrated excellent permeability and support the company’s view that these coals do not require fracture stimulation to be commercially successful.

 

Moving forward – converting Resource to Reserves.

The core focus of the company is to carry out the work required to convert a substantial portion of this Contingent Resource into Reserves. The key missing element to achieve this is the achieving commercial gas rates from the pilot.

In Q3 2015 Galilee completed a workover program which focused on the five existing Glenaras pilot wells. The Glenaras Gas Project – R1 pilot is aimed at recompleting a single Betts Creek coal seam, the uppermost R1 seam, (Figure 2) without accessing any of the neighbouring water bearing sands. Direct connection to these water sands via poor completion methods such as fracture stimulation has been the main cause of poor pilot production results under previous operatorship. The aim of this new test is to:

  • Conduct a low-cost test to isolate a single coal and attempt to produce and drawdown the coal below critical desorption pressure, achieving gas flow.
  • Trial an alternate, more reliable artificial lift system.

Importantly on achieving the requisite gas rate, results can be scaled to the full Betts Creek section to enable first Reserves booking.

The Glenaras Gas Project – R1 pilot was completed and put on production in late October 2015. The project was completed on time and budget.

The five wells in the pilot were flowed under a slow controlled drawdown, with each of the five pilot wells fully drawn down to coal depth by mid-January.  The performance of the wells clearly demonstrated that the completion design being trialled had not connected the wells to the surrounding water bearing units. This was an extremely significant step forward for the project allowing drawdown of the coal only for the first time.  In addition, the new rod pump artificial lift system proved to be an extremely successful.

The wells have now been producing at that drawdown for approximately three months, coincident with where reservoir modelling of the pilot indicates first gas may be observed.

The R1 seam has a lower permeability in this Glenaras pilot area requiring time is required to drawdown the coal over a sufficient area to build gas rates.  With initial gas desorption and positive casing pressure evident in each well the Company investigated drilling a lateral well through the middle of the pilot to expedite results.

Expert advice was sought and after extensive modelling the Company contracted to drill the lateral well with the expectation of accelerating drawdown.  Two existing vertical wells were utilised for the lateral with the kick-off lateral exiting from Glenaras 5 wellbore and intersection of the horizontal well into Glenaras 3. The lateral commenced at Glenaras 5, drilled past Glenaras 4 and intersected Glenaras 3 (see figures below).

Glenaras 5-Lateral well Section

Glenaras Well Field_Aerial

The Glenaras 5 lateral well is now producing at full drawdown through the separator and is still producing strong water rates along with small, but continuous, gas flow. Importantly, we are seeing strong pressure depletion in the coal at the vertical observation well Glenaras 4, as well as pressure depletion at the outer Glenaras 2 and 6 wells. The strong drawdown at Glenaras 4 highlights the dominant master cleat system in the Betts Creek coals where these master cleats have a strong orientation in the northwest – southeast direction.

The horizontal well was drilled with excellent geological control and was able to stay in the bottom section of the R1 coal as planned. A total of 400 m of lower R1 coal has now been opened for production in the horizontal well and will be drawn down from the Glenaras 3 vertical well. During drilling operations, excellent pressure responses were seen at the central Glenaras 4 well (located approximately 40 m from the horizontal well), confirming excellent directional permeability in this coal and exceeding the Company’s expectations.

These results are important for development planning and establish that excellent connection through the coal reservoir over large areas has been achieved, meaning that fewer wells will be required in a future development than previously anticipated. The strong drawdown at Glenaras 4 also confirms water production is coming from the coal only, and not from neighbouring sandstones which is a key positive result for the Project.

The artificial lift pumping system continues to perform superbly, overcoming what was a major issue for the previous Operator in the pilots it drilled in the Permit. The vertical production well, Glenaras 3 has also produced minimal coal fines, a common issue with lateral wells, and the integrity of the lateral section of the well remains strong. This result confirms the completion design and bodes well for a development where lateral well technology is utilised.

All production and pressure monitoring data has now been submitted to MHA Petroleum Consultants, the Company’s independent reserve’s certifier. MHA will now model the high quality data gathered to date to assess the forward plans for the Project.

While gas rates are not yet at a level that would enable a Reserve booking, the modelling will assist in determining the additional time or further steps needed to achieve this result.

* The estimates of contingent resource estimates were determined by Mr Tim Hower, a full time employee of MHA Petroleum Consultants LLC., Denver, Colorado, USA, on 1 September 2015, in accordance with Petroleum Resources Management System guidelines. Mr Tim Hower is a Licensed Petroleum Engineer in the State of Colorado, a qualified person as defined under the ASX Listing Rule 5.41 and has consented to the use of the contingent resource figures in this announcement.