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Reserves boost for BG’s CBM-LNG

BG Group is primed to expand its $15 billion Queensland Curtis coal-bed methane (CBM) to liquefied natural gas (LNG) export plant after reporting a huge rise in its Australian gas resources

The UK firm says its gas resources in Australia have leapt from about 5 trillion cubic feet (cf), when it acquired its interest in Queensland Gas (QGC) four years ago, to more than 25 trillion cf today. Another 1 trillion cf of supplies are committed under a deal with a third party.

The firm’s chief executive, Frank Chapman, pointed to the early success with a deep gas-sands play in the south of the Bowen basin, underlying the Surat basin, where BG has identified 2.3 trillion cf of potential gas resources. The group drilled two successful probes in the play last year, while a third is being drilled and a fourth is planned later this year.

Local subsidiary QGC is pursuing three other resource plays in Australia, including its CBM – known locally as coal seam gas – exploration work in the Surat and northern Bowen basins and its shale-gas exploration work with Drillsearch Energy in the Cooper basin. All four represent potential new supply sources for the expansion of Queensland Curtis LNG project, Chapman told investors.

But the timing of the expansion remains uncertain. Chapman said that while cost-efficiency factors point to the logic of building a third LNG train immediately following the first two, the timing of a go-ahead for an additional production unit would depend on how quickly BG firmed up gas resources. That will become clearer over the course of this year.

BG is on schedule to start exports from the 8.5 million tonnes a year (t/y) Queensland venture in 2014. Sales contracts for LNG total 10 million t/y, signaling market demand for an expansion, say analysts.

BG is accelerating its drilling programme in Queensland and 11 rigs will be operating by mid-2012, up from four last year. It aims to drill 40 to 50 wells a month at peak. More than 700 wells have been drilled out of a total of 2,000 required for the project.

Chapman said the project offers strong economics, which will yield gross revenues of around $5 billion a year at an oil price of $90 a barrel.

Elsewhere, the Santos-led Gladstone CBM-LNG venture in Queensland revealed a smaller than expected rise in gas reserves for 2011, which it blamed on delayed drilling, as well as work on CBM wells as a result of flooding last year. Some analysts say the latest flooding, in early February, will exacerbate market concerns that the rate the venture is adding to reserves may be insufficient to underpin its project.

Last year, the GLNG venture’s proved plus probable reserves increased by just 5.2%, which Deutsche Bank claimed is well below expectations. Deutsche Bank noted that the growth rate was significantly below the two previous years’ additions of 142% and 23%. But, the bank says the required rate of reserve expansion of 6.9% a year to meet the end-2015 reserves target of 7,000 petajoules remains achievable.

Deutsche Bank added that Santos’ interests in the Cooper basin last year experienced the strongest reserves growth in a decade, signaling its capacity to meet the 16 billion GLNG venture’s gas-feedstock requirements.

Origin Energy, meanwhile, says its CBM operations at its Australia Pacific LNG venture in Queensland were largely unaffected by the latest floods, while both Arrow Energy and BG reported no effects. The three ventures’ CBM fields lie mostly to the east of the flooded area, near Roma.

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