Well Test Update For State Gas Limited (ASX:GAS)

State Gas Limited (ASX:GAS) today announces the commencement of production testing at two lateral Rougemont-3 wells which connect to the vertical Rougemont-2 well, part of its 100%-owned Rolleston-West Project. The test has confirmed the early gas production potential in this area which borders State Gas's Reid's Dome Gas Project (PL 231).

State Gas also holds the Rolleston-West permit (ATP 2062), covering an additional 1,414 km2 in central Queensland with highly prospective coal seam and conventional gas targets that aren't restricted by domestic reservation requirements. This enables integrated super-gasfield development and marketing, as well as economies of scale and flexibility in gas sales.

Production Update

State Gas Limited has begun production testing of the Rougemont 2/3 well pair. These wells connect to the vertical Rougemont-2 well, giving direct access to 2,400 metres of Bandanna coals under commercial production in Arcadia Valley.

Two lateral wells are currently de-watering to expose 130 meters below surface the Bandanna coals. Once exposed, these deposits will contain a substantial volume of natural gas.

Water levels have begun to recede, yet gas production is already running at an impressive rate - in excess of 350000 scf/day with the flowrate increasing between 15-20,000 scf/day (see Figure 1* below). Even though top coals remain underwater, this represents a major milestone for the company as this will provide its first significant amount of natural gas from its 100% owned Reid's Dome Project located in Central Queensland.

State Gas is also conducting production testing on its adjacent Rolleston-West Project under the recently issued ATP 2062 permit, an area eight times larger than PL 231, which offers highly prospective targets for CSG and conventional gas production.

Mid-2021 saw two wells drilled into ATP 2062's eastern arm to test Bandanna coals and their permeability (a good indicator for coal seam gas potential), which was reported at 395 meters per day (mD). Of these tests, Nyanda-4 proved more successful than expected with 5000 cubic feet per day produced.

As a positive early indication of permeability, the production test has exceeded initial expectations and should continue producing encouraging results in the coming months. Therefore, the company is now considering how quickly reserves can be declared to finance construction of an approximately 20 km pipeline connecting Wallumbilla to Gladstone Pipelines. After consulting with a reserve certifier this month, decision on exact next steps for this dry season will be made.

CNG Project Update

State Gas Limited ("State Gas"), the 100% owner of Reid's Dome gas project (PL-231) located 30 kilometres southwest of Rolleston in central Queensland, is pleased to report that production testing of its Rougemont2/3 lateral well has begun. This pair of interconnected wells provides access to 2,400 metres of Bandanna coals which are being exploited commercially nearby in Arcadia Valley.

The Company is making great progress toward its target of delivering first gas production from PL231 by March 2023. During this period, they have made notable advances in engineering design and are expecting to order critical equipment by December 2022.

According to the Company, construction of its relocatable CNG project compression assets from Reid's Dome to Rougemont is expected to start in February 2023. They believe the underlying project economics are attractive with an aim of selling into the spot market.

This will be an integral component of the Company's overall strategy to maximize the value of its gas endowments at Reid's Dome and Rolleston-West, taking advantage of favorable east coast gas market dynamics. The Company anticipates that its relocatable CNG project will produce nearly 1TJ per day of natural gas, which will then be sold into the spot market.

The Company is confident that its relocatable CNG project will not be adversely impacted by the recently announced price cap for natural gas, and its economics remain attractive. They anticipate increased volatility in the spot market will drive positive price effects and that once fully operational, operating costs will be neutral or below $12/GJ.

In addition, the Company is considering moving relocatable CNG compression assets from Reid's Dome to newly completed Rougemont wells if gas production remains strong. Doing so would enable them to generate positive cashflow from otherwise flared gas while still preserving conventional reserves at Reid's Dome for winter electricity needs after Liddell coal fired power station closes in April 2023.

Well Test Update

State Gas Limited (ASX:GAS) has released an updated well test update, reporting encouraging results from production testing of the Rougemont 2 and Rougemont-3 laterals. These laterals extend from the vertical Rougemont-2 well and give direct access to 2,400 metres of Bandanna coals - an extensive coal formation under commercial production in nearby Arcadia Valley.

State Gas has previously drilled a coal seam gas well at Nyanda-4 into this region of PL 231, where Permian coal seams extend north and centrally across the permit. These coals contain significant gas reserves; accordingly, State Gas chose this location for drilling its coal seam gas well.

State Gas' 100% owned Rolleston-West project includes dewatering and production testing the Rougemont-2 and Rougemont-3 wells in the eastern Bandanna coal measures. These interconnected wells will be utilized to assess coal permeability and determine if there is an abundant reserve of high quality, low carbon natural gas present.

This project is being constructed to supply approximately 1TJ per day of additional gas into the market, alleviating a current shortage on the east coast and mitigating price volatility. It is anticipated to generate a modest positive operating cashflow and eventually deliver an average annual net positive cashflow.

State Gas reports that dewatering activities have been successful and daily gas production has now surged significantly. This rapid increase in production confirms the excellent permeability of Bandanna coals as well as the potential for extremely high gas production from Rougemont pilot well.

The Company will now begin the evaluation of the area around Rougemont to assess any significant gas reserves and to quickly bring new supply onto the market. This is an essential step in mitigating any Eastern Seaboard gas shortage that could arise as a result of Government-imposed price caps.

The Company is confident that the Rougemont project will make a major contribution to Australia's energy industry. Not only will it provide high quality, low carbon natural gas for domestic consumption, but it will also serve as an agent of improvement in Australia's energy security.

Coal Measures Update

State Gas Limited is a Queensland-based company engaged in gas exploration and development within the Bowen Basin of Central Queensland, Australia. It holds 100% ownership interest in two gas projects: Reid's Dome (PL-231) Project and Rolleston-West (ATP 2062).

The Company is seeking to maximize the value of its gas endowment by bringing it into circulation, in response to shortages in the east coast domestic gas market. Furthermore, they have launched a carbon management initiative with minerals explorer Rockminsolutions Pty Ltd in the Buckland Basaltic Sequence that offers long-term secure sequestration of carbon through mineralisation.

Coal has been the primary energy source for over a century and remains important to our economy today, but its proven reserves have decreased by 75% in 30 years to approximately 471 billion short tons as defined by the US Energy Information Administration (EIA). According to estimates from various sources worldwide, total recoverable coal reserves now total approximately 1.16 trillion short tons.

Many nations have taken action to curb coal mining or reduce production in an effort to combat climate change. Notably, the United States recently prohibited new coal production.

This has had a devastating effect on coal supply, driving up prices for metallurgical coal and forcing some major producers to cease operations altogether. This shortage has created an acute shortage of coal in the country and is encouraging gas extraction from beneath coal seams.

To address this problem, the company has drilled two wells within its 100%-owned Rolleston-West (ATP 2062) permit, covering 1,414 km2 of potential land. The first well, Rougemont-1, was designed to examine whether coal seam gas (CSG) production could be viable in the eastern portion of the permit.

These wells were conducted on the Bandanna coal measures, which are currently under commercial production in Arcadia Valley (operated by Santos) and being prepared for development at Mahalo (run by APLNG). The results from these wells provide an initial assessment of contingent resources within ATP 2062's eastern area; particularly notable was a remarkable permeability result of 395mD for the primary Rougemont-2 seam.