Blue Energy and Origin agree to update gas sales deal
Blue Energy (ASX: BLU) and leading Australian gas supplier Origin Energy (ASX: ORG) have confirmed an existing non-binding, gas supply Heads of Agreement (HOA).
In March 2021, the two parties signed a HOA under which Blue Energy would supply up to 300 petajoules of gas to the Wallumbilla gas supply hub over a 10 year period.
The gas would come from Blue Energy’s Northern Bowen Basin ATP-814 coal seam gas developments.
Updated agreement terms
Blue Energy managing director, John Phillips, said the refreshed terms of this agreement reflects similar supply terms to the March 2021 agreement, with the potential upgrade to a future binding agreement requiring the construction of a Bowen Basin gas pipeline.
“The Federal and State Governments, for some time now, have jointly been funding a study into the Bowen Basin gas pipeline,” Mr Phillips said.
“The Governments engaged KPMG (along with GHD and NSAI) to undertake the study. Phase 1 and 2 of this study exercise have now been completed and have dealt with feasibility and commerciality of a pipeline from the Bowen Basin.”
Those studies have boosted Blue Energy’s confidence that a potential pipeline development is progressing in a positive manner.
The first phase of the study concluded that such a pipeline was feasible and unveiled several pipeline route options.
The second phase of the study, which was released in May 2023, concluded that there is a need in the east coast gas market for Bowen Basin gas and that “there is opportunity for government to support industry to enable the development of a pipeline that unlocks the Bowen Basin.”
Progress at Sapphire
In the meantime, the company continues to progress its Sapphire pilot testing project in permit ATP-814.
The company recently shut in the pilot program to allow it to conduct a pressure build up test.
This test is aimed at establishing well flow capacity, permeability and skin effects.
As part of its production planning studies, Blue has recommenced producing water from the Sapphire pilot with the lateral wells shut in to retain gas in the reservoir and increase contact with the productive cleat system.
Due to that activity, no gas is currently being produced to surface, while water production from the plot is currently sitting at around 60 barrels per day.
Gas production re-start
Assessment of the testing results to date has led Blue to re-program its restart of gas production.
The company was initially targeting a late September start-up, but following the receipt of new reservoir engineering advice it has been decided to extend the shut-in duration for a further week.
Blue is hopeful this will allow gas pressure to continue to build and enhance reservoir connectivity which, if successful, will allow for higher sustained gas production rates from the pilot upon the recommencement of production testing.
R&D claim progressing
Blue has received the first of two research and development (R&D) claims covering the 2022 Sapphire pilot drilling program with the company obtaining an initial sum of $275,425 from the Australian tax office as a rebate for the 2021/2022 component of the program.
A second (and more substantive) R&D claim covering the larger quantum of drilling activity is expected to be lodged with the ATO this week, following the provision of the 2023 audited accounts and finalisation of the 2022/2023 company tax return in the application.