Blue Energy ready for next stage of Sapphire gas project testing

Blue Energy (ASX: BLU) is set to commence the next stage of its Sapphire gas project pilot well production test program in Queensland, with results to help establish the project’s capacity to fill a number of gas supply agreements.

The Sapphire pilot program is currently coming to the completion of a key pressure build up process.

The company is also wrapping up repair work on an oil cooling pump and once that is completed production testing is expected to re-commence by 3 November.

The initial stages of the pressure build up survey, which is assisting Blue Energy to further assess resource levels and potential commercial flow rates, commenced on 9 August and ran through to 26 August.

The main objective of the test was to assess pressure connectivity between the Sapphire 5 and Sapphire 6 pilot wells.

Blue Energy then commenced a dewatering program in late August with all lateral gas production wells remaining shut in.

This was designed to repressure the coal faces and attempt to alter the relative permeability of the coal in preference to gas rather than water. The aim was to flood the zone with gas and push back any in-situ water in the coal formation.

Blue Energy’s management believes enhanced relative permeability should then result in optimised gas flow.

Reserves and resources upgrade

Blue Energy enters the next stage of its Sapphire development program boosted by the knowledge that it is continuing to grow its reserves and resources numbers.

In early October, the company announced an increase in its 2P and 3P gas reserves to 91 petajoules and 287 petajoules respectively, with 2P reserves jumping by 36% and contingent resources by 19%.

Importantly, these numbers increased the Sapphire 2P reserve figures to 80% of the volume required under a non-binding memorandum of understanding between Queensland Pacific Metals (ASX: QPM) and Blue for the supply of 112 petajoules over 15 years.

Most notably, the contingent resources for Sapphire were increased to 256 petajoules, bringing the aggregate 3P+2C gas resource in Sapphire to 543 petajoules of recoverable gas, enhancing its ability to fill the QPM requirements.

R&D funds

Blue Energy’s funding for its Queensland activities was recently boosted when it received an initial payment of $275,425 from the Australian Tax Office (ATO) as a rebate for its research and development eligible activity expenditure at Sapphire.

This initial R&D claim was accepted by the ATO as it represented the Sapphire pilot drilling planning phase expenditure incurred in the 2021-2022 financial year.

Blue is now expecting a larger return after it lodged claims with Austrade and the ATO based on the large volume of drilling activity the company has undertaken.

Origin and Blue refresh supply agreement

Blue Energy obtained further positive news in the September quarter when it refreshed an existing non-binding heads of agreement with Origin Energy (ASX: ORG) for the supply of up to 300 petajoules of gas to the Wallumbilla gas hub over 10 years from the company’s Northern Bowen Basin ATP814 coal seam gas tenure.

The original agreement was executed and announced to the market on 19 March 2021.

The terms of the agreement renewal are similar to those of the original March 2021 agreement, with Blue to supply between 20 and 30 petajoules per annum over 10 years, with a 2027 indicative start date.