Emerging gas developer Leigh Creek Energy (ASX: LCK) has upgraded the resource estimate of its namesake syngas project in South Australia to reserve status, confirming it as one of the biggest undeveloped and uncontracted gas reserves in eastern Australia.
The company emerged from a trading halt this morning to unveil the highly anticipated reclassification from a 2C contingent resource to a 2P (proven and probable) reserve of 1,153PJ, which is equivalent to 1.1 trillion cubic feet.
This upgrade is considered a direct result of the success of the recent pre-commercial demonstration plant at the project, announced last month.
The reserve was independently certified by US-based engineers MHA Petroleum Consultants and based on data from the 2018 Australian Energy Regulator report, it now represents one of eastern Australia’s largest undeveloped and uncontracted gas reserves – on par with mining giant BHP’s (ASX: BHP) east coast 2P gas reserves.
According to Leigh Creek Energy, the reserves within its Leigh Creek project are approximately the same size, on a 2P reserve basis, as the entire Cooper Basin.
“Furthermore, the company holds a larger 2P reserve than the Otway, Bass, Gunnedah, Clarence-Moreton and Galilee Basins combined,” it stated.
“This independent confirmation and certification of such a large 2P energy reserve means that Leigh Creek Energy can further advance with its negotiations with potential joint venture partners on investment structures and the full-funding solutions for a commercial facility,” Leigh Creek Energy executive chairman Justyn Peters said.
With the looming threat of a gas shortage in Australia’s east coast, and existing gas reserves not expected to satisfy demand from as early as 2022, this is encouraging news for both the company and Australia’s gas market.
“Full-scale operations at the Leigh Creek energy project presents a fantastic opportunity for the company and considerable value for shareholders,” Mr Peters said.
The company also noted that the reserve estimate has the potential to increase over time as more information is derived from further drilling, seismic work and production testing.
Pre-commercial demonstration success
Synthesis gas, or ‘syngas’, is produced through in-situ gasification, the chemical process of converting coal to a gaseous form.
In mid-February, Leigh Creek Energy hailed the recent pre-commercial demonstration of its syngas plant, located in the Telford Basin in northern SA, a “great success”.
The demonstration plant, which was initiated last October, managed to produce all targeted commercial gases with commercial flow rates from a single gasifier.
According to the company, the 2P reserve certification confirms that the gas at the project is of “considerable value” and has been independently certified as suitable for a commercial project.
Leigh Creek Energy also pointed to Origin Energy’s (ASX: ORG) recent sale of the Ironbark gas project in Queensland to Australia Pacific LNG, which it said has set a new benchmark price for gas transactions currently uncontracted and still in development, at $231 million or $1.79 per gigajoule.
Ironbark’s 2P coal seam gas reserves are almost 10 times smaller than Leigh Creek’s reserves.
“While there are multiple financial data points to consider in any transaction, based on the transaction metric of acquisition price to 2P reserves alone, this would potentially provide Leigh Creek Energy with an implied valuation that exceeds $2 billion,” the company stated.
Dual commercial pathway
Late last year, Leigh Creek Energy confirmed urea-based fertiliser products as its chosen pathway for a commercial syngas operation.
However, today it said given the size and quality of its asset, the company could potentially combine this option with the sale of syngas into the east coast gas market, with the capacity to enter both markets simultaneously.
Leigh Creek Energy has confirmed it is in active discussions with both financial and strategic partners to execute both strategies.
“The company is working through negotiations with over a dozen gas purchasers who are seeking a material amount of gas supply, while we progress the dual path and scoping aspects of a compelling fertiliser strategy,” Leigh Creek Energy managing director Phil Staveley said.