Leigh Creek Energy reveals potential for further gas reserve upgrades as commercialisation approaches

Leigh Creek Energy (ASX: LCK) has revealed additional information relating to the maiden gas reserve certification of its namesake syngas project in South Australia, highlighting the potential for further reserve upgrades in the future.

This is encouraging news for the company as it draws closer to locking in strategic partners and offtake deals to commercialise the project, designed to use in-situ gasification to process deep coal resources into synthesis gas, or ‘syngas’.

The emerging gas developer announced the reclassification of its wholly-owned project’s 2C contingent resource to a 2P (proven and probable) reserve of 1,153 petajoules in March.

This milestone effectively confirmed the project as one of the biggest undeveloped and uncontracted gas reserves in eastern Australia, measuring about the same size the entire Cooper Basin on a 2P reserve basis.

In an announcement today, Leigh Creek Energy disclosed that the current Petroleum Resources Management System (PRMS) 2P gas reserve, verified by independent engineering firm MHA Petroleum Consultants, only accounts for 31% of the available JORC-compliant coal resource.

The PRMS reserve certification was partly based on the successful production test of Leigh Creek Energy’s pre-commercial demonstration plant, which was officially confirmed in February.

The demonstration was only undertaken on the Telford Basin Main Series formation, which has a JORC-compliant indicated resource of 93 million tonnes of coal.

However, the Leigh Creek Energy Project (LCEP) is estimated to contain a total resource of 301.2Mt of coal within the Telford Upper, Main and Lower formations, of which 186.6Mt (or 62%) relates to indicated resources and 114.6Mt (38%) for inferred resources.

This means there is a further 93.6Mt of indicated resource in the Upper Series and 114.6Mt of inferred resource in the Main and Lower Series that were not subject to the demonstration, where the certified reserves were derived.

“These calculations indicate that there is further scope for the LCEP’s gas reserves to be increased over time, as more exploration drilling and seismic work and production tests are undertaken on the Upper and Lower Series coal formations within the Telford Basin,” the company stated.

Strategic partners

Last week, Leigh Creek Energy announced its commercialisation plans were progressing as negotiations with multiple potential strategic partners reached advanced stages.

The company said while it had been in talks with more than a dozen potential partners prior to announcing its maiden gas reserve, many required an independent reserve report and production data from the LCEP Pre-Commercial Demonstration before they would progress negotiations on a commercial basis.

Upon receipt of the 2P reserves and a review of the production data, Leigh Creek Energy said its partners have now applied for regulatory approvals to move the project forward.

Once these approvals are granted, negotiations are expected to be formalised and announced to the market.

The company said it was also engaged in other commercial discussions, which vary from gas sales deals and heads of agreement to Leigh Creek Energy’s willingness to accept an investment, strategic funding or project finance.

Offtake interest

The company’s has chosen a dual commercial pathway for the LCEP, involving the production of high-value ammonium nitrate products such as fertiliser and industrial explosives and potentially domestic natural gas sales.

In last week’s announcement, it said discussions with offtakers and gas purchasers have progressed to the point that where it has engaged legal counsel to draft and document commercial arrangements.

While the identity of these potential customers are yet to be revealed, Leigh Creek Energy said they were companies with considerable assets in Australia and Asia and would require gas to service power, industrial needs and feedstock for major industrial applications.

Demonstration plant lease

In January, the company announced it had signed a heads of agreement with South African resource and technology company Africa Carbon Energy (Africary) for the lease and option for sale of Leigh Creek Energy’s Pre-Commercial Demonstration plant.

Under the agreement, Africary plans to use the pilot plant for its own Theunissen ISG project in South Africa.

In last week’s update, Leigh Creek Energy said Africary will head to Adelaide in June to further its commercial understanding of the plant and discuss its potential interest in the project.