SW on Coal Seam Gas

1. `
18 August 2009 The Screen (d) +613 9640 3804 (m) 0406 425 550
(f) +613 9640 3800
Coal Seam Gas – not so “Girlie Gas” Reserves
Three years ago, I started writing about CSG to my clients. Since One of the more difficult tasks for investors is to work out how
then the sector has gone from being a side show in the local to value the gas in a field. The CSG space was less developed
energy market to a globally significant resource. in these metrics than traditional Oil and Gas, but has caught up
Don Voelte of WPL has tagged CGS as “Girlie Gas”, yet as the with tested 1-3P methodology and market credibility.
slide from Santos below shows, the CSG play is now up in size
to the NW shelf resource. In the past 18 months we have locals
such as Santos, AGL and Origin and foreign companies like
Petronas, Shell, BG and Conoco Philips all step up their activity
in this space. We now have 5 CSG sourced LNG plants being
targeted to be built in Gladstone over the next decade (of which
really only 1 maybe 2 will be feasible) and enough gas to replace
Eastern seaboard coal fired power stations.
In recent corporate transactions we have had a wide range of
valuations when you compare the trading multiples of
enterprise value (EV) over the types of reserves (2P or 3P).
Comparisons are difficult, due to the nature of the market at the
time and the strategic value of assets varying substantially.
This is the current valuations we ascribe to the CSG players:
Coal Seam Gas – Key Metrics
CSG is nearly 100% CH4 – Methane. The gas out of the NW
Shelf has a mix of Propane and Butane in there so it burns
“hotter”. The gas is usually low in CO2 and is a winner in the
post carbon credits trading world. The gas exists in coal along
the natural cleats and fractures. It usually sits under pressure
from water and flows once the cleats have been suitably
fractured and the seams dewatered. The difference is as follows:
Our Top Picks in the Sector
AOE – In my “Ten stocks for Ten Years” note back in May.
The largest pure CSG play left on the bourse – for much
Here is a quick (and not exhaustive) list of key attributes for longer? Rumours of Shell and/or the Chinese have been getting
CSG projects to help assess where the value is: louder.
Depth (of Coal) BOW – Fast tracking the process in proving up reserves. In the
Coal Seam Thickness above graph you will see 3P value assigned but the company
Gas Content now needs to convert to 2P. A more aggressive buy than AOE.
Gas Saturation Like AOE it may not be here in 1 year’s time.
Coal Permeability
MPO – An underperformer in the current market. Sold off it’s
Drilling customisation
NSW assets to AGL. Has QLD CSG but the real sleeper is the
Water Management (Quality, salinity, volume etc)
Shale gas potential in Quebec – a 2010 story to watch.
Proximity to pipelines/electricity grid/services
For detailed research then please call.
The Advice contained in this document is general advice. It has been
1.
prepared without taking account of any person’s objectives, financial
situation or needs and because of that, any person should, before acting on
Regards
the advice, consider the appropriateness of the advice, having regard to the
client’s objectives, financial situation and needs. If the advice relates to an
Colin Campbell
acquisition or possible acquisition of a particular financial product – the Investment Adviser Licensee Representative Wilson HTM Ltd
client should obtain a Product Disclosure Statement relating to the product (Declaration: I have holdings in STO, AOE, BOW & MPO)
and consider the statement before making any decision about whether to
acquire the product. This communication is not to be disclosed in whole or
part without Wilson HTM’s prior consent.