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Sky’s the limit for unconventional gas

With coal seam gas making up a larger part of Santos’s reserves, 2012 appears to be shaping up into the year for unconventional gas plays to shine.

Coal seam gas and unconventional gas players can look to Santos’ (ASX:STO) reserves report released on Wednesday, which shows CSG making up an ever increasing part of the major’s reserves pie.

While Santos’ proved and probable (2P) reserves fell by 81 million barrels of oil equivalent (MMboe) from the previous year to 1364MMboe, the 30%-owned Gladstone liquefied natural gas project increased its 2P reserves from 5009 petajoules in 2010 to 5268 petajoules in 2011.

This was despite wet weather delaying drilling and connection activity during the year.

A contingent resource of 3277 petajoules provides further upside for GLNG reserves to grow.

The steady increase in CSG reserves and resources provides junior players with the confidence that further exploration work on their assets would yield similar results for them.

Red Sky Energy (ASX:ROG) is waiting on a decision from the New South Wales Department of Trade and Investment, Resources and Energy to green light its Talma pilot well, which could provide an upgrade to its current proved, probable and possible (3P) reserves of 114 petajoules.

Westside Corporation (ASX:WCL) has also been delivering results with its Bowen Basin program, completing and connecting two new dual lateral wells while recording production of 800,000 cubic feet of gas per day from the new Pretty Plains-10 well.

Other players are also looking to grow with Blue Energy (ASX:BUL) looking to increase its 3P reserves from 75 petajoules to 3000 petajoules in 2014 while Metgasco (ASX:MEL), which reached its first binding gas sales agreement in January, continues to better define its CSG prospectivity through further core wells.

Lower costs, higher production

Adding to this positive momentum is Santos’ belief that the experience and efficiencies from repeated drilling has served  to bring down drilling times, which serves to drive down well costs.

As evidence, it said that historical data for drilling of pilot wells in its Roma CSG field showed a greater than 50% reduction in drilling days in a year.

Refinement of completion types has also resulted in increases in unit production.

Shale and tight gas

The good news is not restricted to CSG either. Shale and tight gas resources are also expected to benefit with Santos pointing to the Cooper Basin as a key beneficiary.

It noted that major thickness of gas saturated rocks are present while the existence of local gas production and its own Moomba processing infrastructure provided opportunities to put gas to market.

The large number of conventional wells that have intersected shales in the Cooper also provide a source of data that could help in the planning of future shale and tight gas wells.

Beach Energy (ASX:BPT) has already estimated a contingent shale gas resource of 2 trillion cubic feet based around its successful Holdfast-1 and Encounter-1 wells, which they say does not include the upside potential in the rest of PEL 218.

Beach is also drilling two new unconventional exploration wells this quarter – Marsen-1 and Davenport-1. Strike Energy (ASX:STX) is participating in both wells with 50% and 35% respectively.

Other Cooper Basin players are also looking with keen interest at their shale and tight gas potential with Drillsearch Energy (ASX:DLS) reaching a shale gas alliance with QGC over the highly prospective Nappamerri Trough Shale Gas Fairway while Senex Energy (SXY) has embarked on a three well exploration program.

It is still early days, especially for shale gas, but the momentum is clearly building and more can be expected out of the junior players in the coming months.