Ann: Southern Cooper Basin Operations Update, page-7

It's saying the rank of the coal here is significantly higher than nearby well data suggested. Remember how anatol was saying there was no chance for gas since the rank was only 0.6% and that's immature for hydrocarbon generation in most coals?

Now they have the vitrinite reflectance data back and for some reason the rank is actually higher here, 0.7 to 0.8% which is well into the CSG generation window for all coals. I thought there was something there that didn't add up, and this explains it.

It's actually bad news in some ways though because at 0.6% I thought the coals could be fully saturated (because inertinite-rich coals of that rank have low storage capacity) but if it's 0.7-0.8%, that is unlikely. Higher rank coals can store a lot more gas and the number for gas content that I backed out of a previous presentation, 8m3/t, is not enough to fully saturate these coals.

Then they confirmed this with their statement about saturation ">30%." Unfortunately they are very vague on exactly what the saturation is, which is annoying because after permeability it's the single most important factor in whether this will work.

They seem to be assuming around 40%, and that 30% is the figure for desorbed gas only, and they are implying there is lost gas on top of that. If they pressured cored all of these (as somebody said here previously) there shouldn't be any lost gas at all, which is worrying.

Basically I think at 50% saturation this might work, but at 30% my gut feeling is that it won't because of the extra water handling costs and delays to first gas. At 30% saturation they are probably going to need to drop the reservoir pressure by about 90% to reach CDP. Given how thick the coals are, that is a gargantuan amount of water they need to shift, and then dispose of. And that's before they get any gas flow at all. I have my doubts that 2 bcf/well will be economic under those sort of conditions (I agree with their recovery per well assumptions, just not sure they fully appreciate how much it's going to cost to deal with that much water).

So that saturation number becomes extremely important. Ultimately they won't know until they get the production tests going.