pure speculation

Posted by Forlan on ESG thread

http://www.theaustralian.news.com.au/story/0,25197,26195146-18261,00.html

Red Sky hopes to ride coal seam boom

JUST when the coal seam gas story had seemingly reached a natural plateau -- all the largest projects in Queensland being bagged by the majors and now we're waiting for the downstream part to begin -- along comes Red Sky Energy (ROG).

The company listed in early 2007 backed by Canadian interests with a hydrocarbon remote sensing technology, but soon lost its way.

Last month the board brought in Rohan Gillespie, whose track record includes being chief operating officer for the coal seam gas (or CSG) business at BHP Billiton (BHP).

His strategy is simple: most of the obvious CSG plays in Queensland are far too expensive for a junior looking to spend its money sparingly. But at the same time there are several global players in the liquefied natural gas business -- France's Total and EDF-Suez, along with Houston-based Marathon Oil, BP and Japan's Inpex -- which so far do not have a foothold in the Queensland CSG sector. And they very much want one.

So his plan is twofold: first, to find CSG resources at a modest cost by pegging ground that has been overlooked and, second, to dress them up to gain the attention of a large company that wants to use the gas to make LNG.

After all, those global companies haven't been left many entry points by the early birds such as BG Group and Malaysia's Petronas.

Back in July, Red Sky bought Gillespie's private company, which has 1700sqkm of ground in the Surat Basin in Queensland. Then it did a farm-in with Central Petroleum (CTP) covering some of that junior's permits in the Red Centre, and which could yield Red Sky several trillion cubic feet of CSG -- in the event of a discovery being made.

Now it has locked up 71,600sqkm in the NSW section of the Surat Basin and the Eromanga Basin, including ground close to where Eastern Star Gas (ESG) is drilling for CSG.

The other part of Gillespie's strategy is that, once an investment decision is made on the first LNG plant to use CSG and to be built in Gladstone is made, the whole sector will be re-rated. Red Sky wants to be lifted on that tide.

The other CSG stories that might be worth keeping an eye on are based abroad.

We're waiting for L&M Petroleum (LMP) to pull off its purchase of ground in New Zealand that, it says, could contain 15,000 petajoules of CSG. Certification of gas reserves at one project is under way, gas that could be used to support a new power station. This is in Southland province, which has big potential power users, including the world's largest dairy factory and the Rio Tinto (RIO) aluminium smelter at Bluff which consumes 15 per cent of NZ's total electricity production. Six South Island cities have existing town gas networks, including nearby Invercargill, and they are also potential customers. A capital raising of "tens of millions of dollars" is planned.

The other one to keep an eye on is European Gas (EPG), which is already producing CSG in France and will be working next year with that country's main electricity generator.

European gas prices are low at present at about E2.80 per thousand cubic feet, but forward pricing for 2011 is sitting at E11. For the past five years, European gas prices have averaged more than five times what producers get here.