Drilling is underway at Elixir Energy Limited’s 100%-owned Nomgon IX coalbed methane (CBM) production sharing contract (PSC).

Located in the South Gobi Desert in Mongolia, immediately next to the Chinese border, Elixir’s Nomgon IX CBM PSC covers an area of around 30,000 km 2 (over 7 million acres). This is a region that is exceptional in its combination of massive potential gas resources, minimal competing land uses, and a location right in the heart of Asia.

China is experiencing a rapid rise in gas demand. In large part, this shift is driven by air quality concerns in its major cities and legislative changes that have prompted a large-scale switch from coal to gas, along with an increase in renewable energy. Yet China is unable to produce enough gas itself—forcing it to import barrels to meet domestic demand.

This shortfall is being met by pipeline imports from Central Asia and Myanmar, as well as more pricey LNG imports along the coast.

Located on the Chinese-Mongolian border, Elixir’s PSC is exceptionally well-placed to supply China. In fact, it’s just 410 kilometres from China’s East-West pipeline.

The PSC has been touted as a “giant prospective gas resource” with an unrisked best-case recoverable prospective resource of 40.1 Tcf and a risked best-case resource of 7.6 Tcf.

The company is led by a management team and board with a history of CBM success, including former Santos executives Neil Young and Stephen Kelemen. What’s more, the chairman is Richard Cottee, the “godfather of Queensland coal seam gas” who famously took Queensland Gas Company (QGC) from a $20m-capped junior into a $5.8bn takeover play.

Cottee says the major de-risking task he faced in 2002 at QGC is similar to the one facing Elixir now.

“Elixir’s Mongolia coal seam gas (CSG/CBM) acreage appears to contain a large portion of gas-prone coal with acreage roughly equivalent to what QGC held in 2002, when QGC had a similar market capitalisation,” Cottee explains.

Current drilling program

The current drilling program will see Elixir drill two fully tested core-holes. It also has the option for a third.

The primary aim of the exploration program is the drilling of fully tested core-holes to determine the presence and thickness of coal, gas content and composition, and permeability. The results from these tests will feed into a contingent resource assessment next year. These core-holes are target ing Elixir’s developed CSG leads, which were defined by surface outcrop, gravity and 2D seismic mapping.

In an update on its current drilling program, Elixir reported that it had spud its key well, the Ugtaal-1 core-hole, early in November. As reported by Finfeed.com, this is the first well drilled into its independently assessed 40 Tcf of unrisked, recoverable gas resources on the doorstep of China.

As of 17 November 2019, the company had reached a depth of 122 metres. Up to this point, it had intersected lithologies, including conglomerates, carbonaceous mudstones, and thin coal stringers.

Two rigs—both of which have been winterised—are being used. The desorption lab is now set up at Ugtaal-1.

The winterized Ugtaal-1 well site Photo: Elixir Energy

The current program is fully funded, and all wells are being drilled under a turnkey contract that makes Elixir pay on a per-meter basis instead of a per-day basis.

Prior to the spud of the first core hole, Elixir’s drilling program started with low-cost chip-holes that had multiple calibration and exploration aims.

Analysis has now commenced on the encouraging findings from the BO-CH-1 chip-hole, which reached a depth of 738 metres . The chip-hole demonstrated gas in the system, coal seams of a thickness which are productive in Australia, and natural fracturing which may support good permeability, among other things.

The second chip-hole, BO-CH-2, had reached 408 metres as of 18 November.

“With the spudding of the Ugtaal-1 core-hole we have now commenced our key well for 2019,” explains Neil Young, Elixir’s managing director. “We anticipate the well reaching the Permian section later this week. After that, we will start testing coal cores for their gas content."