Company Briefing: Pure Energy Resources Limited (ASX:PES)

Queensland’s coal seam gas industry has been heating up in recent months, with the world’s oil and gas majors rushing to find local partners capable of supplying a lucrative planned export LNG industry. The boom has come at exactly the right time for explorer Pure Energy Resources Limited, which has acquired more than 21,100 square kilometres of coal seam gas acreage in Queensland along with 11,300 square kilometres in Tasmania.

Founded in 2004 by a group of experienced industry professionals, the company listed on the Australian Securities Exchange in September 2006 in a $5 million Initial Public Offering. Pure Energy’s market capitalisation has since surged to reach highs of over $200 million, with investors seeing the potential of its strategically located projects in Queensland’s Bowen and Surat Basins.

The company is led by Brisbane-based Steve Beardsall, a 25-year veteran of the international oil and gas industry. Supported by a strategic partnership with foundation investor Arrow Energy Limited, Pure Energy aims to become a leading coal seam gas producer in Queensland and the primary producer in Tasmania, where it is pioneering the development of a domestic gas industry.

The company saw strong investor demand in June 2008 for its $15 million placement to institutional investors, which closed heavily oversubscribed. The funds along with cash reserves are being used for an aggressive 30 well drilling program, targeting certification of 2P (proven and probable) reserves of 300 PetaJoules (PJ) in its Queensland permits ATP806P and ATP852P, along with ATP889P(A), which is expected to be granted later in the year.

A 2C Contingent Resource of more than 2,000 PJ is estimated for the three permits, which constitute only five per cent of Pure Energy’s total Queensland acreage. The company also holds 35 per cent of the conventional oil and gas rights over an area of around 11,500 square kilometres within its existing Queensland acreage.

Q&A with Steve Beardsall, Managing Director

AJM: Pure Energy has announced some encouraging results from its drilling campaign. Can you provide an update on this?

SB: Since listing, Pure Energy has matured nine large prospects for drilling, with two wells drilled in Tasmania, five wells drilled at ATP806P in Queensland and six wells drilled at ATP852P (also in Queensland). We have acquired a 1.5 per cent royalty on production at Arrow Energy’s Tipton West project near Dalby, which is currently in production, and also expanded our acreage position through selective acquisitions.

Recent drilling results at ATP758P in the Duaringa Basin have shown more than 30 metres of net coal and high gas contents with good permeabilities. We have confirmed the ATP806P Dingonose-1 CSG field extends into ATP758P, providing significant upside for the Dingonose CSG Field. We estimate a 2C Contingent Resource for the Dingonose and Duckworth discoveries (ATP806P) of 800 PJ.

The completion in June 2008 of the Cameron-4 and Cameron-5 wells at permit ATP852P marked the launch of a multi-field CSG certification campaign. Pure Energy is targeting the Walloon Coal Measures within this permit, which are the same coals currently being put into production by Arrow and other producers. We have an estimated 2C Contingent Resource for the Cameron CSG Field of 975 PJ.

In addition, we consider ATP889P(A) an extension of the Lacerta and Coxon Creek CSG fields, with an estimated 2C Contingent Resource for the Stella and Artois blocks of 280 PJ.

In Tasmania, we commenced drilling in August of two wells in the Mt Foster region of the coalfields.

AJM: What are the goals for the next 12 months?

SB: By mid-2009, Pure Energy aims to have certified 2P reserves at three CSG discoveries: the Dingonose Pilot project in ATP806P, the Cameron Pilot project in ATP852P and ATP889P(A), where we plan an aggressive appraisal and pilot campaign once it is granted.

We have further exploration and appraisal plans for our CSG prospects, including three wells planned for ATP758P, two appraisal wells in Tasmania and step-out appraisals at ATP806P, while Arrow plans to drill three more wells on its Queensland farm-in acreage.

During this time we will continue to evaluate commercial opportunities in both Queensland and Tasmania to generate shareholder value.

AJM: How is Pure Energy affected by the current push for CSG to LNG projects in Queensland?

SB: Pure Energy is well placed to benefit from the current push towards the development of a CSG-supplied export LNG industry based in Gladstone. Arrow’s planned Central Queensland Gas Pipeline would run right through the middle of our acreage to Gladstone, meaning we would have a ready market for our gas at prices substantially above those currently available in the domestic market. The recent international investment in the Queensland industry has increased reserve valuations considerably, making our large acreage position even more valuable.