Possible Future Economical Use of CBM Thanks to Advances in Drilling Technology

 Possible Future Economical Use of CBM Thanks to Advances in Drilling Technology

As long as the price of natural gas stays above $6 per Mcf (thousand cubic feet), Sprott Asset Management's coalbed methane (CBM) analyst Eric Nuttall expressed his enthusiasm for the potential of companies holding CBM assets in an earlier interview. Under $6, the economics would be quite thin. Reason being, it can grow really expensive to explore for and develop CBM. Think about it: what if a drilling company routinely extracted gas from the earth for less than $1.50/mcf? More than 250 wells across Australia have demonstrated that this is really the case. They're now in India, where they've drilled thirty to fifty wells so far and will drill seventy more in the near future. Mitchell just completed the drilling of the company's first CBM well on land in southern Kansas. With the help of Pacific Asia China Energy (TSX: PCE), the business has established a joint venture to export its Dymaxion® technology to China before the end of the year.

Being the biggest privately owned drilling company in Australia requires impeccable market timing. When firm founder Peter Mitchell spent $11,500 buy a drilling rig during a repossession sale in 1969, it was the beginning of the Mitchell family's remarkable timing. Drought conditions gripped portions of Queensland, Australia. Mitchell started drilling water wells for farmers in the neighbouring rural areas, making good use of his equipment. Mitchell jumped on the coal boom just after the drought ended. In what was once a very isolated region of Queensland, his expanding business started drilling for oil shale and coal near Moranbah. Then, in the 1980s, they were able to ride the mineral resource drilling boom. At that point, the business had drilled into coal, uranium, gas, and oil reserves all throughout Australia. Mitchell Drilling was the first to detect the invasion of Australia by coalbed methane (CBM) drilling in the 1990s. U.S. oil giants like Conoco and Amoco began travelling to the area in search of untapped CBM reserves at that time.

However, the large American oil firms quickly realised that the shallow coal deposits in Australia were too costly for their massive oil rigs, so they halted CBM operations there. Economically, it was a bust, as Nathan Mitchell explained to StockInterview. "They required a high gas flow, but the fracing technique was unable to provide it." Mitchell Drilling was asked to operate his smaller water well rigs, but they continued nevertheless. "That was when it all began," Mitchell recalled after the fact. From an economic perspective, we forced CBM to collaborate with the water well rigs, but despite this, they failed to produce an adequate amount of gas. The smaller rig was still economically viable, thus it was able to function to some extent.

The politicians step forward. The five percent of coal-fired power stations that were required to be run by gas were enacted by the Queensland government, as Mitchell said. "As a result, the industry was born and CBM flourished." The economics of the smaller rig allowed CBM to succeed, while Mitchell persisted with the vertical rigs.

Extracting Blood from a Stone

Mitchell created the superior mousetrap during the CBM boom. The gas deposit was hidden beneath the coal miners' feet. Mitchell, who was aware of the presence of "nuisance gas" in the area, stated, "They just saw them as coal fields." “Never in a million years did anyone imagine there would be enough gas to make it work.” The math didn't add up when you consider that natural gas in Australia costs $2/mcf. Because the coal seams in Australia are located at lower levels, higher pressures are required to release gas from the long horizontal seams. Mitchell was driven to innovate by the Australian environment, which consisted of shallow coal seams and low gas prices.

"We had witnessed horizontal hole drilling and degasification in the coal industry," Mitchell added. "However, you could never drain the water because there was always so much of it." Mitchell coupled the vertical well with the horizontal well due to the company's decades of experience in drilling water wells. "The vertical well became the conduit for the coal mine, the gas and the water, and gave us a huge surface area," Mitchell explained as he outlined the procedure. These Dymaxion® wells allowed us to suddenly generate a million or even two million a day in resource-poor locations.

In central Queensland, Australia, the technique was tested. At their Moranbah gas project, innovative drillers Mitchell Drilling have drilled the 100th example of their revolutionary Dymaxion surface to in-seam (SIS) methane gas drainage hole for gas producer CH4 Limited, according to an Australian newspaper that reported the story in June 2004. "In an industry where tradition plays a strong role." According to CH4's website, this gas project is going to use cutting-edge drilling and gas extraction techniques, which will allow for enhanced potential gas yields without harming the coal supply.

What effect will this have on the sector as a whole? "We view this as groundbreaking," Mitchell said with a little of sunshine. A new chapter in CBM has begun as a result. When some doubted its efficacy, it proved them wrong. As an example, Dymaxion® drilling is effective in environments with high permeability and low gas levels. "Where people didn't believe there were reservoirs before, we can get such high gas from reservoirs with low gas content."

Where every cent counts, it has been successful in Australia. "They are still making a respectable profit of about half at our price, which could be around $1.25 or $1.10 (US$) per mcf." What kind of impact will it have on a global scale? If you're selling it for $6/mcf and you can picture costs at $1.25, that's some pretty nice bloody profits," Mitchell shot back. Mitchell declared, "We are keen to take this technology around the world," after drilling at fair profits for $2 gas. Client satisfaction would remain high even if we quadrupled our expenses.

By utilising both horizontal and vertical wells

An oil and gas man's bewildered reaction when presented with the Dymaxion® technology was, "Did I hear you right? Are you utilising both horizontal and vertical wells to extract gas? People who doubt it exist. "Many of the bigger oil and gas companies sent their contractors over to take a look," Mitchell noted. "Some people thought we were barely making ends meet or were trying to cut corners." "We actually line up every one of our lateral wells with a slotted liner, a perforated liner," he added, explaining that they had to intercept the vertical. We know we've intercepted it since it's stacked into the vertical well, according to our configuration.
The capacity to flush and the knowledge that the results are coming out are the keys, according to Mitchell. As he put it, "we can have a number of wells lined, going from one point to another." What this means is that there can be a continuous flow and link between a well that is 1000 to 2000 metres away and the vertical well. Flush between the two is possible. With two of the horizontals being closed, he illustrated the possibility of three horizontals merging into a single vertical. You can open and flush the first one, and then close and flush the second one. This will be in place for the duration of the well's 10–20 year lifespan.

What makes the SIS hole more effective at degassing a larger area than a standard horizontal? According to Mitchell, the Dymaxion process begins with absorption between the V at the start of the well when two wells are arranged in a chevron pattern. "Once the wells are completed in a V formation with each other, you will begin to notice improved flows, slightly more gas, and gradually less gas overall."

"In the case of very deep deposits, up to 3000 metres underground, a vertical well may be adequate to create sufficient water table pressure to liberate and bring to the surface large quantities of methane gas," Mitchell's website acknowledges, implying that older drilling methods might work for deeper deposits. According to the same source, "SIS drilling also provides valuable exploration data on seam rolls and faults, allowing greater certainty in mine planning and development." This is due to the larger surface area that drains the subsurface gas through coal seams.

To start the SIS process, multifunctional mineral drill rigs that have been modified with specifically built bottom hole assembly are used. An angle of sixty to ninety degrees from the surface is used to drill a hole in the SIS procedure. To reach the desired coal seam, it is subsequently guided horizontally through a medium-radius bend. The seam guides the 96 mm hole to a vertical production well that has been dug before. To mark the spot where the horizontal hole will meet the production well, a homing device is lowered down the vertical well. To drain the seam, the vertical well is used. Gas is allowed to rise to the surface when the hydrostatic head has been decreased to a certain level.

The Global Expansion of Mitchell

With development of the Dymaxion® technology beginning in the late '90s, the first test was conducted in 2000 in Australia. After over seven years in business, the firm has expanded to China and Kansas, drilled over 250 wells in Australia, and has 30–50 wells in India, with 70 more to come. We completed our first well in Kansas, but we're not particularly interested in being a contractor in the US," Mitchell said regarding the state. Although we do not perceive many advantages to ceding control of our technology, we are open to exploring potential partnerships and stock deals with clients. In his opinion, Mitchell possesses "exceptionally good" qualities in the relevant domains.

So, Mitchell's initial equity deal was... He made the observation that China and India will be the world's two major economic powers in the future. In the long run, they'll both run into energy issues. Pacific Asia China Energy was the first stock venture that Mitchell was involved with. "To see this small compact rig drilling 2000 metre holes of a well and making it work at $2 gas just astounded them," Mitchell joked, "with what was happening in Australia." Despite the lower cost of rigs in China, he said, the logistics, including the expenses of roads and access for trucks, pumps, gear, and equipment, begins to drive up the costs. As Mitchell likened a drilling operation to a U.S. aircraft carrier, "you have 40 planes on deck but it takes 70 people to run it." The overhead associated with these logistics can increase even in China. Reduced drilling costs and a 50/50 split of profits from Dymaxion® technology utilisation in China are part of the agreement with Pacific Asia China Energy. In China, the biggest coal producer in the world, this technology is owned by the joint venture business.

In Mitchell's opinion, how can businesses expand in China? "Incredibly," he responded in a flash. "Degasifying their mines is being actively pursued in China. Numerous mines are being forced to close their doors due to issues with degasification, despite the fact that there are thousands of huge mines, some of which have reserves exceeding 100 million tonnes. Mitchell and I were approached by every single coal business at a recent symposium regarding the Dymaxion technology for China, according to an earlier discussion with Tunaye Sai, president of Pacific Asia China Energy. Was it really so? "Indeed, that is correct," Mitchell affirmed. China and the rest of the world are paying close attention to mine safety issues right now. They are eagerly anticipating the arrival of foreign assistance and technology to China in order to resolve these issues. From their perspective, they aim to sell gas in addition to coal. It was successful in Queensland and will be useful in China as well. That's the reason Mitchell is showing such promising progress.

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