New Drilling Technology Could Finally Make Cbm Very Economic

New Drilling Technology Could Finally Make Cbm Very Economic



New Drilling Technology Could Finally Make CBM Very Economic
In a​ previous interview about coalbed methane (CBM), Sprott Asset Management CBM analyst Eric Nuttall told us he would remain, quite excited about the​ prospects for​ companies with coal bed methane assets so long as​ natural gas prices remain above $6 per Mcf (thousand cubic feet) .​
The economics would be very skinny under $6 .​
That’s because CBM exploration and​ development can get pricey .​
What if​ there was a​ drilling firm regularly bringing gas out of​ the​ ground for​ under $1.50/mcf? There is​ and​ they’ve proven it​ with more than 250 wells in​ Australia .​
They’ve moved into India, where they drilled another 30 to​ 50 wells and​ another 70 wells to​ come .​
Mitchell has taken acreage in​ southern Kansas, where the​ company just finished its first CBM well .​
And the​ company formed a​ joint venture with Pacific Asia China Energy (TSX: PCE) to​ bring its Dymaxion® technology to​ China later this year.
You don’t get to​ be Australia’s largest privately owned drilling company without timing your markets right .​
The Mitchell family’s great timing ability began in​ 1969, when company founder Peter Mitchell bought his first drilling rig at​ a​ repossession sale for​ $11,500 .​
Parts of​ Queensland, Australia were in​ the​ grips of​ a​ drought .​
Mitchell put his rig to​ good use as​ he began drilling water wells for​ farmers in​ the​ surrounding rural counties .​
Just as​ the​ drought had ended, Mitchell caught the​ boom in​ coal .​
His growing company began drilling in​ the​ oil shale and​ coal fields around Moranbah, then a​ remote part of​ Queensland .​
They then caught the​ drilling boom in​ mineral resources through the​ 1980s .​
By then, the​ company was drilling oil, gas, uranium and​ coal reserves throughout Australia .​
In the​ 1990s, Mitchell Drilling got the​ first whiff of​ Coalbed Methane (CBM) exploration entering Australia .​
That is​ when the​ major U.S .​
oil companies, such as​ Amoco, Conoco and​ others, came to​ the​ country searching for​ new CBM fields.
But, the​ major U.S .​
oil companies abandoned CBM in​ Australia because they soon discovered Australia’s shallow coal fields were too expensive for​ their big oil rigs .​
The economics just didn’t work, Nathan Mitchell told StockInterview .​
They needed high gas flow, but the​ fracing technique just didn’t give them what they needed .​
Still they persisted and​ asked Mitchell Drilling to​ run his smaller water well rigs .​
That was the​ start of​ it, Mitchell recalled .​
We made CBM work with the​ water well rigs from an​ economics point of​ view, but they still weren’t making enough gas .​
Still, the​ economics of​ the​ smaller rig made it​ work to​ a​ degree.
Enter the​ politicians .​
The Queensland government made a​ law that said five percent of​ all coal-fired power stations had to​ be run by gas, explained Mitchell .​
That spawned the​ industry and​ CBM really took off .​
Mitchell continued with the​ vertical rigs, but it​ was the​ economics of​ the​ smaller rig that made CBM work.
GETTING BLOOD OUT of​ a​ STONE
It was during the​ CBM boom when Mitchell developed the​ better mousetrap .​
Coal miners didn’t see the​ gas resource beneath their feet .​
They just saw them as​ coal fields, said Mitchell who knew there was nuisance gas there .​
There was never even a​ thought there was enough gas there to​ make it​ viable .​
With natural gas selling for​ $2/mcf in​ Australia, the​ economics didn’t make sense .​
Australian coal seams are found at​ shallower levels where greater pressures have to​ be created to​ liberate gas from the​ extended horizontal seams .​
The Australian one-two punch of​ shallow coal seams and​ low gas prices drove Mitchell to​ become innovative.
We’d seen in​ the​ coal business the​ underground in-seam drilling of​ horizontal holes and​ degasification, Mitchell explained .​
But, there was usually a​ lot of​ water involved and​ no way to​ get the​ water out .​
Because of​ the​ company’s decades of​ experience in​ drilling water wells, Mitchell combined the​ vertical well with the​ horizontal well .​
Mitchell described the​ process, the​ vertical well became the​ conduit for​ the​ coal mine, the​ gas and​ the​ water, and​ gave us a​ huge surface area .​
Suddenly, in​ areas where there wasn’t a​ resource, we could produce something like a​ million or​ up to​ 2 million a​ day from these Dymaxion® wells .​
The technology was put to​ the​ test in​ central Queensland, Australia .​
An Australian newspaper reported in​ June 2004, In an​ industry where tradition plays a​ strong role, innovative drillers Mitchell Drilling have chalked up the​ 100th example of​ their revolutionary Dymaxion surface to​ in-seam (SIS) methane gas drainage hole for​ gas producer CH4 Limited at​ their Moranbah gas project .​
CH4’s website spoke highly of​ this gas project, the​ Moranbah Gas Project will utilise innovative drilling and​ gas extraction techniques, allowing increased potential gas yields while leaving the​ coal resource undamaged.
How does this impact the​ industry? We see this as​ revolutionary, Mitchell cheerily remarked .​
It has changed the​ face of​ CBM .​
It works in​ areas where people didn’t think it​ would work .​
For example, the​ Dymaxion® drilling works in​ high permeability with low gas .​
We can get such high gas from low gas content reservoirs, where people didn’t previously think there were reservoirs.
It has worked in​ Australia, where every penny counts .​
Our price may cost around $1.25 or​ $1.10 (US$) per mcf so they are still making reasonable profits at​ around 50 percent .​
How will it​ play outside of​ Australia? Mitchell shot back, if​ you can imagine costs at​ $1.25 and​ you’re selling it​ for​ $6/mcf, that’s some pretty good bloody profits .​
Drilling at​ reasonable profits for​ $2 gas, Mitchell said, We are keen to​ take this technology around the​ world .​
Even if​ we were to​ double our costs, our clients would still be extremely happy.
USING BOTH VERTICAL and​ HORIZONTAL WELLS
When discussing the​ Dymaxion® technology with an​ oil and​ gas man, his puzzled response was, Did I​ hear you right? You are using both a​ vertical and​ horizontal wells to​ get the​ gas? There are the​ skeptics .​
Contractors from the​ larger oil and​ gas companies came over to​ have a​ look, Mitchell said .​
Some people thought we were sliding by or​ sort of​ skimming costs .​
He explained the​ procedure, We have to​ intercept (the vertical) because we actually line up every one of​ our lateral wells with a​ slotted liner, a​ perforated liner .​
It is​ stacked into the​ vertical well, by the​ arrangement we’ve developed, so we know we’ve intercepted it.
Mitchell said the​ key is​ the​ ability to​ flush and​ know that the​ finds are coming out .​
We can have a​ number of​ wells lined, going from one point to​ another, he explained, and​ we’ve got continuity of​ connection and​ flow between one well which is​ 1000 to​ 2000 meters away and​ the​ vertical well .​
We can flush between both .​
He gave an​ example, We can have three horizontals going into one vertical and​ two of​ the​ horizontals can be closed .​
Number one can be opened and​ flushed; then number two can be open, flushed and​ closed .​
So you have this over the​ 10 to​ 20 year life of​ the​ well.
How does the​ SIS hole de-gas a​ greater area than a​ regular horizontal? When we put two wells into a​ chevron pattern, you start to​ get absorption between the​ V at​ the​ start of​ the​ well, Mitchell said, describing the​ Dymaxion process .​
Once you get the​ wells done, in​ a​ V with each other, you start to​ get better flows, a​ bit more gas and​ greater increasing gas in​ a​ slow decline.
Mitchell’s website does admit the​ old technologies may be suitable for​ deeper drilling, In the​ case of​ very deep deposits, up to​ 3000 meters 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 .​
Because of​ the​ greater surface area draining the​ underground gas in​ the​ coal seams, the​ same website is​ quick to​ point out, SIS drilling also provides valuable exploration data on seam rolls and​ faults, allowing greater certainty in​ mine planning and​ development.
The SIS process begins by using modified, multipurpose mineral drill rigs with specially designed bottom hole assemblies .​
In the​ SIS technique, a​ hole is​ drilled at​ 60 to​ 90 degrees from the​ surface .​
It is​ then steered through a​ medium radius bend to​ horizontally enter the​ target coal seam .​
The 96 millimeter hole is​ steered in​ the​ seam toward a​ previously drilled vertical production well .​
a​ homing device is​ lowered down the​ vertical well to​ the​ target seam, which helps the​ horizontal hole intersect the​ production well .​
The vertical well dewaters the​ seam .​
Once the​ hydrostatic head has sufficiently been lowered, gas flows to​ the​ surface.
MITCHELL’S WORLDWIDE EXPANSION
Developing the​ Dymaxion® technology in​ the​ late 1990s, the​ first test took place in​ Australia in​ the​ year 2000 .​
Now, going on nearly seven years later, the​ company has drilled more than 250 wells in​ Australia, another 30 to​ 50 wells in​ India with another 70 more to​ drill, and​ has moved on to​ both Kansas and​ China .​
Mitchell talked about Kansas, We finished our first well, but we don’t really want to​ be a​ contractor in​ the​ United States .​
We don’t see a​ lot of​ benefit to​ handing over our technology, but we would be interested in​ doing some sort of​ equity deal or​ partnership with clients .​
He believes that in​ the​ right areas, what Mitchell has got is​ exceptionally good .​
So where did Mitchell first make an​ equity deal? the​ two big powerhouses of​ the​ world for​ the​ future are going to​ be China and​ India, he noted .​
Both of​ them will have energy problems in​ the​ future .​
Mitchell’s first equity deal came about with Pacific Asia China Energy .​
We just astounded them with what was happening in​ Australia, Mitchell laughed, to​ see this small compact rig drilling 2000 meter holes of​ a​ well and​ making it​ work at​ $2 gas .​
He explained that although rigs were cheaper in​ China, the​ logistics, the​ costs of​ roads and​ access for​ trucks and​ pumps, gear and​ equipment, costs start to​ go up .​
It like a​ U.S .​
aircraft carrier, Mitchell compared with a​ drilling operation, you have 40 planes on deck but it​ takes 70 people to​ run it .​
Even in​ China, costs can go up when running these logistics .​
The deal with Pacific Asia China Energy involves reduced drilling costs and​ a​ 50/50 arrangement for​ income produced through the​ use of​ the​ Dymaxion® technology in​ China .​
The joint venture company has exclusive use to​ this technology in​ the​ world’s largest coal producing country, China.
How does Mitchell see business growing in​ China? Exponentially, he quickly replied .​
In China, there is​ a​ push to​ degasify their mines .​
There are some several thousand large mines, many with over one hundred million tons in​ reserves, and​ a​ lot of​ mines are being shut down because of​ degasification problems .​
In an​ earlier interview with the​ Tunaye Sai, president of​ Pacific Asia China Energy, he reported that every single coal company at​ a​ recent symposium approached both Mitchell and​ himself about the​ Dymaxion technology for​ China .​
Was that true? Very much so, Mitchell confirmed .​
Mine safety is​ now at​ the​ forefront of​ China and​ international observation .​
They’re looking forward to​ international help and​ technology to​ come to​ China and​ fix these problems .​
They’re looking at​ it​ from they want to​ sell coal, but they also want to​ sell gas .​
It worked well in​ Queensland and​ will apply to​ in​ China .​
That’s why we see such a​ growth for​ Mitchell.




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