TMK smashes out new Mongolian gas record

TMK Energy has smashed out another new gas production record with a significant increase to its previous best daily tally at the company’s Pilot Well project, part of its Gurvantes XXXV coal seam gas project in southern Mongolia.

Remarkably, the best producing well at the project – LF07 – has really turned on the afterburners, with a near 400 per cent boost to production numbers in the past few months and a nine-fold increase since August last year.

The company set a new daily gas record of more than 900 cubic gas metres, or more than 31,800 standard cubic feet per day (scfd), in recent days.

The rapid increase in gas production has firmly placed its previous best daily output of 25,000 scfd well and truly in the shade. Gas numbers, predominantly from LF-07, have been ramping up strongly week by week, with production in the first week of March averaging 873 cubic gas metres per day.

Recent production at Pilot Well has delivered a massive 50 per cent uplift over February’s daily gas rate, underscoring the project’s enormous potential as more water is continually pumped out of wells deeper in the structure. Water production remains steady at about 500 barrels per day.

The significant increase in gas numbers is primarily due to the performance of LF-07, the most recent well drilled, which sits up-dip in the subsurface structure.

TMK plans to drill additional wells identical to LF-07 to further ratchet up gas output in the short term, with new locations already identified.

Our cautious optimism has turned to high levels of excitement in recent weeks as we continue to see this week-by-week acceleration of gas production rates. Our expectation is for the gas rates to continue to materially increase from the Pilot Well project over the coming months as LF-07 and other wells reach critical desorption pressure and gas begins to be liberated from the coals at ever increasing rates.

Ferguson said the company is on the cusp of a major milestone with its plans to produce the first-ever commercial coal seam gas in Mongolia.

Average gas production in February of 583 cubic gas metres per day was down slightly on January’s number of 593 cubic gas metres, resulting from pressure build-up tests conducted at LF-01 and LF-04, with both wells shut in for 14 days and 7 days, respectively.

The pressure testing provides management with vital additional data on the reservoir pressure reduction rate – known as desorption – a key indicator of the project’s future success.

TMK believes the desorption pressure is moving closer to the level required to increase gas volumes significantly, with the huge surge in recent gas production confirming that its theory appears to be playing out.

Reservoir modelling last year outlined a clear path to achieving that perfect pressure and the continued water production of near-500 barrels per day is assisting in depressurising the reservoir towards desorption, lowering the reservoir pressure and assisting the gas to desorb from the coal seams.

Management believes the increased gas flow rates can support discussions with potential gas or power off-takers for its first gas-fired generator project. This includes the possibility of reviving a binding memorandum of understanding (MOU) signed with German power plant manufacturer Jens Energie 12 months ago.

The MOU would see TMK agree to supply gas from its Gurvantes XXXV project initially at a rate of 5000 cubic metres, with Jens to convert that gas into electricity for the local market using a German-imported gas-fired power plant to be installed under the arrangement.

The company is confidently looking beyond simply proving the wells can produce gas, as it plans to link the pilot wells and use its gas to generate on-site power, with any surplus to be potentially sold into the local grid as an early revenue stream.

Pilot Well spans 60 square kilometres in the Nariin Sukhait area of Mongolia’s vast countryside and has a contingent resource (2C) of 1214 billion cubic feet (BCF) of natural gas, making up Mongolia’s biggest gas resource. The project currently contains a prospective resource of 5300BCF across its total 8400-square-kilometre ground.

Mongolia is keen to transition into cleaner energy production, moving away from older-style forms of energy such as coal and instead accessing sources such as coal seam gas, which burns cleaner than other fossil fuels.

The sharemarket welcomed the news of the company’s surge in gas production, bumping up its price to a peak of 16.5 cents today for a solid 26.9 per cent gain during the day. A continued run of ever-increasing daily gas records might see the market keep an even closer watch on TMK.

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