ECU 3.85% 25.0¢ eastern corporation limited

gas can smell lovely when it's flowing

  1. 64 Posts.
    Hi guys, I would like to add to the discussion on Eastern Corporation, ECU, as I am rather close to the company and have a vital interest in its future and growth as it forges ahead to becoming a commercial gas producer in Queensland.

    I have been following the company’s activities now since January, and have accumulated many million shares. As my nic gives away my method of share selection, in this case I have taken a strong interest in the fundamentals of the company.

    Most interesting is the background of the executive director Gordon Smith who has an enviable record of taking over failed American mining ventures and bringing them to profitability very quickly.

    Yesterday I was invited to visit the site north of Longreach together with our good friend from this site, Eddievanhalen, a few directors of ECU, stockbrokers, ECU’s banker and a few major shareholders. We flew there in a fast prop jet aircraft and were taken to the site about 40km north of Ilfracombe by bus where we inspected the five wells that were reported upon in the recent ASX report. All wells are being de-watered successfully and we were delighted to see large puffs of gas escaping from the water flow. The air was thick with the sweet smell of coal bed methane gas and never before have I enjoyed the smell of gas so much.

    This seems to me to be an interesting time to get on board a company very much in its infancy with huge potential and a rather limited downside and that is the only reason I am posting this report and the attached news release. No doubt Eddievanhalen will add to my words here.

    I attach the company’s overview of its operations, and the latest news release. Send me a private message if you have any questions and I will attempt to answer them or direct you to someone who can.


    Coal Seam Gas Overview

    Over the last five years there has been rapid growth in the coal seam gas industry in Australia, with a number of new companies entering the market. This follows the success of coal seam gas internationally, particularly in the United States, where coal seam gas now represents seven percent of US domestic supply.

    Queensland leads the growth in coal seam gas production in Australia with about 25 percent Queensland’s gas demand sourced from coal seam gas.

    Growth in the sector is being driven by growing gas demand for electricity generation and industrial development. It is supported by a Queensland government ruling that energy retailers source 13 percent of their electricity from natural gas by January 2005. In addition, the State government has encouraged the development of the coal seam gas industry by selecting CSG to fuel a power station in Townsville to be developed by 2005/06.

    Key CSG participants in Queensland are Santos, Oil Company of Australia, Queensland Gas, Arrow Energy, Sunshine Gas, Molopo Australia NL, Tipperary Oil and Gas and CH4. However, only a few of these companies have significant production or committed sales arrangements in place.

    The emerging CSG sector faces a number of challenges in extracting commercial value from projects including exploration, production, transport, wholesaling and retailing issues.

    Strategic Plan

    Based on continuing positive results from the present 5 well programme, plans and budgets are being developed for :

    · Continuance of the 5 well pilot programme
    · Market driven development programme of approximately 10 production wells before June 2004
    · A 2 well slim hole programme to investigate oil prospective areas identified by our geological consultants.

    Project Update

    The workover of the 5 pilot wells has been completed ahead of schedule.
    · Where required all equipment associated with the wells has been upgraded to American Petroleum Institute standards
    · Upgraded control mechanisms have been installed in water & gas lines where required in order to provide a greater degree of water modulation during gas desorption
    · Upgraded water delivery systems were installed from well heads to water sumps to provide greatly reduced back pressure in water delivery lines from well pumps
    · Pumps were set in order to reduce gas flow through pumps
    · A centralised 100% backup power generation system was installed with up to 3 months fuel storage on site to reduce the likelihood of outages during wet weather
    · An experienced expert team was assembled on site to provide continuous control & maintaining of all wells
    · As the initial stage of the project is in place all areas are being scrutinised in order to improve efficiencies & reduce costs
    · All wells are pumping water at predetermined rates and according to our required schedule


    Background Of Galilee

    The Galilee coalbed methane project began in 1992 when an Authority to Prospect was awarded to US company Enron, which had been investigating the potential of Australian CBM production following the sector’s success in the United States.

    Enron conducted a comprehensive geologic study which concluded the region overlying the Maneroo Platform had the optimal conditions for CBM development.

    Exploration wells indicated commercial CBM potential at both Rodney Creek and Crossmore sections of the tenement.

    Despite four months of production the wells were never able to be sufficiently dewatered to initiate gas production. By 1996 Enron changed direction from energy producers to energy traders and the project was put up for sale.

    Galilee Energy Limited acquired the project and added another four wells at the Rodney Creek site to create a five-spot dewatering pattern. These five wells commenced production but ongoing problems with dewatering the wells continued. Gas production occurred at very high pressure.

    On 4 February 2003 public company Eastern Corporation Limited acquired 51 percent of Galilee Energy Limited for $4 million.


    Shareholder Information


    Galilee Energy Limited

    Galilee Energy Limited is a 51 percent subsidiary of Eastern Corporation Limited, a publicly listed company.

    There are currently 125,170,065 ordinary shares on issue in Galilee, of which 63, 836,732 are held by Eastern Corporation. The balance of the shares in Galilee are held by 26 private and corporate investors.


    Eastern Corporation Limited

    Eastern Corporation (ASX:ECU) has 309,253,426 shares on issue and a market capitalisation of about $10.8 million.

    Propwood Pty Ltd is the largest shareholder of Eastern Corporation, holding 142, 500,000 shares, representing about 46 percent of the total shares on issue.

    Eastern Corporation has two classes of unlisted Options on issue:

    - ECUOP2 72 million exercisable at 20 cents by 30 June 2003
    - ECUOP3 60 million exercisable at 4 cents by 31 December 2003

    #####################################################################


    PRESS RELEASE 28 April 2003

    Galilee set to produce coal seam gas by May,
    Explores oil prospects

    Eastern Corporation Limited on Monday said its Galilee Energy coal seam gas project was on track, with all five pilot wells successfully pumping water and significant gas supply expected by the end of May.

    “We will be producing gas in six weeks and we are at the negotiating table with customers, so it is an exciting time for us as we take this company to the next level in its development,” executive director Gordon Smith said.

    Eastern Corp has a 51 percent stake in Galilee Energy Limited, an unlisted public company which owns an Authority to Prospect over 14,000 km² in the Galilee Basin, near Longreach

    Mr Smith said the company had overcome the previous technical issues related to dewatering and the wells were now continuously pumping water with increasing gas flows.

    “The wells were never previously able to be sufficiently dewatered to initiate gas production due to incorrect management and operating procedures and incorrect equipment used in the wells,” he said.

    “We have made excellent progress with a carefully planned and executed workover program, with all five gas wells in the Rodney Creek field now dewatering at the designed rates.”

    Mr Smith said the success of the dewatering program proved the company’s model and shows that Galilee was now making the transition to becoming a gas producer.

    “This is a major development for us as it proves what we have been saying all along, that these wells could successfully be turned to production with the right technical knowledge,” he said.

    “The pilot project is ahead of schedule and it is anticipated the five wells will be producing significant gas in concert by late May.

    “As we make the transition to becoming a gas producer, investors should no longer view Eastern as highly speculative, but as an investment grade stock.”

    Mr Smith said that previous modeling suggests there was an estimated 800 billion cubic feet of recoverable gas in the Rodney Creek and Crossmore pilot project area, and the company had already received encouraging interest from potential customers.

    “In addition, we are now developing strategic plans and budgets for a production program to increase the number of wells in the field,” he said.

    Mr Smith said the company would drill at least two slim holes to explore potential oil bearing areas within the ATP, as was outlined in Eastern Corporation’s Rights Issue Prospectus at the beginning of this year.
    Mr Smith said the company’s consulting geologist was in the process of remapping the coal resource to verify recoverable gas calculations.


    BACKGROUND

    The Galilee coal seam gas project began in 1992 when an Authority to Prospect was awarded to US company Enron, which had been investigating the potential of Australian coal seam gas production following the sector’s development internationally, particularly in the United States.

    Enron conducted comprehensive geologic studies and concluded the Galilee region had the optimal conditions for coal seam gas development.

    Exploration wells indicated commercial coal seam gas potential at both Rodney Creek and Crossmore sections of the ATP.

    Despite four months of production, the wells were never able to be sufficiently dewatered to initiate gas production. By 1996 Enron had exited the project, having made the commercial decision to pull out of its exploration activities across the globe.

    Galilee Energy Limited acquired the project and after completion of a private capital raising, added another four wells at the Rodney Creek site to create a five-spot dewatering pattern. These five wells commenced production in 2000 but ongoing problems with dewatering the wells continued, although there was sporadic gas production occurring at very high pressure.

    On 4 February 2003 public company Eastern Corporation Limited acquired 51 percent of Galilee Energy Limited for $4 million, all of which is to be used on the development of the project.

    Galilee has now modified equipment and procedures used to dewater the wells, and has also undertaken a management restructure, with an experienced coal seam gas team now achieving results.

    Eastern Corp (ASX security code ECU) has a market capitalisation of about $10.8 million.




    Further information –
    Gordon Smith
    Director, Eastern Corp
    (07) 3832 0855

    Unfortunately the daytraders made a mess of the stock today trading it all over the place, however most lost heavily by selling at losses. The charts indicate strong growth continuing. Take a look at the monthly candlestick chart for the last six months. I have also posted this on TNO.

    Cheers

    Tech.
 
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