In late 2004, a small team was established inside AGL to be one of the key growth platforms for the company and focus on increasing the diversification of its wholesale gas portfolio.
Delivering on this strategy complements the existing wholesale gas portfolio, provides a cost effective and secure supply of energy to our customers, and further strengthens our business competitiveness by generating additional benefits by further integrating across the energy chain.
This group has already has already made material investments in two businesses. The first was a transaction, completed in November last year, where AGL purchased 50 per cent of the permits covering the Sydney Basin from Sydney Gas for $42.25 million. The second, completed in February this year, was the purchase of a 10 per cent interest in the PNG Gas project, acquired from Oil Search.
AGL has been an active supporter of the Coal Seam Gas (CSG) sector for many years, and currently has contracts for more than 480 PJ of CSG gas. With its recent acquisition of 50 per cent of the petroleum permits across the Sydney Basin, AGL is now also a producer of CSG in its own right.
The key production asset that was acquired is the Camden Gas Project which is contained within the southern part of PEL 2, and is now operated by AGL on behalf of the JV. The Petroleum Exploration licenses (PEL’s) cover approximately 17,500 square km. This is a large land position and with its JV partner Sydney Gas, AGL has committed to a substantial exploration work program over the coming years.
The potential for CSG production from the Sydney Basin had been investigated by a number of parties for more than two decades. Most of the early wells drilled in the area failed to produce commercial quantities of gas, and it was not until 2001 when a few of the wells drilled by Sydney Gas in the Stage 1 area of the Camden Gas Project produced commercial flow rates which demonstrated the production potential of the area.
The geology of the Camden Project Area is complex, with significant variations in coal quality, thickness and gas content. An analysis of why the early production was successful in this area unlocked one of the critical technical keys to achieving commercial production from the area, and since this time more than 70 wells have been drilled in the area. Production from the wells across the field vary tremendously from less than 50 mcf/d (thousand cubic feet per day), to in excess of 900 mcf/d.
These wells have contributed significantly to the understanding of the geology of this complex project, and improved well site selection should see improved results in the future. The proximity of this project to one of Australia’s largest gas markets provides both opportunities for the development of this resource.
AGL has actively supported the development of CSG production from this area and this acquisition was a natural progression in this long relationship. Gas from the Camden project has been purchased by AGL Wholesale Gas since the pilot was established and as part of the acquisition, it has firmed up its gas purchase agreements and will now purchase 14.5 PJ per annum over ten years after the ramp up to full production.
AGL is now the operator of the Camden Gas project, and has more than 40 people working across all facets of CSG development and production. An active development program will see more than $ 60 million spent in the Camden region to increase the production from the field with an active drilling program and enhancements to the gas processing and compression plant at Rosalind Park.
The skills and expertise that AGL now has built in CSG production provide a solid base to develop and expand its investments into CSG across eastern Australia. The exciting prospects of the northern Sydney Basin including the Hunter and Merriwa projects which are natural early targets, however AGL intends to continue to actively pursue other opportunities as they arise.