Chairman's Address to Shareholders
Chairman's Address to Shareholders

Brisbane, Nov 23, 2022 AEST (ABN Newswire) - State Gas Limited (ASX:GAS) (STGSF:OTCMKTS) is endeavouring to be as responsive as possible to energy market dynamics and so has formulated a strategic response to market signals.

The prime market themes evident are high prices for gas and electricity, the need for energy security in Australia and elsewhere, and the increased levels of volatility in the domestic gas market. The primary causes are two-fold, namely: the war in Ukraine, which has highlighted the need for energy security; and the recognition of the fundamental role played by natural gas as a key enabler in the energy transition. The intermittent nature of renewable energy requires the immediate response that gas fired generation can supply when the wind doesn't blow or the sun doesn't shine. It should also be remembered that gas is a key feedstock for many industrial processes, the production of fertilisers, heating, and is a fundamental building block for products we use every day.

State Gas is fortunate to own both conventional and coal seam gas assets. CSG extraction is optimal where gas supply requirements are steady and consistent. Conventional gas production, on the other hand, can be stopped and started at will. These characteristics facilitate our vision: to use our CSG as the base load to underwrite development infrastructure, whilst reserving the more responsive and flexible conventional gas production to surf the gas price peaks.

We envision a three stage development over the next five years, with the first stage the trucking of compressed natural gas, and stages two and three involving the development and enhancement of a physical pipeline.

We are now executing stage one: our plan to produce, compress, transport and sell conventional gas from PL 231. We expect to be delivering the gas in the first half of next year, in time for the next winter peak. The gas spot prices over the last six months have averaged well over $26/GJ and the shortest distance to the east coast pipeline network is about 70km. If the average price over the last six months were realised, the estimated capital for this project would be paid back within six months. We have already sourced the compressor - the longest lead time item - which should be on site by late February/early March. Our recent arrangement with MES, announced on 10 November, has sourced the CNG canisters and we are presently optimising the purchase of the dehydrator. Approvals are in train.

Stages two and three of our vision are dependent on successful production testing at Rougemont. This morning we announced that the Rougemont 3 lateral, and Rougemont 2 vertical well pair, is finally on pump. We will lower the water level slowly: the Bandanna coals are highly sensitive to pressure differentials and the changes must be slow. It will be 2-3 months before we begin to expose the coals and gas flow begins to build.

The results from the production testing at Rougemont 2/3 should be known by the end of this fiscal year. Depending on those results, we aim to commence the feasibility study for a permanent fibrespar pipeline to one of the two existing network gas pipelines, enabling the sale of up to 15TJ/day to commence as early as 2024.

If further drilling justifies production above that capacity, the proposed pipeline easement could be used for steel pipe augmentation subject to requisite approvals.

As can be seen, State Gas is poised for an exciting period of growth. Our Board has been strengthened by the appointment of Philip St Baker and Jon Stretch, both of whom have deep experience in extracting value from highly volatile energy markets. Last week we announced the retirement of Ian Paton as a director of the Company, and we thank him for his service and contribution to your Board.

Richard Cottee
Executive Chairman

About State Gas Limited

State Gas Limited ASX:GASState Gas Limited (ASX:GAS) is a Queensland-based developer of the Reid's Dome gas field, originally discovered during drilling in 1955, located in the Bowen Basin in Central Queensland. State Gas is 100%-owner of the Reid's Dome Gas Project (PL-231) a CSG and conventional gas play, which is well-located 30 kilometres southwest of Rolleston, approximately 50 kilometres from the Queensland Gas Pipeline and interconnected east coast gas network.

Permian coal measures within the Reid's Dome Beds are extensive across the entire permit but the area had not been explored for coal seam gas prior to State Gas' ownership. In late 2018 State Gas drilled the first coal seam gas well in the region (Nyanda-4) into the Reid's Dome Beds and established the potential for a significant coal seam gas project in PL 231. The extension of the coal measures into the northern and central areas of the permit was confirmed in late 2019 by the Company's drilling of Aldinga East-1A (12 km north) and Serocold-1 (6 km to the north of Nyanda-4).

State Gas is also the 100% holder Authority to Prospect 2062 ("Rolleston-West"), a 1,414 km2 permit (eight times larger than PL 231) that is contiguous with the Reid's Dome Gas Project. Rolleston-West contains highly prospective targets for both coal seam gas (CSG) and known conventional gas within the permit area. It is not restricted by domestic gas reservation requirements.

The contiguous areas (Reid's Dome and Rolleston-West), under sole ownership by State Gas, enable integration of activities and a unified super-gasfield development, providing economies of scale, efficient operations, and optionality in marketing.

State Gas is implementing its strategic plan to bring gas to market from Reid's Dome and Rolleston-West to meet near term forecast shortfalls in the east coast domestic gas market. The strategy involves progressing a phased appraisal program in parallel with permitting for an export pipeline and development facilities to facilitate the fastest possible delivery of gas to market. State Gas' current focus has been to confirm the producibility of the gas through production testing of the wells.




Lucy Snelling
Head, Corporate and Commercial

Richard Cottee
Executive Chairman

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