Canadian Coalbed Methane Stocks: 7 Things to Grasp Before Investing

By Koly Brient


More investors are now inquiring about Coalbed Methane exploration companies. Just as uranium miners were flying far below the radar screen in early 2004, Coalbed methane exploration may actually be the next really hot sector later on and next. Traditionally, Coalbed methane gas endangered coal miners, leading to shocking fatal injuries early in the previous century. This is the fate suffered today by many Chinese coal miners in the littler, private coal mines. Typically , the methane gas besieged in coal seams was flared out, before underground mining began, to forestall those explosions. Rising natural gas prices have long since ended that practice.

Today, Coalbed methane firms are turning a centuries-long nuisance and by-product into a useful resource. About 9 percent of total US natural gas production comes from the natural gas found in coal seams. Because natural gas prices have increased, with the bull markets found in uranium, oil, and valuable and base metals, Coalbed methane has become active. It is after all a natural gas. But as it is outside the area of the petroleum industry, Coalbed methane, or CBM as many industry insiders call it, is named the novel gas. It could be radical today, but as the industry keep growing by leaps and bounds, on a worldwide scale, CBM may soon achieve some respect. Please remember that a few years ago, there had been little cheerleading about nuclear energy. Today, positive news stories are running much better than ten to one in favor of that energy source.

CBM is the natural gas contained in coal. It consists essentially of methane, the gas we use for home heating, gas-powered electrical generation, and commercial fuel. The power source inside natural gas is methane (chemically, it is CH4), whether it comes from the oil industry or from coal beds.

CBM has several powerful points in its favour. The gases produced from CBM fields are typically virtually 90 percent methane. Which type of gas has more impurities? No, it is not the natural, or traditional, gas you assumed it might be. Frequently, CBM gas has fewer contaminations than the natural gas produced from conventional wells. CBM exploration is done at a more shallow level, between 250 and 1000 meters, than typical gas wells, which sometimes are drilled below 5,000 meters. CBM wells can last a long time some could produce for 40 years or longer.

Natural gas is formed by the compression of underground organic material mixed with the earth's high temperatures thousands of meters below surface. Typical gas fills the spaces between the permeable reservoir rocks. The coalification process has similarities but the result's different: both the Coalbed and the methane gas are surrounded in the coal seams. Rather than filling the tiny spaces between the rocks, the coal gas is within the coal seams.

One of the past issues associated with CBM exploration was the dependence on dear horizontal drilling techniques to remove the methane gas from the coal seams. Advanced fracturing strategies and breakthrough horizontal drilling techniques have risen CBM success proportions. As a consequence, an increasing number of exploration corporations are following the early bull market in CBM. Market capitalizations for lots of these firms mirror similar early plays we discussed during our mid 2004 uranium coverage (June through October, 2004). Industry experts told us there would be a uranium bull market. Now, we are hearing the same forecasts about CBM.

Seven TIPS BY Dr. DAVID MARCHIONI

We asked Doctor. David Marchioni to provide our subscribers with his 7 Tips to help investors better understand what to have a look for, before investing in a CBM play. Dr. Marchioni helped co-author the CBM textbook, An Assessment of Coalbed Methane Exploration Projects in Canada, published by the Geological Survey of Canada. Also he is president of Petro-Logic Services in Calgary, whose clients have included the Canadian divisions of Apache, BP, BHP, Burlington, Devon, El Paso Energy, and Phillips Petroleum, among others. He is also a director of Pacific Asia China Energy and is overseeing the company's CBM exploration programme in China.

Our series of telephone and email interviews started while Doctor. Marchioni sat on a drill rig in Alberta?s foothills, the Manville region, till he finished outlining his top 7 tips, or advices, on the way to think like a CBM professional.

. 1) COAL SEAM THICKNESS

Is there a reasonable thickness of coal? You need to find out how thick the coal seams are. With thickness, you get the regional extent of the resource. For example, there should be a minimum thickness into which one can drill a horizontal well.

2) GAS CONTENT

Generally gas content is expressed as cubic feet of gas per ton of coal. Find how thick it is and how far it is spread. Then, you have a measure of unit gas content. Between coal seam thickness and gas content, you can define the scale of the resource. You've got to look at both thickness and gas content. It's no use to have high gas content if you don't have much coal. The industry looks at resource per unit area. In other words, how much gas is in place per acre, hectare, or square mile? In the early stage of the CBM exploration, this really all you have got to work with in evaluating its potential.

3) MATURITY LEVEL OF THE COAL

This is the measure of the stage the coal has reached between the mineral's beginning as peat. Peat matures to become lignite. Later , it becomes bituminous coal, then semi-anthracite and eventually anthracite.

There's a progressive maturation of coal as a geological time continuum and the earth's temperature, relying upon depth. By measuring certain parameters, you can determine where it is in the chemical process. For example, the chemistry of lignite is different from that of anthracite. This phrasing is known as coal rank in coal industry terminology.

4) PERMEABILITY

When you're beginning to consider CBM production, this and the following item must be evaluated. How permeable is the CBM property? You want permeability, or the gas can't flow. If the coal isn't permeable at all, you can not generate gas. The gas has to be able to flow. If it is very permeable, then you can perhaps never pump enough water. The water just keeps being replaced from the massive area surrounding the well bore. The water will just continue coming, and you will never lower the pressure so the gas can be released.

5) WATER

In a very high percentage of CBM plays, the coal contains rather a lot of water. You have to pump the water off so as to cut back the pressure in the coal bed. Gas is held in coal by pressure. The deeper you go, typically the more gas you get, because the pressure looks higher. The way to prompt the gas to start flowing is to pump the water out of the coal and lower the water head of pressure. How much water are we going to produce? Are we going to have to dump it? If it is fresh, then there could be Problems with regulatory agencies. In Alberta, the govt. has limitations on removing clean water because others might wish to use it. One could be tapping into a zone that folks use as water wells for farms and rustic communities. Both water quality and water volume matter. For example, Manville water is extremely salient so no-one wants to put it into a stream; this water is pushed back down into existing oil and gas wells in permeable zones (but which are also not attached to the coal).

6) FUNDING

To be well placed to access land and do some initial drilling, i.e. The 1st round of financing, it would cost a minimum of C$4 million. This would include some geological work and drilling at least 5 or 6 wells. In Horseshoe, that would cost around C$4 million (say 1st round of finance); in Manville, about C$9 million. This is under the assumption the company doesn't buy the land. The land in western Canada is extraordinarily expensive and tightly held. Lots of the work is done as a farm in drilling on land held by another for a share of the play. (Editor's note: During a prior interview, Dr. Marchioni commented about his preference for Pacific Asia China Energy's land position in China because close land in western Canada would have cost ?$100 million or more. ?

7) Structure

The geology only tells you what's there, and what the probabilities of success are. You then have to chase it. Can we sell it? Gas costs are local, meaning they vary from country to country, relying whether it is hereabouts produced and in what profusion (or lack thereof). How much are we able to extract? How much is it going to cost us to get it out of the ground? Are there freely available services for this property? Do you want to have to copter a rig onto the property at some phenomenal price solely to drill it? Do you want to have to build a pipeline to move the gas? Or, in China as an example , are there established convoys for trucking LNG across masses of kilometers?

One addition, which we have mentioned in previous articles, and especially in the Market Outlook Journal, Quality of Management Pulls PR, it is vital that the CBM Company have experienced management. This. Would imply a management team that includes those who have gotten results, not just a vet exploration geologist but a team that can sell the tale and bring in the compulsory financing to move the project into production.

There are two primary reasons why many of these Coalbed methane plays are being regarded seriously. First, the macroeconomic reason is that rising energy costs have driven corporations in the energy fields to pursue any industrial projects to help fill the energy gap. Coalbed methane has a more than two decades of explanation in the US. The excitement has spread to Canada, China and India, where CBM exploration starts to take off. 2nd, the elemental reason is that exploration work has already been done in delineating coal deposits. There are, perhaps, 800 coal basins globally, with less than 50 CBM producing basins. To explain, there is the potential for growth in this sector.




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