| More investors are now inquiring about Coalbed | | | | place per acre, hectare, or square mile? In the early |
| Methane exploration companies. Just as uranium | | | | stage of the CBM exploration, this really all you have |
| miners were flying well below the radar screen in | | | | to work with in evaluating its potential. |
| early 2004, coalbed methane exploration may very | | | | 3) MATURITY LEVEL OF THE COAL |
| well be the next very hot sector later this year and | | | | This is the measure of the stage the coal has |
| next. Historically, coalbed methane gas endangered | | | | reached between the mineral's inception as peat. Peat |
| coal miners, resulting in alarming fatalities early in the | | | | matures to become lignite. Later, it develops into |
| previous century. This is the fate suffered today by | | | | bituminous coal, then semi-anthracite and finally |
| many Chinese coal miners in the smaller, private coal | | | | anthracite. |
| mines. Typically, the methane gas trapped in coal | | | | There is a progressive maturation of coal as a |
| seams was flared out, before underground mining | | | | geological time continuum and the earth's |
| began, in order to prevent those explosions. Rising | | | | temperature, depending upon depth. By measuring |
| natural gas prices have long since ended that practice. | | | | certain parameters, you can determine where it is in |
| Today, coalbed methane companies are turning a | | | | the chemical process. For instance, the chemistry of |
| centuries-long nuisance and byproduct into a valuable | | | | lignite is different from that of anthracite. This |
| resource. About 9 percent of total US natural gas | | | | phrasing is called "coal rank" in coal industry |
| production comes from the natural gas found in coal | | | | terminology. |
| seams. Because natural gas prices have soared, along | | | | 4) PERMEABILITY |
| with the bull markets found in uranium, oil, and | | | | When you are beginning to think about CBM |
| precious and base metals, coalbed methane has | | | | production, this and the next item must be evaluated. |
| come into play. It is after all a natural gas. But | | | | How permeable is the CBM property? You want |
| because it is outside the realm of the petroleum | | | | permeability, otherwise the gas can't flow. If the coal |
| industry, coalbed methane, or CBM as many industry | | | | isn't permeable at all, you can never generate gas. |
| insiders call it, is called the unconventional gas. It may | | | | The gas has to be able to flow. If it is extremely |
| be unconventional today, but as the industry continue | | | | permeable, then you can perhaps never pump |
| to grow by leaps and bounds, on a global scale, CBM | | | | enough water. The water just keeps getting replaced |
| may soon achieve some respect. Please remember | | | | from the large area surrounding the well bore. The |
| that a few years ago, there was very little | | | | water will just keep coming, and you will never lower |
| cheerleading about nuclear energy. Today, positive | | | | the pressure so the gas can be released. |
| news items are running far better than ten to one in | | | | 5) WATER |
| favor of that power source. | | | | In a very high proportion of CBM plays, the coal |
| CBM is the natural gas contained in coal. It consists | | | | contains quite a lot of water. You have to pump the |
| primarily of methane, the gas we use for home | | | | water off in order to reduce the pressure in the coal |
| heating, gas-fired electrical generation, and industrial | | | | bed. Gas is held in coal by pressure. The deeper you |
| fuel. The energy source within natural gas is methane | | | | go, typically the more gas you get, because the |
| (chemically, it is CH4), whether it comes from the oil | | | | pressure is higher. The way to induce the gas to |
| industry or from coal beds. | | | | start flowing is to pump the water out of the coal |
| CBM has several strong points in its favor. The gases | | | | and lower the "water head" of pressure. How much |
| produced from CBM fields are often nearly 90 | | | | water are we going to produce? Are we going to |
| percent methane. Which type of gas has more | | | | have to dispose of it? If it's fresh, then there may |
| impurities? No, it isn't the natural, or conventional, gas | | | | be problems with regulatory agencies. In Alberta, the |
| you thought it might be. Frequently, CBM gas has | | | | government has restrictions on extracting fresh |
| fewer impurities than the "natural gas" produced from | | | | water because others might want to use it. One |
| conventional wells. CBM exploration is done at a more | | | | could be tapping into a zone that people use as |
| shallow level, between 250 and 1000 meters, than | | | | water wells for farms and rural communities. Both |
| conventional gas wells, which sometimes are drilled | | | | water quality and water volume matter. For example, |
| below 5,000 meters. CBM wells can last a long time - | | | | Manville water is very salient so nobody wants to put |
| some could produce for 40 years or longer. | | | | it into a river; this water is pushed back down into |
| Natural gas is created by the compression of | | | | existing oil and gas wells in permeable zones (but |
| underground organic matter combined with the | | | | which are also not connected to the coal). |
| earth's high temperatures thousands of meters below | | | | 6) FUNDING |
| surface. Conventional gas fills the spaces between | | | | To be able to access land and do some initial drilling, |
| the porous reservoir rocks. The coalification process | | | | i.e. the first round of financing, it would cost a |
| is similar but the result is different: both the coalbed | | | | minimum of C$4 million. This would include some |
| and the methane gas are trapped in the coal seams. | | | | geological work and drilling at least five or six wells. In |
| Instead of filling the tiny spaces between the rocks, | | | | Horseshoe, that would cost around C$4 million (say |
| the coal gas is within the coal seams. | | | | 1st round of finance); in Manville, about C$9 million. |
| One of the past problems associated with CBM | | | | This is under the assumption that the company |
| exploration was the reliance upon expensive | | | | doesn't buy the land. The land in western Canada is |
| horizontal drilling techniques to extract the methane | | | | very expensive and tightly held. Much of the work is |
| gas from the coal seams. Advanced fracturing | | | | done as a "farm in" drilling on land held by another for |
| techniques and breakthrough horizontal drilling | | | | a percentage of the play. (Editor's note: During a |
| techniques have increased CBM success ratios. As a | | | | previous interview, Dr. Marchioni commented about |
| result, a growing number of exploration companies | | | | his preference for Pacific Asia China Energy's land |
| are pursuing the early bull market in CBM. Market | | | | position in China because comparable land in western |
| capitalizations for many of these companies mirror | | | | Canada would have cost "$100 million or more." |
| similar "early plays" we mentioned during our mid | | | | 7) INFRASTRUCTURE |
| 2004 uranium coverage (June through October, | | | | The geology only tells you what's there, and what |
| 2004). Industry experts told us there would be a | | | | the chances of success are. You then have to |
| uranium bull market. Now, we are hearing the same | | | | pursue it. Can we sell it? Gas prices are "local," |
| forecasts about CBM. | | | | meaning they vary from country to country, |
| SEVEN TIPS BY DR. DAVID MARCHIONI | | | | depending whether it is locally produced and in what |
| We asked Dr. David Marchioni to provide our | | | | abundance (or lack thereof). How much can we |
| subscribers with his 7 Tips to help investors better | | | | extract? How much is it going to cost us to get it |
| understand what to look for, before investing in a | | | | out of the ground? Are there readily available |
| CBM play. Dr. Marchioni helped co-author the CBM | | | | services for this property? Will you have to helicopter |
| textbook, An Assessment of Coalbed Methane | | | | a rig onto the property at some incredible price just |
| Exploration Projects in Canada, published by the | | | | to drill it? Will you have to build a pipeline to transport |
| Geological Survey of Canada. He is also president of | | | | the gas? Or, in China as an example, are there |
| Petro-Logic Services in Calgary, whose clients have | | | | established convoys for trucking LNG across |
| included the Canadian divisions of Apache, BP, BHP, | | | | hundreds of kilometers? |
| Burlington, Devon, El Paso Energy, and Phillips | | | | One addition, which we have mentioned in previous |
| Petroleum, among others. He is also a director of | | | | articles, and especially in the Market Outlook Journal, |
| Pacific Asia China Energy and is overseeing the | | | | "Quality of Management Attracts PR," it is important |
| company's CBM exploration program in China. | | | | that the CBM company have experienced |
| Our series of telephone and email interviews began | | | | management. This would mean a management team |
| while Dr. Marchioni sat on a drill rig in Alberta's foothills, | | | | that includes those who have gotten results, not only |
| the Manville region, until he finished outlining his top 7 | | | | a veteran exploration geologist but a team that can |
| tips, or advices, on how to think like a CBM | | | | sell the story and bring in the mandatory financing to |
| professional. | | | | move the project into production. |
| 1) COAL SEAM THICKNESS | | | | There are two primary reasons why many of these |
| Is there a reasonable thickness of coal? You should | | | | coalbed methane plays are being taken seriously. |
| find out how thick the coal seams are. With | | | | First, the macroeconomic reason is that rising energy |
| thickness, you get the regional extent of the | | | | costs have driven companies in the energy fields to |
| resource. For example, there must be a minimum | | | | pursue any economic projects to help fill the energy |
| thickness into which one can drill a horizontal well. | | | | gap. Coalbed methane has a more than two decades |
| 2) GAS CONTENT | | | | of proof in the United States. The excitement has |
| Typically, gas content is expressed as cubic feet of | | | | spread to Canada, China and India, where CBM |
| gas per ton of coal. Find how thick it is and how far | | | | exploration is beginning to take off. Second, the |
| it is spread. Then, you have a measure of unit gas | | | | fundamental reason is that exploration work has |
| content. Between coal seam thickness and gas | | | | already been done in delineating coal deposits. There |
| content, you can determine the size of the resource. | | | | are, perhaps, 800 coal basins globally, with less than |
| You have to look at both thickness and gas content. | | | | 50 CBM producing basins. In other words, there is the |
| It's of no use to have high gas content if you don't | | | | potential for growth in this sector. |
| have very much coal. The industry looks at resource | | | | COPYRIGHT © 2007 by StockInterview, Inc. |
| per unit area. In other words, how much gas is in | | | | ALL RIGHTS RESERVED. |