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September 2015 Quarterly Report & Appendix 5B
27 September 2015
Galilee Energy Limited (ASX:GLL) (Galilee) continues to implement its focussed strategy with a material upgrade in the resource potential of the Glenaras Gas Project demonstrating its significant potential.
Highlights:
Glenaras Gas Project (ATP 529P) - GLL 100%
On 4 June 2015 Galilee announced that AGL Energy Limited ('AGL') had agreed to transfer its 50% interest in ATP 529P to Galilee. The transaction had no upfront cost to Galilee and, as part of the transaction, AGL also contributed $590,000 to Galilee to support future operations at Glenaras. The transaction was completed on the 27th August 2015.
Galilee believes this permit has the potential to become a material new source of gas supply for the east coast of Australia. As observed by a variety of market participants, the Company shares the view that the Eastern Australia gas supply market is structurally short with demand to more than triple with large scale LNG projects GLNG, APLNG and QCLNG all online in the coming months.
A: Level 4, Rowes Building, 235 Edward Street, Brisbane QLD 4000 / P: GPO Box 1944, Brisbane QLD 4001 /
T: +61 7 3177 9970
E: [email protected]
GALILEE ENERGY LIMITED
ABN: 11 064 957 419
ASX: GLL
www.galilee-energy.com.au
This provides a significant opportunity for a new entrant to build a significant supply position.
Following an extensive internal review of the potential of the permit, in particular an examination of the additional data available as a result of work completed on the permit since the 2011 SRK Resource Study, Galilee decided to obtain an updated resource assessment of the permit.
On 1 September 2015, the company announced a significant upgrade to all resource categories.
The updated ATP 529P 2015 Contingent Resource estimation increases contingent resources by 868% (2C) and 388% (3C). The following figure summarises the changes to the ATP 529P Contingent Resource.
www.galilee-energy.com.au
This upgrade was as a result of incorporating the step out drilling and pilot production testing completed in the permit since the previous 2011 SRK assessment. The 2015 Contingent Resource estimation, completed by MHA Petroleum Consultants LLC (MHA), covers a significantly larger area than previously assessed. This upgrade includes data from eight step out exploration wells within the permit as well as the pilot and pressure monitoring data from the Glenaras Pilot completed subsequent to the 2011 SRK Consulting resource report.
MHA have attributed the increase in the Contingent Resources to Galilee's net equity interest (being 100%) in ATP 529 using the deterministic method to prepare the estimates of the Contingent Resources as at 28 August 2015.
Galilee has expedited the R1 coal seam test program at ATP 529P. The R1 coal seam test will target the production potential of the uppermost R1 coal seam, allowing pressure drawdown of the coal without any contribution from neighbouring sands.
On 17 September 2015, Galilee announced that it had mobilised a rig to site to complete the proposed workover program. The program involved setting a bridge plug below the R1 seam to isolate the lower seams previously tested in these pilot wells. The R1 coal seam was then perforated and production pumps re-installed. The workover program was completed on 9 October 2015.
Currently the pumps and surface equipment are being commissioned ahead of commencing production testing. The initial phase of the production testing is expected to take between 6-9 months. This programme is low cost and a simple test that
leverages the almost $100M spent on the permit to date. If successful, the company expects to be able to convert a significant portion of the Contingent Resource into Reserves.
Lavaca County - Texas Gulf Coast
Coal
Permeability barrier (siltstone)
Water Bearing Units
Hoffer B1 Well (Galilee 35% WI, reducing to 28% after payout)
The Hoffer B1 well was spudded on 6 January 2015 and reached total depth (TD) at 14,150 ft (4,313m) measured depth on 12 March 2015.
On 7 July 2015 Galilee announced the results of testing on this well. In aggregate, the zones tested in the Midcox units flowed approximately 6 million standard cubic feet of gas per day (MMscfd), with demonstrated liquids content ranging as high as 50 barrels of condensate per million cubic feet of gas produced (bbls/MMscf).
Further testing was carried out across the Yegua unit which intersected a 40 ft pay zone in this shallow formation during drilling, again as a result of poor cement bond the operator was unable to obtain a sustained commercial flow rate.
The first development well targeting the Midcox sands discovered in Hoffer B1 is being planned for drilling in the fourth quarter 2015. The location of this well has been optimised to maximise the potential of the middle Midcox sands. The 3D seismic across the area suggests Hoffer B1 intersected overbank sandstones on the edge of a thick channel (see figure below). The Hoffer A1 well will be located in the centre of the main channel development. The well will be drilled as a turnkey project and the dry hole cost is expected to be ~US$1.9 million (100% JV).
A successful well in the Hoffer prospect could deliver flow rates up to 7.5mmcfd with 50bbl/mmcf and at current prices this could generate c. US$2.0m net annual revenue to Galilee. The prospect contains multiple follow up wells if successful.
Galilee is participating on equal terms with the other Joint Venture partners for a 35% working interest (WI) (reducing to 28% after payout) in the Hoffer Prospect in Lavaca County, Texas.
Hoffer Extension Area (Galilee 37.5% WI)
Work has continued on the 3D seismic data set that covers the Hoffer extension area. This has included a variety of discussions with other groups already working in the area, and a focus on a smaller number of high quality prospects. The Joint Venture (JV) now has over 1,500 acres under lease covering a number of quality prospects.
Spikes East Prospect Area (Galilee 38.94% WI reducing to 31.15% after payout)
The Spikes East Prospect area is located 10 miles south-southwest of Halletsville in Lavaca County.
Williams 2
The first well to be drilled to test the channel axis, Williams 2, is located 2500 ft northeast of the Williams 1 flank well which had poor sandstone development. The 3D seismic data indicates greatly increased thickness (approximately 200 ft) of Middle Midcox sandstone at this location, at a structural position