Elixir Energy advancing well on 2019 drilling campaign; Eyes lucrative China’s gas market

Oil and gas exploration and development company, Elixir Energy Limited (ASX: EXR) is rapidly progressing to achieve its corporate vision — “to find large gas reserves on the Chinese border”.

The company’s 2019 exploration program is currently underway at its flagship asset- the Nomgon IX CSG (coal seam gas, also known as coal bed methane - CBM) PSC (production sharing contract) located in the South of Mongolia, near Chinese borders.

EXR’s 2019 Exploration Program on track

The 2019 exploration campaign revolves around drilling the two fully tested core-holes (with an option for a third contingent hole), with the results aiding a contingent resource assessment in 2020.

During the last quarter, the company commenced field exploration activity in Mongolia, taking its 2019 exploration program to the ‘drilling stage’, within only around a year from implementing its PSC.

The company commenced its drilling campaign with 2 chip-holes, including BO-CH-1 and BO-CH-2.

As per Elixir, drilling the lower cost chip-holes first, although slower than expected, provided lessons for the core holes drilling, the prime objective of the program – at minor cost.

Both the core-hole and chip-hole programs have been negotiated on a turnkey basis (revolving around fixed dollars per metre drilled), removing considerable economic and operational risks for the Operator.

Following the drilling of the BO-CH-1 chip-hole, which led to the gas observation in the system and found coal as suggested by seismic, the company shifted its focus on the drilling of the two fully tested firm core-holes.

As a result of the successful capital raise in the last financial year, the 2019 exploration program is fully funded (at a 100% ownership level), allowing the company to deal with issues such as potential partners in the future.

Ugtaal-1 core-hole Spudded

• As at 17 November 2019, the Ugtaal-1 core-hole had spudded, reaching a depth of 122 metres;
• Analysis on the encouraging findings from the BO-CH-1 chip-hole demonstrated gas in the system, coal seams of a thickness which are productive in Australia and natural fracturing which may support good permeability;
• The BO-CH-2 chip-hole had reached 408 metres;
• Both rigs had been winterized with the desorption lab set up at Ugtaal-1.

Tapping lucrative China’s Gas Market Opportunity

In the next 15 years, China expects to increase gas demand by 300% driven by government initiatives. With its Nomgon IX CBM PSC located on the Chinese border, Elixir Energy is well placed to gain from the rising gas demand. The Mongolian CSG is expected to be highly cost competitive compared to alternative sources of gas with China seeking to diversify its sources of gas supply to meet the rapidly growing gas appetite.

EXR advancing well backed by strong management

The company is progressing well with the drilling program at its flagship asset under the guidance of its highly experienced CSG team:

• Richard Cottee, Non-Executive Chairman - Former Managing Director of CSG focused Queensland Gas Corporation (QGC);
• Neil Young, Managing Director - Former Business Development Manager at Santos;
• Stephen Kelemen, Non-Executive Director- Current Non-Executive Director at CSG focused Galilee Energy (GLL);
• Bayanjargal Byambasaikhan, Strategic Adviser - Chairman of Business Council of Mongolia (BCM).

The Mongolian staff was joined by the Mongolian contractors on the seismic and drilling fronts, performing exceptionally on all fronts – safety, environmentally, technically and economically.

Looking Forward

The results of the seismic survey and drilling will help the company in updated, independently verified resource estimation process. The Ugtaal-1 well is expected to reach the Permian section in this week only. Following this, the company will start testing coal cores for their gas content.

The company is looking forward to further developing its flagship asset - Nomgon IX PSC over the next year.

At market close on 19 November 2019, EXR was trading at a price of $0.041 with a market cap of around $20.54 million. The stock has delivered a decent YTD return of 47.6%.

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