Elixir Energy ends 2019 drilling program on a high

Elixir Energy (ASX:EXR) has seen its share price more than double this morning on news that it has completed its 2019 exploration program at its mammoth 30,000km² coalbed methane (CBM) production sharing contract (PSC) in the South Gobi Desert – the Nomgon IX CBM PSC.

Located on the Mongolia-China border, Elixir is exploring for coalbed methane (CBM) — a form of natural gas extracted from coal beds.

The company’s operations are just 410 kilometres from China’s main transmission pipeline – the East-West Gas pipeline, that extends all the way from Turkmenistan. This proximity to China gives Elixir a strategic advantage in meeting the coming rise Chinese gas demand that is set to more than triple over the coming 15 years.

The PSC lies over a major Permian coal bearing region and has a giant independently certified CBM risked mid-case prospective resource of 7.6 Tcf and an un-risked prospective resource of 40 Tcf.

Drilling has now been completed at Elixir’s at the Nomgon-1 well — the second core-hole well in Elixir’s two core-hole 2019 drilling program — that is located approximately 37 kilometres to the south-west of the first core-hole, Ugtaal-1, and in a different Permian sub-basin.

The company’s Nomgon-1 core-hole well has now reached a total depth (TD) of 491 metres. Logging will commence shortly and will be followed by permeability testing.

Elixir’s key objective for its first exploration campaign was to discover thick gassy coal seams below 300 metres — given the results to date from the Nomgon-1 well that goal has been met.

Well site geologists have measured total net coal of 82 metres of which 63 metres is deeper than 300 metres. The thickest coal seam below this 300 metre cut off point measures 51 metres (from 373 to 424 metres). The logging will deliver a more accurate figure shortly. The vertical well indicated synclinal coal seams.

Abundant gas bubbling from the recovered core was noted across the whole interval prior to it being representatively sampled for gas content desorption measurement.

The well-site geologists have described the observable coal qualities to dominantly be C3-C4 on the AS 2519-1993 Guide to technical evaluation of higher rank coal deposit’s brightness scale.

This is considerably better than encountered at the Ugtaal-1 well, hence the market’s reaction this morning.

The location of this second core-hole was first identified as being prospective for coal seam gas (CSG) exploration by Elixir’s subsidiary company four years ago when it undertook initial on-ground prospecting work across the PSC area.

This means that Elixir’s management team has a good understanding of the well’s location, while recent field work has re-affirmed the location’s strong potential. This field work confirmed thick outcropping coal seams that demonstrate good cleating and coal quality to the naked eye.

The company’s stock was sold off sharply last year after reporting that permeability and preliminary gas content results at Ugtaal-1 came in at the lower end of expectations. However, that sell off looks to be somewhat of an overreaction given that further exploration was underway with results pending.

Elixir now awaits final results from drilling at its second location within its massive acreage in Mongolia’s South Gobi Desert as it works towards bringing to China much needed natural gas supplies.

Elixir looks to be back on track and as managing director Neil Young said: “We are very excited with the results to date from the Nomgon-1 well, which has met our key strategic objective of intersecting very thick and visually good quality coals within the CSG depth window. Our local Director Mr B Byambasaikhan recently joined me for a visit to Nomgon-1, where we were again pleased to see operations being conducted safely and professionally.”