Elixir Energy Ltd (ASX:EXR) has provided an update on the coal bed methane (CBM) exploration/appraisal program underway across its 100% owned Nomgon IX Coal CBM Production Sharing Contract (PSC).

With the arrival of the Mongolian spring season, EXR has been able to accelerate its multiple well program for 2022 and now has two rigs operating.

EXR reported that it recently finished drilling the Tim-2 appraisal well – a follow on from the successful Tim-1S exploration well drilled earlier this year that opened up a new sub-basin for EXR.

Tim-2 was drilled to a total depth of 1,020 metres – the deepest well EXR has drilled in Mongolia to date — logging 3 metres of coal and 5 metres of silty coal. There was a decrease in coal thickness from the initial Tim-1 well to this Tim-2 well, attributed to localised faulting.

EXR will now integrate the Tim-2 results with geological mapping, age dating, and potentially new seismic to better define this coal bearing sub-basin.

The location of Tim-2 (right on the Tavan Tolgoi border) can be seen on the map below, as can the recently spudded Yangir-4 appraisal well, and the Bulag Suuj-1S exploration well that is due to be spudded imminently.

The Top Diamond Drilling LLC rig, which drilled Tim-2, has now mobilised to a new potential sub-basin in the west of the PSC. Here it is due to spud the Bulag Suuj -1 well later this week.

The Yangir-4 appraisal well, in the previously identified coal bearing Yangir sub-basin, can also be seen within EXR’s giant landholding. Yangir-4 was recently spudded by EXR’s newly hired drilling contractor, Ellecohr LLC.

These wells are part of the ~20 wells that we said that we wanted to see EXR drill throughout 2022, a key objective in our EXR Investment Memo.

EXR also notes that the extended pilot production testing that’s planned for mid-year continues to progress. This initial pilot program, the first in the country, is on track to meet its mid-year target. A commercial flow rate would be a significant event for EXR and its shareholders and given the relatively low costs involved in Mongolian, that hurdle shouldn’t be too high.

EXR explained that the tendering process for the program's civil works is well advanced, and a contractor is expected to be hired shortly.

This is promising news as pilot production program was the #1 key objective that we wanted to see EXR achieve this year at the Nomgon PSC, as per our EXR Investment Memo.

EXR also reported that its 2022 2D seismic acquisition program is proceeding as planned, with 223 kilometres (out of a total of 322 kilometres) acquired to date.

This morning EXR confirmed that it has discovered a new coal bearing sub-basin.

The company has completed the first well for the 2022 exploration program, reaching a total depth of 804m and logging ~46 metres of coals and leading to another sub-basin being confirmed as coal-bearing to the south of its project area.

Today’s news now confirms that EXR has already started working towards completing its 2022 exploration program, which we set as objective #2 in our 2022 Investment Memo, and that the all-important long term pilot production program is being procured, which we set as objective #1.

EXR has already started drilling a second well ~200m downdip of this well and will be testing for extensions to the coal bearing formations.

Drilling contracting had been completed for the remainder of the 2022 exploration program, whilst works have begun on the 2022 2D seismic acquisition program with the first 47km completed from a targeted ~322km.

EXR also confirmed that it has commenced discussions with drilling contractors to finalise the terms and conditions for the drilling/long term pilot production program scheduled for ~mid year.

What’s next: We want to see EXR continue its exploration efforts and lock in a drilling contractor to drill and complete the long term pilot production wells or progress on its green energy project.

We caught up with Neil Young, the head of our energy investment Elixir Energy (EXR), following his presentation on Wednesday at the Brisbane Mining and Energy Conference.

EXR is our 2019 Energy Pick of the Year, and has been making steady progress with its flagship Nomgon coal bed methane project in Mongolia, near the Chinese border.

This year, our #1 objective for EXR to achieve is to deliver its maiden pilot production program at Nomgon.

Neil provided an update, expanding the program to a planned ~24 wells, which should both grow and de-risk the gas resources in place.

We’re also pleased to see progress with EXR’s Hydrogen project.

Given the EXR’s team’s track record (Chairman Richard Cottee built QGC from a CSG junior capped at $20M to $5.7B takeover acquisition, Neil was formerly an executive within Santos’ coal seam gas division), as well as first mover advantage within an energy hungry region, we continue to have confidence in EXR’s capability to execute on its vision.

We found the EXR video on its H2 project useful to understand the importance of EXR's strategic location:

Today EXR announced that it had started drilling the first of a total 24 well drilling program planned for 2022.

The first of these wells sits right on the border of the tenements that make up the Oyu Tolgoi mine owned by Rio Tinto and will be drilled to a planned total depth of ~700m.

This year, we want to see EXR complete the pilot production program off the back of last year's drilling program.

EXR confirmed that the 2 well extended pilot production program was scheduled to commence around ~mid year. With gas becoming a talking point off the back of the Russia/Ukraine conflict we are eagerly waiting to see if EXR can confirm economic flow rates at its project.