Elixir Energy’s Mongolian coal seam gas project off to a promising start

It’s taken patience, but Elixir Energy has had some good results from its first coal seam gas drilling effort in Mongolia.

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A decade of work trying to bring the dream of coal seam gas production in Mongolia to fruition is starting to gain traction for Adelaide company Elixir Energy.

Former Santos executive Neil Young, who had experience with the large Adelaide company in bringing its Queensland coal seam gas fields to production, saw a potential opportunity about ten years ago.

“In about 2010-2011 it became apparent that Mongolia was emerging as a massive coal producer and it was literally shipping that coal to China by truck,’’ Mr Young said.

Where there is coal there should be coal seam gas, he thought.

“And if there is, then it could be shipped by pipeline at an enormous cost saving compared to liquefaction and shipping from Queensland,’’ which companies such as Santos currently do.

Mr Young and another former Santos colleague went to Mongolia for the first time in 2011 with a view to securing a coal seam gas exploration licence.

“That process was enormously time consuming and we finally executed a licence in 2018,’’ he said.

Mr Young said the process was lengthy due to Mongolia being a developing nation with a maturing legal system, and regular changes of government or ruling coalitions, leading to delays.

“That process required a lot of patience, but the silver lining is that I’ve developed a great knowledge of the country and some pretty lengthy relationships with local people at multiple levels.’’

The exploration licence is based in the Gobi Desert, and surrounds but excludes the area where Rio Tinto’s Oyu Tolgoi copper/gold mine sits.

The project was backdoor-listed into Elixir Petroleum in 2018, then the name of the company was changed to Elixir Energy.

The board now includes Mr Young, as well as Richard Cottee - the former managing director of Queensland Gas Company which sold to BG Group for $5.7 billion - as non-executive chairman and former Santos executive and coal seam gas expert Stephen Kelemen.

Having spent years obtaining its exploration licence, the company started drilling at its Nomgon licence area in October last year.

On February 5 Elixir announced it had intersected 82m of net coal, with the thickest coal seam 51m.

The shares more than doubled that day, jumping from 1.9c to close at 4.3c.

Elixir said the objective was to discover “thick, gassy coal seams below 300m’’.

“The results to date of the Nomgon-1 well have met that goal,’’ the company told the ASX at the time.

Later in February, the company announced that further testing showed “at this point the ranges measured are sufficiently robust to meet the requirements of a coal seam gas discovery’’.

“Further laboratory work will be undertaken to measure features such as saturation and ash content,’’ the company said.

“The results of this will feed into a planning process which is now underway to design a testing and delineation program for this sub-basin.’’

Mr Young said Elixir was at the early stages, but currently had a “low intensity dialogue” with Rio Tinto about energy supply options, and as is usual for an exploration company would look to develop the project further but also look to partner up as it progressed.

“A large scale development if we discover enough gas is certainly feasible,’’ Mr Young said.

“We never pretend that we would be the company that would develop that.’’

Mr Young said coal seam gas, such as it is for Australia, would be a crucial transition fuel for the Asian region and the project was about 400km from a major pipeline network which would allow gas sales into China.