Shares in oil and gas explorer L&M Petroleum spiked more than 100% yesterday on news of the potential of viable coal seam gas in the Western Southland basin, which is prompting an "aggressive" $2 million exploration programme by the company in the area, starting next month.
L&M chief executive John Bay said coal-bed analysis had identified known occurrences of Beaumont coal, which was highly prospective for economic coal seam gas reserves, present in three fairways covering a distance of about 85km within the company's permits, spanning from south of Te Anau to Riverton on the coast - known as Takitimu North, Takitimu South and Longwood.
"We believe our coal seam gas exploration programme has the potential to deliver sizeable gas reserves to L&M with a relatively low level of exploration risk.
"We will be aggressively pursuing this opportunity," Mr Bay said yesterday.
ABN Amro Craigs broker Peter McIntyre said there was a high volume and "brisk" trade of more than one million L&M shares yesterday - about tenfold normal trading volumes - with the share price initially rising from 12c to 25c then falling back to close up 83% at 22c at the end of trading.
Mr Bay said New Zealand coal seam gas had gone "unrecognised for too long" and the company had "expressions of interest from significant parties" on the potential of buying gas.
Mr Bay said the permitted areas had the potential to deliver 300 billion cubic feet of coal gas, which was about 70% recoverable.
In petajoule terms, it was about the equivalent of the offshore Kupe gas field potential of delivering 260 petajoules of energy.
The drilling programme starting next month, which L&M is funding itself, includes three test wells in the Waiau area, acquiring 15km of surface seismic data in each of the three areas and possibly drilling a further five targets, depending on the outcome of the seismic analysis.
L&M raised $23.2 million in a share float in January last year and had spent more than $7 million on both onshore and offshore exploration.
However, as with finding onshore or offshore oil or gas, the sticking point to uncover and use vast southern mineral reserves remains the cost of above-ground infrastructure for processing oil or gas.
It is understood the costs of developing surface production for a coal gas field for exporting would be less than $100 million, but Mr Bay said L&M's present focus remained on exploration of the three areas.
Converting gas to electricity generation has been ruled out by the Government - which is favouring renewable energy sources.
It could cost upwards of $400 million-$500 million to development a single gas-fired plant.
Earlier in the week, L&M announced it had been granted a 650sq km exploration permit in the onshore Westland basin near its existing West Coast exploration permit near Hokitika to look for oil.
Seismic testing is planned in the area to determine promising drilling targets, which could begin in late 2009 or 2010.
