BHP will sell its coal seam gas resources [February 02, 2006]

AUSTRALIA'S emerging coal seam gas sector is under renewed investor spotlight as mining giant BHP Billiton seeks indicative bids for its global coal seam gas assets.

Origin Energy, which yesterday agreed to pay $70 million for the Argyle coal seam gas project in Queensland, is showing interest in the BHP assets, along with Santos and AGL, which have also made investments in coal seam gas.

BHP trail-blazed the development of tapping coal seam gas as a power source in Australia. Its major asset is its equal joint venture with CH4 in the Moranbah project in Queensland, the country's largest single coal seam gas project.

Shares in CH4, which is 47 per cent owned by Macquarie Bank, gained 5c, or 3.6 per cent yesterday, to $1.43, valuing the company at $145 million.

Moranbah powers Entertrade's Townsville power station, which in turn powers BHP's Yabulu nickel refinery.









BHP is also seeking buyers for its offshore coal seam gas assets, which are believed to be focused on Illinois in the US, and in China.

A BHP spokeswoman declined to confirm rumours that it was managing a sales process, but interested bidders said BHP wanted to expedite the sale with the aim of completing it before the end of the month.

The planned sale of BHP's coal seam gas assets was no surprise to analysts who said the business was too small in scale and too dispersed to be a core development for the global miner.

However, the CH4 joint venture will be attractive to major energy companies looking to capitalise on rising power demand in Queensland and NSW.

Last month consultant Core Collaborative and Energy Quest said coal seam gas could be supplying 35 per cent of eastern Australia's energy needs within the next 10 years.

About $1.5 billion has been ploughed into the sector in the past five years. Last year Santos raised eyebrows by paying $612 million for a majority stake in the Fairview coal seam gas project in Queensland through a merger with US-based Tipperary Oil.

Wilson HTM analyst Andrew Pedder said coal seam gas was well placed to fill a looming gas supply gap on the east coast from 2010. He said coal seam gas was likely to be able to compete with the $US2.7 billion PNG-to-Queensland gas pipeline project championed by Oil Search and ExxonMobil. First gas from the pipeline, which comes from PNG, is expected from 2009.

Australia boasts 3600 petajoules of proven and probable reserves of coal seam gas, equivalent to about 600 million barrels of oil.

The US sources about 7 per cent of its natural gas output from coal seams.

At Argyle, Origin is acquiring a project next to its own Talinga project in the southeast of Queensland. Argyle has 117 petajoules of reserves and has already contracted to supply 3 petajoules a year to fertiliser giant Incitec Pivot from late 2007. Origin has acquired Argyle from Pangaea Oil & Gas.