Elixir’s Daydream-2 gas well takes a key step towards high-impact drilling

Oil and gas small-cap Elixir Energy Limited (ASX: EXR) has inked a crucial land access agreement on its Grandis Gas Project in Taroom Trough, part of Queensland’s Bowen Basin.

A Conduct and Compensation Agreement formed between a local landowner and Elixir has secured site access for the company’s Daydream-2 well. Management emphasised this project is designed to minimise the environmental footprint, with only limited civil works required.

What’s next?

A water well will be drilled on site, which will provide both water for upcoming drilling operations and a means to monitor local groundwater. This process will be overseen by an independent laboratory that will help minimise any environmental effects from the drilling and subsequent works. 

Management has also indicated the water well will be passed to the landowner for agricultural use after oil and gas works are complete.

Elixir’s managing director, Neil Young, said the Grandis Gas Project is on track to see drilling of the Daydream-2 appraisal well by the end of 2023.

This is a very high impact well, where success will add material volumes of now even more competitive gas resources to a gas market that Government bodies such as the ACCC and AEMO notes will very soon be desperate for new gas supplies.

Management has recently closed its call for expressions of interest from drilling and ancillary service providers, having received strong interest. At the same time, Elixir has been negotiating with a drilling service company and a “significant local operator” about potential cooperation and sharing of mobilisation costs.

The timing of the Daydream-2 well potentially hinges on the timing of the drilling activities of this other local operator and the rig becoming available. At this stage Elixir still assesses that Daydream-2 should be ready to spud at around the end of 2023. 

Regulatory update

Earlier this week, the Federal Government announced changes to the Safeguard Mechanism.

This mechanism regulates the emissions from certain larger industrial ventures in Australia (including gas developments). In this context Elixir notes:

1. The very low CO2 (around 1%) in the raw gas in the Taroom Trough (as evidenced from open file data for producing assets in the region for which the Taroom Trough provided the source rocks). Such levels of CO2 meet gas pipeline specifications - as such they are not removed as part of the gas development - and hence are not scope 1 or 2 emissions of the gas supplier.

2. Grandis’ close proximity to existing transmission infrastructure allows for a lower emissions profile than for more distant supply options.

3. The existing electrical infrastructure in the region will facilitate the electrification of future gas developments, ranging from compressor stations to the drilling of wells. Backed by renewable energy power purchase agreements (PPAs), that option (not available in more remote areas) will facilitate a future gas development project with minimal scope 1 and 2 emissions.

4. Government agencies such as the ACCC and AEMO have recently noted a rapidly emerging shortfall between gas demand and supply on the East Coast. The new policy does not change demand – but arguably does reduce supply options. Advantaged projects such as Grandis are therefore placed in an even stronger competitive position.

Disclaimer: Market Index helps small-cap ASX-listed companies connect with Australian investors through clear and concise articles on key developments. Elixir was a client at the time of publishing. All coverage contains factual information only and should not be interpreted as an opinion or financial advice.