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Admiral Bay has built up the land position and it’s building up the production. And with perfect timing, this has all coincided with a strengthening of the gas price.
America’s use of CBM as an energy source is growing substantially. Energy majors are paying big bucks to acquire up-and-coming CBM producers, and dozens of companies have sprung up chasing grassroots CBM projects.
The western US, in particular, has been a happy hunting ground for CBM companies in recent years, with an armada of outfits – including a generous smattering of Aussie juniors – making healthy returns from projects throughout the Rocky Mountains and the plains of Wyoming.
But, you won’t find TSX-V-listed junior Admiral Bay among them.
Admiral Bay has skirted the CBM land grab out west, choosing instead to build itself around ground in the Cherokee Basin of Kansas and the Pennsylvanian Appalachian Basin.
The company’s sights are set on achieving a total landholding in excess of 200,000 acresb y the end of next year, and 20 million cubic feet per day production by mid-2007. If it delivers on those outcomes, the company will be firmly in the sights of predators who have proven themselves acquisitively active when it comes to CBM.
Admiral Bay president Steve Tedesco, said there good reasons for the company miwest and eastern seaboard focus, the first being that Kansas and Pennsylvania have far fewer environmental and private landowner issues than their western cousins.
Those environmental issues, said Tedesco, could also hit the operating companies in the hip pocket.
“Companies working out west have an automatic $US1.50 environmental cost per million cubic feet - for us it’s less than US10c/MMcf,” he said.
Secondly, there’s the issue of location.
“I’m also closer to market, and when prices go down – and they eventually do – I can still make money, whereas the other guys will have a very tough time,” Tedesco said.
“Our projects are in areas where they will work at $US3 gas prices, and right now we’re getting $US11.80. It’s a very lucrative market.
“In eastern Kansas, we’re next to a couple of major cities, namely Tulsa and Kansas City, while gas from our project in Pennsylvania goes directly to New York City and New Jersey.”
While the land rush in the Rockies has bumped up the price of acreage in that part of the world, Admiral Bay hasn’t had to contend with the same factors of supply and demand.
“Our ground isn’t as competitive as the Rocky Mountains. We’re probably paying anywhere from $US10-50 per acre, which are pretty reasonable prices, and our landowners are only taking a 12.5% royalty.”
He added that Admiral Bay’s projects were not subject to ground water problems to the same degree as projects in the Rockies, while lower flow rates meant the same reserves would last for 10-20 years, as opposed to three or four – something that works in the company’s favour when it comes to securing finance.
Tedesco certainly has the pedigree to make such comparisons, having studied coal geology extensively and having worked exclusively in the CBM business for 17 of his 22 years in the oil and gas sector.
During his time in the CBM industry, he has been involved with projects throughout the US, and drew on his expertise to privately acquire and accumulate the projects now at the heart of Admiral Bay.
Tedesco was made president of Admiral Bay soon after he vended the projects into the company in early-2004, and since that time he has rapidly advanced each of the company’s six projects.
Admiral Bay’s daily gas production recently passed the 1.2 million cf/d mark after just 18 months of operations. This still puts it at the smaller end of town, but making headway towards the company’s stated goal of achieving 5 million cf/d production by April of next year.
Should that target be met, says Tedesco, the need to raise finance will be all but eliminated. In the meantime, the company is in the closing stages of wrapping up a debt facility that should carry Admiral Bay through to its production expectations.
At the time of writing, the company had drilled or re-activated some 95 wells in eastern Kansas, of which 57 were operational and connected to pipelines.
“On average, wells are initially producing 20MMcf/d, and are expected to increase to 70-100MMcf/d within six months of operations,” Tedesco said.
In addition, the company will finish the year drilling 18 wells per month, and by the end of the year is aiming to have 150 wells in production.
