European Gas, which already has four French CSM and CMM permits, said this morning it entered into a sale and purchase agreement with a subsidiary of the French state-owned coal mining corporation.

The agreement is subject to statutory approvals.

Completion and settlement of the purchase is expected in November following completion of the statutory approval process, including ministerial approval.

Gazonor holds the gas exploitation rights over the Poissonnière and Désirée permits.

These blocks cover 578.6 square kilometres in Nord-Pas de Calais in northwest France, and a 187.5sq.km extension of the Poissonnière permit is under application.

The last coal mines in these areas closed in 1992, but CMM extraction continues.

In the past five reported years to the end of 2006, gas production has averaged 2.9 billion cubic feet per year with an average methane content of 54%.

For 2006, the average methane sale price for Gazonor was €21.70 ($A35.17) per MWh.

European Gas said an independent report prepared by German consultancy Deutsche Montan Technologie GmbH estimated remaining proven recoverable reserves of 30.6 billion cubic feet of methane, producible over the next 20 years.

But after drilling additional boreholes, the recoverable reserves may be increased to 33.6Bcf methane.

The project also has potential for coal seam methane, which European Gas said it intended to explore.

“Typically, CMM is extracted under very low mine pressure through degasification wells drilled into the old underground workings, gathered and transported to central processing facilities where it is filtered, compressed, dehydrated, odorised and measured for quality and quantity under gas sales agreements,” the company said.

Subject to the results of a detailed feasibility study, European Gas aims to refurbish gas processing facilities at one site and redevelop two other sites to generate electricity.

“CMM has been classified in France as a gas to be recovered with priority to minimise its contribution to the greenhouse effect.

“Electricity generated from CMM will therefore enjoy a tariff in line with that generated from renewable energies attracting higher sales prices,” the company said.

European Gas said only a small part of the coal basin had been exploited by mining, and large quantities of coal remain, with potentially high volumes of CSM.

“The exploration program will comprise a detailed structural analysis, including reservoir modeling and drilling of at least two stratigraphic wells,” the company said.

“If successful, this may be followed up by an expanded program prior to full development drilling and commercialisation.”

To fund the Gazonor purchase, and for working capital purposes, European Gas said it had a funding agreement with a “substantial European group”.

Under the agreement, the Group will subscribe €36,375,000 (A$58.4 million) for convertible notes in European Gas, subject to statutory approvals for the acquisition of Gazonor and other approvals.