This follows the spudding this week of the Mungi-4 well - the start of Molopo's final round of production test drilling on its promising coal bed methane projects in the Bowen Basin west of Gladstone.

"This is a further boost to Australia's emerging CBM industry already buoyed by the Queensland Government's decision last month to use coal seam gas from the Bowen Basin to fuel a new $500 million power station in Townsville in preference to natural gas piped from PNG," said Molopo's managing director, Mr Stephen Mitchell.

The new three well program is being undertaken at Molopo's Mungi and Harcourt gas accumulations in ATP564P and PL94 with drilling to be completed by mid August. The tests will assist Molopo determine by year's end which of two possible gas extraction options it proceeds with in the development of the Mungi and Harcourt fields.

The company's initial production tests late last year included the Harcourt-1 and Mungi-1 wells, and provided strong encouragement for the fields' commercial development.

Molopo also announced that it shortly expected to sign contracts for the sale of CBM gas from its trial production wells in Queensland, which would generate Molopo's first cash flows from CBM production by January next year.

The company will also embark on a feasibility study on applying new gas extraction technology at the Mungi and Harcourt projects is expected to be completed by December this year. "We are confident we have two fields in place (Mungi & Harcourt), which should be viable using proven water frac stimulation methods," said Mr Mitchell.

"The value of proceeding with this second round of production tests is to assess whether higher optimisation of the reserves is possible using the new surface to in-seam gas extraction method instead of water fraccing," he said.

"We want the surface to-in-seam extraction technique to prove its potential before a development decision is made."

Conventional water frac stimulation involves the injection of water at high pressure to create a fracture within a particular coal seam to release the gas. The surface to in-seam approach drills from the surface until intersecting the target seam, after which the hole is continued horizontally within the seam for up to 1,000 metres before intersecting a vertical pump well.

Mr Mitchell said that because this method exposed a larger surface area and could possibly reduce the number of wells required, it had the potential to generate greater gas flows per well and increase recovery rates, but at less cost.

Two of the three production test wells in this final drilling program will be surface to in-seam while the third will be conventionally water fracced for direct comparison.

An independent reserves report by US-based petroleum engineering firm, Netherland Sewell & Associates, found that Molopo's Bowen Basin project had gas in place of 3.67 trillion cubic feet (tcf) and possible recoverable reserves of 1.31 tcf.

Based on proven and probable (2P) reserves of 85 billion cubic feet, Molopo believes it has the second largest reserves of listed Australian CBM companies. It is second only to Oil Company of Australia (OCA) which is Molopo's 50% partner and Operator in ATP564P and which has more than 50 producing CBM wells in an adjacent field.

"With existing pipeline infrastructure already running through both the Mungi and Harcourt fields, Molopo's reserves can be swiftly developed," said Mr Mitchell.

Molopo has a free-carried interest of approximately $6 million in the current production test and early development program as part of the company's US$5 million sale to Helm Energy in April this year of a 25% stake in the project.

Mr Mitchell said that should other interest holders participate in full to their relevant interests, this would involve the expenditure of $24 million - or between 30 and 50 wells - before Molopo would be required to inject additional capital into the appraisal and development program.

Interests in ATP564P and the undeveloped northern sector of PL94 include Molopo (25%), OCA (50% and operator) and Helm Energy-Australia LLC (25%).