In the Liulin Block, Molopo said its Chinese joint venture company, Fortune Liulin Gas, has made significant progress in establishing the development as a CSM producer.

Drilling and coring has been completed at two data wells and FLG has spudded an additional pilot production well, FL-ED1B, with plans to spud another production well, FL-ED3, early this month.

This followed the spudding last April of two vertical pilot wells, FL-EP1 and FL-EP2, which are being dewatered, with new pumps soon to be installed to accelerate the dewatering process.

Molopo said the exploration strategy at Liulin was to obtain sufficient production and geology data points so that FLG could meet government requirements on reserves certification, before submitting an overall development plan next year.

FLG expected to extend the exploration period of the Liulin block to beyond April 2008 in order to explore other sectors of the block, Molopo added.

FLG is owned 40% by Molopo and 60% by Fortune Oil, which recently met its $US2.5 million expenditure obligation relating to its part-acquisition of FLG.

In January 2007, FLG partnered with a Shanxi government laboratory to assess the gas resource at Liulin and later announced an increase of estimated gas in place (GIP) to 1.2 trillion cubic feet (Tcf), from the previous estimate of 0.7-0.8 Tcf, which represented a trebling of recovery expectations for the block.

Molopo said then that given new horizontal well techniques and vertical fracced wells, expected recovery could be as high as 50-70% of GIP.

Meanwhile, Molopo has also announced it believes another petajoule per annum of gas production can be obtained from its sole-risk lateral-based exploration at the Mungi CSM gas field in Queensland.

The first horizontal drilling wells at the Mungi gas field in the Bowen Basin had started with drilling the Mungi-22La well, designed to intersect in-seam laterals in coal seams A and C that were two major coal seams of the Baralaba Coal Measures.

Operations had commenced to deepen Mungi-22 from 491m to 575m, to make seam C available for lateral drilling and, when finished, the laterals would be connected to the deepened vertical well.

Similar operations would then be repeated at Mungi-22Lb, which would originate from another location but would also target seams A and C, as well as being connected to Mungi-22.

Molopo said drilling at Mungi-22, 22La and 22Lb was expected to last about two months. Trial drilling of two longer length triple lateral in-seam wells, Mungi-21 and Mungi-20, was scheduled for later in the year.

The company further said the horizontal wells at Mungi 22, 21 and 20 would be progressively connected to the Mungi gas field gathering and processing system, and that these wells were expected to add about 1PJ per annum of additional production. Molopo will have 100% share of the production increase.

Molopo has a 50% interest in Mungi (the northern portion of PL 94), and the surrounding ATP 564P and ATP 602P acreage. Molopo’s joint venture partners are Anglo (25.5%) and Mitsui (24.5%).

In licence PEL 285 in the Gloucester Basin near Newcastle, New South Wales, Molopo said two rigs were in operation with the first engaged to drill wells associated with the five-well production pilot at Stratford.

The second well was contracted to drill 13 exploration CSM holes to extrapolate the resources base and assist with reserve certification.

Molopo said the expanded five-well production pilot had started with the LMG03 well returning to production testing, the completion of land access arrangements, and the receipt of government approvals for drilling four new production wells.

The first of these new production wells, Stratford#6, had been drilled to its 660m total depth but it encountered unstable hole conditions and various completion options were being considered.

A second well, Stratford#5, spudded late last month, with two further wells due to be drilled before the start of a fracture stimulation program.

Molopo also said pilot production would be gathered at a central location to facilitate ease of expansion into an early production scenario, if results matched the encouraging performance of the earlier pilot program.

Earlier unstabilised gas flow rates of 666,900 cubic feet per day from LMG03 had demonstrated the production potential of the Stratford pilot area.

The company also said the second rig had started drilling outside Stratford to assess the CSM potential of the deeper northwestern portion of the Gloucester basin.

The Faulkland 01 well – the first of nine stratigraphic chip holes to be drilled, designed to test the depth, thickness and coal and gas characteristics from recovered cuttings of the coal seams in the Gloucester coal measures – had been specifically located to test the potential of coal seams within the Craven Subgroup and underlying Avon Subgroup in the deeper part of the Basin.

However, it had been temporarily suspended short of its proposed total depth of 1000m due to deteriorating hole conditions. Attempts to log and deepen the hole were under consideration.

Desorption testing of coal cores from the first two part-cored holes in this program, Weismantel 01 and Craven 01, was nearing completion and drilling of the third part-cored hole, Waukivory 01, continued satisfactorily, with a current progress depth of 797m, Molopo added.

The PEL 285 permit is about 100km north of Newcastle, where gas prices are expected to exceed other major east coast markets such as Sydney and Brisbane. The permit covers an area of 1050 square kilometres, with more than 200sq.km of prospective coal measure sequence.

Lucas Energy, a subsidiary of AJ Lucas, holds a 70% stake in the permit and is operator; Molopo holds the remaining 30%.