No significant gas was discovered when Whinstanes-1 in the Waggamba field was drilled to 2,615 metres, Mosaic said.

This means Mosaic will be unable to supply a second tranche of gas to CS Energy beginning April 1, 2005.

Mosaic had signed a contract in June 2004 to supply two parcels of gas to CS Energy with the second tranche depending on the company finding sufficient gas by February 2005.

"Mosaic has informed CS Energy that it cannot meet in time the conditions precedent for the second parcel," the company said.

"This is because of the failure of Whinstanes-1 well and the consequent technical decision not to drill further Waggamba wells until additional studies are completed."

Mosaic said it was continuing discussions with CS Energy regarding future supplies of gas.

Recently Mosaic informed CS Energy that it would continue to deliver the first parcel of gas—1PJ at rates of 3 TJ per day—from the Silver Springs gas fields and the Waggamba gas field. But the failure of its Whinstanes-1 means it cannot meet the second tranche.

During the next two months, the Waggamba 2 and 3 wells will be connected to the existing 25 km pipeline. Gas from these wells will be available for CS Energy.

Mosaic said revenue estimates of $14-17 million for financial year 2005 were still valid, but it was unlikely to meet financial year 2006 estimates of $17-24 million.

Mosaic shares fell after the announcement and were trading 3.5 cents lower at 18.5 cents on a volume of 15.9 million at 2pm AEDT.