Blue said its wells had confirmed the presence of the Late Permian Bandanna Formation coals in its ATP 854P and ATP 817P permits.

"It is from these coals that coal seam gas is produced in the nearby Santos Fairview and Origin Spring Gully fields," the company said.

"Cerulean-1, drilled as a core well on ATP 854P, has intersected approximately five metres of gas-bearing Bandanna Formation coal. ATP854P is close to gas pipeline infrastructure, further enhancing the economics of this discovery.

"Cobalt-1 in ATP 854P, was drilled as a stratigraphic test well some 10 kilometres south on the same tenement and intersected approximately three metres of coal. A water-bearing sand was also identified indicating the potential of a conventional stratigraphic trap structure in the Mantuan Formation."

Blue said it had also had success in the ATP 817P permit.

"Azure-1 was designed as a stratigraphic test well and intersected approximately five metres of gas-bearing Bandanna Formation coal during drilling," the company said.

"The well has been cased and suspended, and plans are underway to confirm the thickness of the coal more accurately using cased-hole logs."

Chief executive Bill Williams said the exploration drilling results gave Blue Energy a firm platform to move into production well testing in both tenements.

Blue is now planning additional wells, leading to production testing, near the Azure-1 and Cerulean-1 sites.

ATP817P and ATP854 are held 100% by Blue Energy and are part of a group of five exploration tenures currently being evaluated for CSM potential under a six-month drilling program of up to 15 wells.

"The company has evaluated these tenements as having the lowest geological risk and most rapid and efficient pathway to commercialisation," Williams said.