Managing director John Bay told yesterday's annual general meeting in Wellington that the company was investigating ways to unlock the CSM potential in the company's permits, one of which borders some CSM permits held by affiliated company L&M Group.
L&M Petroleum chairman Geoffrey Loudon said Southland showed strong promise for CSM production, with an estimated potential of 100-300 billion cubic feet. Potential markets included the dairy industry, domestic users or even Rio Tinto's aluminium smelter at Bluff.
Following the New Zealand Government's 10-year ban on new baseload fossil fuel-fired power stations, there is increasing interest in more direct uses of gas within industries, particularly in the South Island where there is not a gas pipeline network.
Loudon said some New Zealand fertiliser companies had signalled the possibility of moving to the South Island if sufficient quantities of gas became available.
Bay also said L&M Petroleum wanted to expand its South Island exploration acreage this year.
L&M Petroleum, private Australian company Twinza Oil, headed by Clough Engineering boss Bill Clough, and private New Zealand company McKenzie Petroleum have applied to Crown Minerals for a 646.4 square kilometre block.
This acreage is on the South island's West Coast, southeast and south of PEP 38521 where L&M is currently drilling Fireball Creek-1. L&M would hold 40% of the new permit.
"The interests the company will hold in these two permits provide an attractive geographical expansion from the Southland Basin and could realise early cashflow if a commercial discovery is made," Bay said.
Within the next week or so, L&M should have a good idea if Fireball Creek-1 has commercial possibilities, according to Bay.
The well is currently more than 181m down towards the planned depth of 450m to test an Eocene-aged Omotumotu sandstone structure containing potential gas resources of up to 40 billion cubic feet.
Meanwhile, the company is seeking farm-in partners for further planned onshore Southland exploration wells.
L&M drilled six wells last year - Eastern Bush-1, Dean-1, the Dean-1A sidetrack, and the shallower Sharpridge Creek-2, 3 and 4 wells. In 2006, its Sharpridge Creek-1 well confirmed the existence of oil and gas in Southland's Waiau Basin.
The Dean and Eastern Bush wells had indications of gas and heavier hydrocarbons, while the first two Sharpridge Creek appraisal wells had sub-commercial hydrocarbon shows from the shallow Beaumont Formation.
None of the wells was commercially successful.
L&M and government-owned Mighty River Power, which farmed in to earn a 50% interest in PEP 38226, are presently seeking farm-in partners to help fund their proposed 2008 deep drilling program, which includes the Otahu-1 well, and possibly Rowallan-1. L&M believes that if gas is present, Otahu has a mean estimate of 734Bcf of gas in place, while Rowallan could contain 174Bcf.
L&M is also seeking to farm out up to half of its 100% stake in nearby PEP 38230, in the Te Anau Basin, where the Whitestone Deep-1 well could be drilled later this year.
