The partners announced they had entered a 'take or pay' agreement with an industrial company to provide a commercial gas supply from the Bowen Basin coal beds west of Gladstone in central Queensland. Interests in the project are Molopo (25%), Oil Company of Australia (50%, operator) and Helm Energy-Australia LLC (25%).

The gas will be used as a fuel stock for cotton drying in the Moura district, replacing LPG supplies previously brought in by road transport.

"The cotton drying facilities are adjacent to Molopo's Mungi gas field in the Bowen Basin so no major connection infrastructure is required between the well head and end user," Molopo's Managing Director, Mr Stephen Mitchell, said today.

"This is a considerable advantage as the contract can be satisfied with gas volumes generated by Molopo's current production test program," Mr Mitchell said.

The first deliveries under the seasonal contract will commence in January with gas supplied from the Company's 25% production entitlement to the Mungi 2 and Mungi 4 production test wells in PL94.

Last month the partners spudded the wells in the area as part of a four well program to be completed in September.

The program is the final production test drilling to determine which gas extraction method to use to develop the Mungi and nearby Harcourt fields. Junior partner Molopo said based on their proven and probable (2P) reserves of 85 billion cubic feet, Molopo is the second largest listed coalbed methane company in Australia.