December 2021 Quarterly Report & Appendix 5B

Source: 1/31/2022, Location: Not categorized

o Experienced coal seam gas expert David Casey appointed as Managing Director.
o Workover operations on G10L, G17, G20 and G23 completed successfully with each of these high producing wells back online.
o Total pilot water production restored to a peak of 19,300 BWPD in mid December 2021.
o Direct pressure measurements at Glenaras 14 indicate that reservoir pressure is down to the lowest level observed to date confirming the entire Betts Creek Coals are successfully being de-pressured. This is the first step in unlocking significant gas reserves in multiple coal seams across a large area of the Glenaras field.
o Successful water handling through irrigation, confirmation that our produced water is of a quality to grow a range of commercial crops as we look to monetise our emissions strategy.
o Strong balance sheet with current cash position of $10.1 million as at 31 December 2021, with no debt.

Comments from Managing Director and CEO David Casey:
“Having now had time to review the reservoir and operational challenges past and present, it is clear that the Glenaras Pilot is at an exciting inflection point for gas production, not unlike other successful CSG fields in Australia after years of continued pumping.

With evidence of modest desorption, I am firmly of the view that a concerted effort to achieve what is anticipated to be commercial gas production rates is definitely justified, particularly when considering the size and value of the prize of a 100% owned multi-TCF gas resource on the east coast.”

Glenaras Gas Project (ATP 2019) – GLL 100%
Galilee Energy Limited is pleased to provide an update on the Glenaras multiwell pilot programme (“Pilot”) in the Galilee Basin in Queensland.

The Glenaras Gas Project (“Project”) is located in ATP 2019, which is 100% owned and operated by Galilee. The Permit covers an area of approximately 3,200 km2. The Project has one of the largest contingent gas resources on the east coast and is strongly positioned to help address AEMO’s forecast eastern Australian domestic market gas shortfall expected from around 2023. The Project’s independently derived and certified Contingent Resource* within the Betts Creek coals are 1C of 308 PJ, 2C of 2,508 PJ and 3C of 5,314 PJ, which represents sufficient gas supply to fulfil 25% of eastern Australian domestic market needs for over 30 years (3C Contingent Resource at 650 PJ/year).

The workover programme, carried out over two separate campaigns has safely and successfully installed appropriately sized new pumps in the G10L, G17, G20, and G23 wells incorporating modifications to improve the handling of gas production, leaving the central G14L well (a low water producing horizontal well in the R3 seam) as a valuable observation well.

These pumps were brought back online, with water production gradually restored to a peak rate of 19,300 BWPD in mid-December 2021.

The reason for the November 2021 workover campaign was to restore the high (+18,000 BWPD) water rates which have demonstrably depleted pressures in the entire multi-seam Betts Creek sequence as far as 7 kms from the central Pilot area (ASX release 24 June 2021).

Prior to the previously reported pump failures, the Pump Enhancement Programme (PEP) progressively implemented mid-year (ASX release 29 July 2021) was successfully drawing down the pressure across the Pilot area at an accelerated rate.

The greatly increased rate of pressure draw-down achieved with the PEP is shown schematically in Figure 2 below.

Encouragingly no significant pump downtime has been experienced, with Pilot water production declining from the peak rate in December 2021. The reduction in water rates is associated with a reduction in reservoir pressure and the onset of modest gas desorption, although this does not necessarily translate to simultaneous increased gas production which is often delayed, particularly in low rank coals, requiring sustained pressure reduction over time. The challenge going forward is to expedite this process in the most cost-effective manner.

Water handling projects
Efficient water handling remains critical to the efficient operation of the Pilot. During the quarter, three irrigation areas were successfully utilised. R&D efforts to develop an understanding of intensive cropping options continue to be progressed. Four different forage fodder species have now been tested for suitability and yield. The water handling capacity of the irrigation schemes together with the on-site water storage and reverse osmosis plant is in excess of 20,000 BWPD.

To date Pivot 1 has had five cuts of forage sorghum, Pivot 2 has had two cuts of forage oats and the most recent travelling irrigator area had its first cut of forage barley. The plan for the next quarter is to plant the Pivot 2 area with a new forage sorghum varietal. Other irrigation areas will be intensively sampled to confirm soil improvement to date and will be rested in early Q2 2022.

Second sorghum crop at pivot 1 area.

The performance of the cropping trials is a clear demonstration that the produced water is of sufficient quality to grow a range of commercial crops. This will create significant opportunities for value creation beyond the existing gas business and represents the first step of an integrated process for Galilee as it looks to leverage off its unique position to manage and monetise its emissions strategy.

ATP 2019 Seismic Reprocessing Project
1,499km of legacy 2D seismic has been fully reprocessed across ATP 2019 (Figure 3) and interpreted, providing increased resolution and understanding of the structural-stratigraphic architecture of the coal seam gas bearing Betts Creek Beds and Aramac Coal Measures. Greater definition is now evident around fault delineation and coal seam distribution, which in turn will support the planning and placement of future exploration and appraisal wells, both around the current Glenaras pilot and elsewhere across the approximately ~3,200 km2 of certified Contingent Resource.

ATP 2043 Kumbarilla Project – GLL 100%
Exploration work continues at ATP 2043, progressing the understanding of both the conventional oil and gas prospectivity and coal seam gas prospectivity of the permit. High-grading of future drilling locations remains the primary objective through integration of the reprocessed 675km of 2D seismic with the existing regional well control, the Kumbarilla Central 1, 2 & 3 exploration wells and the adjacent PL 1009 pilot production data gained from the data exchange with Shell.

ATP 2050 Springsure Project – GLL 100%
The Permian stratigraphic section in ATP 2050 hosts conventional gas prospectivity and Late Permian coal seam gas prospectivity, both of which have been proven commercial in the adjacent northern Denison conventional gas fields and the Mahalo project. Evaluation of multiple opportunities for both play types is ongoing with the intention of maturing high integrity locations for exploration drilling.

ATP 2050 is strategically located in close proximity to present day conventional gas facilities and future planned coal seam gas facilities, which places potential new discoveries in a strong position for rapid development and supply to the east coast domestic and export markets.

The cash flow for the quarter is presented in the accompanying Appendix 5B (quarterly Cashflow Report). The Company continues to maintain a very strong cash position as at 31 December 2021 of $10.1 million, with no debt.

During the period, the Company spent $2.9 million on exploration and evaluation activities, primarily on the Glenaras pilot pump enhancement programme, water management projects and Glenaras Pilot operating activities.

During the quarter, the Board of Galilee Energy announced the appointment of Mr David Casey as Managing Director, effective 1 December 2021 to lead the Company into the next phase of its commercial development.

Mr Casey is an internationally recognised expert in coal seam gas (CSG) exploration and developments with extensive experience as manager and technical expert/advisor in projects across Australia and Asia. He has previously served in senior executive roles in several ASX listed companies, most notably in Eastern Star Gas Limited, where, as Managing Director he was instrumental in the establishment of 2+TCF reserves at the Narrabri Gunnedah Basin CSG Project prior to that company’s sale to Santos for a total in excess of A$1Bn.

Following Mr Casey’s appointment, Dr King has stepped down as Managing Director, and in accordance with good corporate practice retired from the Board after eight years’ service to the Company as Chairman, non-executive Director and interim Managing Director, effective from 1 December 2021.

The Company’s Annual General Meeting was held on 23 November 2021, at which all resolutions were passed.

Galilee’s accompanying Appendix 5B includes an amount in item 6.1 which constitutes director’s fees paid in the December quarter.

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