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Pushing the Envelope in Canadian Coalbed Methane

While no one in Canada is predicting a return to rapid natural gas production and export growth rates of the 1980s and '90s, entrepreneurial factions of the industry refuse to accept the idea it has run out of new supply sources.

Coalbed methane, still in its infancy in Canada, has a strong and competitive exploration element that continues to sprout activity. In the latest development, drilling is scheduled to start in September west of the Alberta capital of Edmonton by a fledgling firm in a virtually virgin zone of coal formations that carpet much of the chief Canadian gas-producing province.

An initial four coalbed methane wells are planned by Richards Oil & Gas Ltd. on about 100 square kilometers (40 square miles) of the Ardley formation in an area known as Marsh.

The exploration will seek dry coal layers where gas production can be established rapidly, Richards president David Thomas said in an interview. Only 58 of 3,575 wells drilled in Alberta's accelerating coalbed methane development by the end of 2004 attempted to tap gas in Ardley seams.

Better known dry formations -- the Horseshoe Canyon and Belly River -- accounted for 3,240 coalbed methane wells, or 90% of industry activity in the new field as of the end of last year. Industry and government experts alike have to date predicted Ardley coal will be full of fresh or salt water, creating environmental and cost headaches that have no cures yet.

The new firm disagrees. ""We believe it's not universally wet," said Thomas,a 55-year-old Calgary geologist and industry veteran who has worked on pioneering Canadian coalbed methane projects since the late 1980s.

His firm lined up a chance to try out its theory west of Edmonton by making a "farm-in" agreement with a company that owns the mineral rights in the area. In exchange for drilling the initial four exploration wells, Richards will earn ownership stakes of 20% to 37.5%. The mineral rights owner was described as "a major oil and gas company" but its identity was not disclosed. Richards also kept most details of its operations confidential, with Thomas explaining it does not want to attract competitors.

Richards entered the industry in June with an initial public offering of shares that raised about C$5.2 million (US$4 million) and a takeover of another Alberta industry "junior," Penzance Energy. Although small, the newcomer's arrival highlighted another emerging aspect of the Canadian gas supply sector. Investors outside the inner circle of geology and engineering experts who formerly had the field to themselves are becoming willing to put money into coalbed methane.

The new exploration program comes on top of previous commitments to drill 10 coalbed methane exploration wells on new frontiers of the fledgling Canadian gas specialty elsewhere in Alberta and British Columbia. In B.C. Richards has a farm-in agreement with the Upper Similkameen Indian Band and Compliance Energy Corp. for an area deep in southern mountains near an old mining town, Princeton.

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