Southern coal seam gas explorer L&M Energy is expected to hit its straps in the next six to 12 months and prove the viability of commercial methane gas extraction, energy sector analysts say.
The next year for LME is considered the most important in its history and it has many energy opportunities, say energy sector specialists and brokers McDouall Stuart and Craigs Investments Partners.
In recent years, the various private and public subsidiary companies under the wider L&M group umbrella are estimated to have spent more than $30 million exploring for oil, gas, lignite and coal seam gas in the south.
LME holds permits over 13,000sq km to explore for coal bed methane gas, including Otago, Southland, the West Coast, Taranaki and Waikato, with its southern Ohai tenement the most prospective and likely to see the lion's share of $8.5 million recently raised in exploration capital.
There are an estimated 173 petajoules of energy in the southern holdings, following widespread seismic and test drilling in the area in recent years.
Sharebroking and investment banking firm McDouall Stuart Securities' head of research, John Kidd, said LME had a $2 million "cash burn" from exploration costs per quarter, but the $8.5 million raised recently would ensure its programme was funded through to "at least" the second quarter of 2011.
"Our view is that LME's Ohai work programme [in Southland] is likely to result in a significant and near-term increase in [estimated] 3P reserves.
The next six to 12 months will be the most important in LME's history," Mr Kidd said.
LME share were trading at a 19c high in May, but had steadily fallen to level off around 12c recently.
LME, which estimated the Ohai gas pilot would cost about $2 million and encompass up to five test holes and up to four months of gas flow testing, last week announced an offer to shareholders which could raise up to a further $2.85 million.
Craigs Investment Partners broker Peter McIntyre said LME had an "exciting array" of opportunities within its coal seam gas portfolio, which was the largest of any company in New Zealand.
"They have got enough cash to keep going and it's time for them to step up, and deliver, if it [gas] is there," Mr McIntyre said.
Mr Kidd said the next "major technical milestone" for LME was to establish its gas production pilot at Ohai, towards the end of the year,which would support its claim of having a P2 resource (50% probability of economic recovery).
Should it successfully pilot its Ohai coal seam gas and in doing so prove the resource is commercially viable, LME would face a range of attractive options, Mr Kidd said in a statement.
Those options included coal seam gas diesel-alternative fuel and electricity and heat generation for large companies.
It had announced an agreement in June with trucking and fuel distribution company H. W. Richardson Group, which operates 740 vehicles and 60 Allied Petroleum service stations, to investigate the feasibility of delivering automotive lng, he said.
"Fonterra's demand for South Island energy, either as an industrial heat and, or, electricity or automotive fuel, is therefore very substantial.
The potential for some form of strategic partnership would appear to be conceptually strong," he said.
LME listed on New Zealand and Australian exchanges in January 2007, as L&M Petroleum, following a a successful initial public offering of $A20 million ($NZ24.9 million); subsequently spending about $NZ19 million exploring in the western Southland basin.
L&M Petroleum changed its name to LME in January this year and completed a script-only merger with private sister company L&M Coal Seam Gas in February, essentially a reverse listing of the private company.
McDouall Stuart research reported the coal seam assets were worth $54 million to $120 million in February.
Since March, three coal seam gas test holes had been drilled, in Southland, south Waikato and Ohura The L&M group (Lime & Marble Ltd) goes back to 1935.
It was active in mineral, coal, gold and petroleum exploration, in New Zealand and overseas, and was once at the forefront of alluvial gold-mining in New Zealand.
LME now focuses on exploration of energy resources; comprising coal, coal seam gas and lignite prospects.
