Comet Ridge (ASX:COI) is continuing its charge to become a significant gas supplier on Australia’s east coast after reaching an agreement to acquire Australia Pacific LNG’s 30% interest in the producing Mahalo coal seam gas project in Queensland’s Bowen Basin.

The $20m acquisition will take the company’s stake in the project up to 70%, increasing its share of the current proved and probable reserves of 266 petajoules within the production licences.

Additionally, Comet Ridge has executed a funding and option agreement with the remaining Mahalo partner Santos (ASX:STO) that aligns the two companies in their shared desire to drive further development of the project.

Santos will provide Comet Ridge with access to $13.15m of debt funding to fully fund the upfront $12m cost of the acquisition and stamp duty costs of $1.15m in exchange for a direct option to acquire 12.86% in the Mahalo project.

The gas major has an exclusive right to negotiate an option to acquire a further 7.14% in Mahalo to give it a 50% stake in the project.

Comet Ridge managing director Tor McCaul says the transactions establish a streamlined joint venture with Santos that will progress development for Mahalo and the broader Mahalo gas hub area.

“The terms we have been able to agree with APLNG and Santos unlocks the potential of the entire Mahalo Gas Hub area to become a significant supplier of gas to the east coast market where industry dynamics have strengthened considerably as we continue to see a tightening of gas supply,” he added.

Mahalo project and gas demand

Mahalo is a well-defined field with existing reserves and demonstrated ability to produce gas at commercial rates with the Mira-6 short lateral pilot producing 1.4 million standard cubic feet during testing.

It is fully licensed for production and features target coal seams at shallow depths ranging from 180m to 400m.

Adding interest, Mahalo coals produce very low amounts of water, which are expected to lower both capital and operating expenditure, and high-quality gas with almost no carbon dioxide.

The project is also close to the Santos-operated Arcadia and Fairview projects with cost and time savings able to be achieved by developing the Mahalo Gas Hub area using the same modular design as Arcadia.

With Australia’s east coast continuing to struggle with high gas prices due to high demand, the timing certainly seems right for the development of a project that could meet both domestic and international requirements.