Talon will soon have a firm understanding of the commercial potential of its Gurvantes XXXV coal seam gas project in Mongolia’s South Gobi Basin following the start of production testing.

Operator TMK Energy told the company that production facilities for the pilot well program are now fully commissioned, and that all three wells are successfully pumping water to surface at constrained rates.

Dewatering of CSG wells involves the production of water in a controlled manner to reduce pressure in the coal seam before gas can be produced in any significant quantities.

Talon Energy (ASX:TPD) adds that initial gas breakthrough may commence at any time following initial depressurisation of the reservoir.

It has also satisfied its Stage 2 funding obligation under the Gurvantes XXXV Farmout Agreement, having funded the first US$3.15m of expenditure for the pilot well program, meaning that it will only have to fund its 33% stake from this point on.

“We are pleased to announce an important milestone in the development of the Gurvantes XXXV Coal Seam Gas (CSG) Project with the commencement of production testing,” managing director Colby Hauser said.

“Over the last 18 months, we have seen the project progress from the drilling of the first CSG exploration wells, to discovery of a significant gas Resource, and now commencement of production testing from the Pilot Well Program.”

While Gurvantes XXXV already has a best estimate (2P) Contingent Resource of 1.2 trillion cubic feet of gas, this covers just 1% of the project’s 8,400km2 area.

Pilot program

Pumps on all three wells are producing water in line with expectations to nearby storage ponds, which will be recycled by neighbouring mining operations.

This is significant as the initial water rates are an indication of permeability.

Over the coming weeks, the company notes that pump speeds will be gradually increased to start depressurisation of the reservoir.

While initial gas breakthrough is not expected immediately, early modelling suggests that some gas breakthrough may occur at any time following the initial depressurisation of the reservoir.

Talon notes that once gas production begins, it will initially be flared at surface and gas and water production data will be analysed to provide valuable information for future commerciality and allow pre-feasibility studies to commence.

Once a sustained level of production is achieved, the joint venture will then decide on whether to leverage the Lucky Fox production wells for electricity generation for both internal use and potential sales revenue.

This article was developed in collaboration with Talon Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.