CBM Asia Development Corp. has been informed by the operator PT Medco Energi Internasional Tbk ("Medco"), that the first coalbed methane exploration well ("CBM-SE-02") in the Sekayu Production Sharing Contract ("Sekayu PSC") block located in the South Sumatra Basin, Indonesia, was spud on Saturday, September 12, 2009.
CBM-SE-02 will be a vertical well and planned total depth is 2,000 feet, aimed at evaluating gas potential and reservoir properties of coal seams in the Muara Enim Formation, including the upper Palembang and lower Pangadang coal seams. Historical data from these formations along with extensive drilling in the area covered by the Sekayu PSC, indicate that the Pangadang and Palembang coal seams are well developed with prolific shallow coal reserves from 600 feet to 2750 feet. In August 2009, CBM Asia signed a binding Letter of Intent ("LOI") with Batavia Energy Inc. ("Batavia"), to acquire a 24 percent participation interest in the Sekayu PSC. Pursuant to the terms of the LOI, CBM Asia has provided Batavia's pro rata share of the funding for CBM-SE-02, the first official coalbed methane well to be drilled in Indonesia, and has committed to a minimum exploration investment of US$6.5 million on the Sekayu PSC over the next 2 years.
Location and formation depth prognosis for CBM-SE-02 was based on a 2007 Joint Study of the Sekayu block conducted by Medco, Lemigas, the Government of Indonesia's research and development center for oil and gas technology, and the University of Institute of Technology, Bandung; as well as completion logging data from Medco's existing oil well Jata-1 which penetrates the three main coal seams within the Muara Enim Formation. The Palembang B seam with an average thickness of 35 feet, and the Palembang C seam, with an average thickness of 50 feet, are in the upper group of the Muara Enim Formation and the Pangadang A seam with an average thickness of 33 feet is in the lower part of the formation. Coring and well testing of CBM-SE-02 for coal reservoir properties including gas composition, coal quality, absorption and permeability will be conducted in each of the three main coal seams at depths from 886 feet to 1714 feet.
Regionally, the South Sumatra Basin is attracting increasing interest with several coalbed methane exploration and appraisal projects currently underway. CBM Asia's Chief Executive Officer and President, Mr. Alan Charuk said "The spud of the Sekayu PSC well marks the first official coalbed methane well to be drilled in Indonesia, one of the most promising coalbed methane exploration regions in the world today. Since May 2008, the Government of Indonesia has awarded 15 coalbed methane PSCs representing minimum exploration investments of approximately US$100 million over the next 3 years. In the South Sumatra Basin, industry participants such as Medco, Arrow Energy and state owned oil and gas company PT Pertamina, are rapidly moving to prove coalbed methane reserves in the region with plans for commercial production as early as 2011." The South Sumatra Basin, the largest coalbed methane basin in Indonesia, is estimated to contain in-place resources of approximately 183 Tcf (Society of Petroleum Engineers, 2004).