In a previous interview about coalbed methane (CBM), Sprott Asset Management CBM analyst Eric Nuttall told us he would remain, “quite excited about the prospects for companies with coal bed methane assets so long as natural gas prices remain above $6 per Mcf (thousand cubic feet). The economics would be very skinny under $6.” That’s because CBM exploration and development can get pricey. What if there was a drilling firm regularly bringing gas out of the ground for under $1.50/mcf? There is and they’ve proven it with more than 250 wells in Australia. They’ve moved into India, where they drilled another 30 to 50 wells and another 70 wells to come. Mitchell has taken acreage in southern Kansas, where the company just finished its first CBM well. And the company formed a joint venture with Pacific Asia China Energy (TSX: PCE) to bring its Dymaxion® technology to China later this year.

You don’t get to be Australia’s largest privately owned drilling company without timing your markets right. The Mitchell family’s great timing ability began in 1969, when company founder Peter Mitchell bought his first drilling rig at a repossession sale for $11,500. Parts of Queensland, Australia were in the grips of a drought. Mitchell put his rig to good use as he began drilling water wells for farmers in the surrounding rural counties. Just as the drought had ended, Mitchell caught the boom in coal. His growing company began drilling in the oil shale and coal fields around Moranbah, then a remote part of Queensland. They then caught the drilling boom in mineral resources through the 1980s. By then, the company was drilling oil, gas, uranium and coal reserves throughout Australia. In the 1990s, Mitchell Drilling got the first whiff of Coalbed Methane (CBM) exploration entering Australia. That is when the major U.S. oil companies, such as Amoco, Conoco and others, came to the country searching for new CBM fields.

But, the major U.S. oil companies abandoned CBM in Australia because they soon discovered Australia’s shallow coal fields were too expensive for their big oil rigs. “The economics just didn’t work,” Nathan Mitchell told StockInterview. “They needed high gas flow, but the fracing technique just didn’t give them what they needed.” Still they persisted and asked Mitchell Drilling to run his smaller water well rigs. “That was the start of it,” Mitchell recalled. “We made CBM work with the water well rigs from an economics point of view, but they still weren’t making enough gas.” Still, the economics of the smaller rig made it work to a degree.

Enter the politicians. “The Queensland government made a law that said five percent of all coal-fired power stations had to be run by gas,” explained Mitchell. “That spawned the industry and CBM really took off.” Mitchell continued with the vertical rigs, but it was the economics of the smaller rig that made CBM work.

GETTING BLOOD OUT OF A STONE

It was during the CBM boom when Mitchell developed the better mousetrap. Coal miners didn’t see the gas resource beneath their feet. “They just saw them as coal fields,” said Mitchell who knew there was “nuisance gas” there. “There was never even a thought there was enough gas there to make it viable.” With natural gas selling for $2/mcf in Australia, the economics didn’t make sense. Australian coal seams are found at shallower levels where greater pressures have to be created to liberate gas from the extended horizontal seams. The Australian one-two punch of shallow coal seams and low gas prices drove Mitchell to become innovative.

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