Talon Energy Ltd (ASX:TPD) is making strong progress with its energy strategy in Mongolia which now includes a milestone cooperation agreement signed by partner TMK Energy Ltd and major Mongolian company Mongol Alt LLC (MAK).
This agreement expands the level of cooperation between TMK and one of Mongolia’s largest and most successful group of private companies.
Electricity offtake
The cooperation and electricity offtake agreement has the potential for MAK to purchase electricity generated from produced gas in TMK’s three-well Pilot Production Well Program at the Gurvantes XXXV Coal Seam Gas (CSG) Project.
MAK will also store and beneficially reuse excess water extracted from pilot production wells for its extensive mining operations in the resource-rich region of southern Mongolia.
Gurvantes partnership
TMK Energy holds a 67% operated interest in the Gurvantes XXXV CSG Project in the South Gobi Basin of Mongolia while Talon Energy holds the remaining 33% interest.
The partners are committed to responsibly developing this project into a world-class producing gasfield on behalf of and for the benefit of Mongolia.
Among other things, the MAK Group of Companies owns and operates the coal mining lease on which TMK is undertaking its first pilot well program.
The MAK mine is a large energy user in the Nariin Sukhait region and also has a high demand for water, which is a valuable resource in the South Gobi Desert.
Creating efficiencies
This new agreement represents a key milestone for the Gurvantes XXXV Project as it will lead to significant efficiencies in the pilot well program as well as providing a clear pathway to early commercialisation by providing electricity to one of the largest users in the area.
Subject to regulatory approvals and anticipated strong gas production rates, the gas produced from the three pilot production wells will be used for modular power generation (1MW-10MW) which will be sold to MAK at the prevailing local wholesale price.
Without this agreement, the gas produced from the pilot program would be required to be flared.
This initiative with MAK allows for an environmentally sensible and commercially attractive way to utilise the gas produced from the pilot well program.
Also includes water
An additional agreement in which TMK will provide MAK with the water it will produce in the early stages of operating the pilot program is beneficial to both as it removes the requirement for TMK to build and operate separate water storage and handling facilities and allows for the beneficial reuse of the water by MAK.
“Mutually beneficial”
TMK Energy’s chief executive officer Brendan Stats said: “Close cooperation between MAK and TMK will be mutually beneficial allowing for significant efficiencies and the ability to better utilise the valuable resources of produced water and produced gas during from the pilot production wells, in a manner that is both environmentally sensible and commercially attractive.
"The opportunity to generate and sell power to MAK will allow TMK to demonstrate that the Gurvantes XXXV Project can provide a new and scalable domestic solution to meet the growing energy demand of the South Gobi region, and help address Mongolia’s energy security, reliability and independence.
"We look forward to a long and fruitful relationship with MAK, which is one of the largest energy users in the immediate area, as we continue to expand and develop the already proven substantial gas resource in the central Nariin Sukhait area.”
Access to equipment
MAK has also agreed to provide TMK with access to its heavy machinery and support equipment and personnel (at commercial rates).
This will greatly assist TMK and TPD in the construction activities of the pilot well program, and in particular, the construction of the drill pads and associated facilities.