Down south we don't get it. Victorians are stuck with low energy brown coal for most of their power supply,but up north iits all go for gas.  ConocoPhillips has just confirmed how valuable Queensland's vast resource of coal seam gas are when considered soberly and globally. By laying down almost seven billion, some immediately, Conoco has gazumped BG which thought it had the measure of the parochial locals. For a moment BG had the market's attention. By laying out some $13 billion for all of Orgin - resources, power generation and distribution - the bid could down-play the real target, its still to be fully quantified coal seam gas assets in Queensland. Origin almost took the bait as this was almost double the what Sydney and Melbourne fund managers were prepared to pay. Fortunately on the same weekend as its Board was deliberating, Santos announced a deal with Petronas (see below) which valued its neighbouring coal seam gas at twice the price. 

Origin opened its eyes and quickly rejected the bid. Its coal seam gas leases were still largely in the resource category and not certified as "proven". Once precisely defined, they could be worth $13-20 billion alone, quite apart from all the other Origin assets. This is what ConocoPhillips obviously believes. When offered a half share in Origin's leases, apparently its technical people nearly wet themselves. Not only did they have scale; they had consistency. Now that the technology and know-how has arrived which can tap this type of gas, these coal measures are one of the great energy resources of the world. They are also located in Australia where official corruption, at least in this sphere is unknown.  Just as importantly, they are Pacific rim assets, a diversification from middle east gas reserves.

And even more importantly they are marvellously cheap. Conoco's home market is paying between A$10-11 for the same volume of gas as of mid September. In Australia it has just bought into what could become a half share of much more than the 4 trillion cubic feet of proven and probable gas. When these reliable coal measures are drilled into better definition, Conoco may have dealt itself into 10 TCF or possibly even 15, all for under A$2.  Add one dollar for liquifaction and Conoco has a deal to dream on.

It gets better. Like all energy companies Conoco has been monitoring the climate change debate. As oil and coal carry an increasing impost for their carbon emissions, gas will be seen as the clean or at least "cleaner" fuel and grow in demand. This is already occurring in the UK where the policy is to phase out coal as much as possible in favour of gas fired power generation.  The upshot is a win-win. Origin keeps itself intact and has a huge partner to turn its gas into saleable LNG for Asia. It also has cash - massive amounts of it.  The market remains still doesn't get it, but in time will.  The underlining point is that proven, probable and possible in this context is qualtatively different than conventional oil field gas. That gas can escape along cracks and faults. It is corectly called "possible".  In this case the better term is "contingent". The coal is known to be there: the question becomes how well the gas it contains flows, not whether it is there at all.