Dart Energy Limited (ASX: DTE) is an Australian listed S&P/ASX 200 company focused on the development of coal seam gas in Australia, Asia and Europe. The company has offices in Singapore, Australia, China, India, Indonesia, Vietnam, Scotland and Poland servicing a portfolio of quality projects, assets and opportunities.

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Dart Energy Limited (ASX: DTE) at its recent AGM highlighted the company’s positioning as an independent, global unconventional gas business. What is your rationale for focusing on unconventional gas?

Executive Chairman Nick Davies
Unconventional gas is the energy business opportunity of our time. For example, 10 years ago, shale gas was almost non-existent in the US. Today, unconventional gas represents around 30% of total US gas production and has transformed the energy landscape in that country. In Australia, a multi-billion dollar CSG-to-LNG industry has developed in Queensland over the last 10 years from virtually nothing, adding considerably to state revenues and creating thousands of jobs.

Given the rapid rise of the unconventional gas business in the US and Australia, we see governments worldwide seeking out experienced players to assist with developing their countries’ unconventional gas potential. Oil and gas majors are also entering the space through aggressive mergers and acquisition activities, acquiring smaller companies that have established strong asset footprints and solid capabilities in this exciting emerging industry.

In this context, we have the competitive advantage required for success. We’re value focused, nimble and commercially oriented, with the right low-cost operating structure an early stage exploration company needs. Our team is, I believe, the best in the business, with proven capabilities across the entire project cycle. Many members of the team were instrumental in the development of the Queensland CSG industry. And we have a significant, high quality global portfolio of unconventional gas assets, offering a unique ability to mitigate the normal risks that any exploration company faces – technical, political and commercial.

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What is the rationale for having an international portfolio of assets when most Australian CSG players focus on operations in Australia?

Executive Chairman Nick Davies
We’re focussed on commercialising gas rapidly where it is needed today. Our assets are located in a range of gas markets; New South Wales, China, Indonesia, India, the UK and Europe. Despite being geographically disparate, these gas markets all share important common characteristics; large untapped unconventional gas resources, thriving gas markets with readily available gas infrastructure, and high demand for gas driving deficits in supply.

Wherever there is constrained supply and unfulfilled demand there will always be higher prices and hence higher margins. This presents a very clear market opportunity for us to bring our resources on-line quickly.

We operate in markets that give us the opportunity to generate fast, attractive profits. And with assets in such close proximity to customers and infrastructure, the time it takes to get discovered gas to market is much quicker and the amount of capital investment required to do so is much less. This is the key to understanding Dart Energy’s business model.

Contrast this with the development of the CSG industry in Queensland, where companies need large quantities of certified reserves to justify project decisions given the huge capital sums associated with an LNG project. Certifying these reserves is a long and expensive process. In the markets we’re working in this is unnecessary as small certified reserve volumes can be rapidly sold into a hungry market. Our projects are expected to have shorter lead times to revenues – our success should be measured by the subsequent revenue growth, rather than by huge reserve numbers.

We are single-mindedly focussed on monetising our gas as fast as we can. Volumes of gas for which it would be difficult to find accessible well price markets in Queensland can, in the markets we operate in, be commercialised relatively faster and on a very profitable basis.

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You have initiated a major strategic restructure of the company, including a potential offshore listing of part of the international portfolio. Can you explain the rationale for this?

Executive Chairman Nick Davies
We’re proposing the IPO of a subsidiary that owns our non-Australian assets on an international stock exchange, and we’ve indicated a preference for Singapore. We’re also exploring ways of introducing strategic partners at either corporate or asset level in both the international business and in Australia. The decision to pursue this strategic restructure followed a detailed strategic review by the board. We believe this move will provide a platform for future growth and enhanced focus on our international asset portfolio, which we believe will benefit from a separate management and funding model. Ultimately, we believe this will enable a better recognition of the value inherent in our international business.

Over the last 12 months we’ve had strong operational performance, grown our portfolio and achieved key milestones, however financial markets generally have been very negative and the CSG sector in particular has been affected by significant “risk off” sentiment that has particularly affected emerging companies in the resources sector.

We’re also aware that in this time of global economic uncertainty Australian investors are perhaps more comfortable with domestic assets and are giving us less credit for our huge progress overseas – where have a significant portion of our asset base.

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In New South Wales CSG development is the subject of widespread debate, with a moratorium on new developments currently in place. How is this impacting Dart Energy’s business?

Executive Chairman Nick Davies
Australia represents our heritage and a source of much of our expertise. Our seven New South Wales licences are an important part of our portfolio, with a substantial gas resource. They have the capacity to make a difference to the state, which is facing a looming energy shortfall, with gas demand expected to triple over the next 20 years.

A successful CSG industry in New South Wales could lead to wealth and job opportunities, especially in rural areas, as happened in Queensland over the last decade. It could also help to reduce upward pressure on electricity prices if the success that companies like Arrow Energy had in Queensland can be replicated in New South Wales.

Environmentally, next generation renewable energy sources are not yet capable of viably meeting the growing demand for energy, so as in many other parts of the world, CSG is a logical energy source for New South Wales to reduce its dependence on coal before it can move toward a more sustainable renewable energy mix.

The debate in New South Wales with CSG relates primarily to community concerns over the practice of fraccing, and its potential impact on artesian water supplies and agricultural land use. Whilst there has been a history of successful and safe fracturing of wells throughout the world over many decades we recognise and accept the community’s concerns. We believe it is incumbent on the CSG industry to work proactively with local communities to allay those concerns. Our view is that an open and transparent industry operating in accordance with appropriate regulations, properly enforced, is the best way to minimise the risks and maximise the benefits.

For clarity though I should point out that despite some media claims to the contrary, we have no plans to frac wells in New South Wales. We do not use diesel in our drilling fluids, and we do not have any plans to do so in the future. And it is worth noting that CSG industry does not “mine” CSG as it’s so often described. CSG wells are drilled, as in conventional oil and gas wells, using a small drilling bit and have a small surface footprint. It’s important that the industry continues to ensure that these facts are understood.

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You recently announced a tie-up in New South Wales with a greenhouse vegetable production project. How does this fit with your business strategy?

Executive Chairman Nick Davies
We believe that CSG resource development can be balanced with continued agricultural production and environmental protection, and the project announced with Maria’s Farm Veggies is a clear demonstration of this in action.

The project is located in the Fullerton Cove area near Newcastle, and will involve the construction of a state of the art $65 million glasshouse development that will initially grow high quality tomatoes, capsicums and cucumbers for sale to Australian markets. The project is expected to be completed by early 2013 and will generate 125 jobs in the Newcastle area, and up to 200 if the project is expanded. We will supply CSG to the project to produce the heat and electricity needed for greenhouse climate control purposes. The gas will be supplied from a small number of wells in our Fullerton Cove licence area near Newcastle.

We’ve consistently said that CSG development can co-exist with alternative productive land uses, including agriculture, in an environmentally sustainable manner. The project demonstrates that clearly: our CSG development will co-exist with and facilitate sustainable food production and associated job creation in New South Wales. The project also highlights our key point of difference in CSG in New South Wales: the development of small scale, energy efficient power projects.

The Maria’s Farm project is also environmentally friendly with virtually no CO2 emissions – nearly all produced CO2 will be sequestrated by the crop to significantly improve yields and plant robustness. Produced water from the CSG development will be treated by reverse osmosis and re-used in the glasshouse. We believe the project presents a clear win for food production, the environment and the economy of the local region in which we operate, and we’re very pleased to be associated with it. We think this is a model for how CSG development in New South Wales can work to the benefit of all.

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What are the expected milestones for Dart Energy over the coming 12 to 18 months?

Executive Chairman Nick Davies
We have a substantial cash balance – $143 million as at the end of September – and are well positioned to continue executing the business plans we have in place.

We plan to continue our operational activity across our entire licence base as we complete the aggressive drill-out program we put in place earlier in 2012. In Australia this will involve around 10 more wells and two CSG pilots. Internationally it will involve over 40 additional wells, five new CSG pilots and our first shale gas exploration wells. We’re also looking to add between three to five new licences in each of our Australian and our international businesses and to continually seek to optimise the portfolio. This activity should enable us to have quite sizeable resource upgrades and to see our 2P and 3P reserves continue to grow.

During 2012 we expect to see revenues commence in at least three countries and with a clear line of sight to how those revenues will build to materiality through 2013. This will be underpinned through additional gas sales agreements. We’re targeting at least one in Australia and internationally we want to see up to 25 Bcf per annum subject to long-term sales agreements by the end of 2012. As I mentioned, revenues and lead-time to revenues are what we believe should be the key measure of our success and we’re completely focused on achieving these goals.

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Thank you Nick.

For more information on Dart Energy, visit www.dartenergy.com.au or call Nick Davies on +61 7 3149 2100.

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