The plans are based on in situ gasification of coal seams at depths between 300m and 1500m, well below the existing open cut mines that have operated since the 1940s.

ISG – another name for underground coal gasification – involves directional drilling of wells at either end of a panel or section of coal seam. Oxygen is injected at one end to create combustion, and synthetic gas is extracted at the other.

The process was pioneered in Australia by Linc Energy at Chinchilla in Queensland, where the syngas from underground was taken a step further and converted into liquid fuels at a high-tech demonstration plant.

Linc is now decommissioning the plant after walking away from Queensland a few years ago, however, executive chairman Peter Bond will happily tell anyone the problem was not ISG or the gas-to-liquids technology but the state government.

So how might ISG go in a state such as South Australia, where government is highly supportive of oil and gas investment and already has an ISG regulatory framework?

Marathon Resources chairman Peter Williams told Energy News yesterday that ISG at Leigh Creek could go a very long way, and become an important source of gas for the eastern states domestic market.

He announced this week that Marathon had signed a binding agreement with ARP TriEnergy, which has been developing plans for ISG at Leigh Creek for a number of years.

The executive chairman of TriE is Justyn Peters, who joined Linc a few weeks after its IPO in 2006 and departed in 2011 after holding senior executive roles in environment, government, business development and investor relations.

The company’s executive director is David Shearwood, a mining engineer turned fund manager who was one of Linc’s earliest backers.

The agreement finalised this week is a reverse takeover in which TriE will end up with shares equivalent to 60% of Marathon’s expanded capital. TriE already has a stake of almost 20%.

The deal is subject to shareholder approval of both companies, with Marathon expecting to hold a shareholder meeting in late April or early May.

The deal also requires a green light from the Foreign Investment Review Board because Chinese trading giant CITIC is a significant shareholder in Marathon.

Williams described the Leigh Creek project as an exceptional opportunity that was selected after screening hundreds of proposals for a new business activity for the former mineral explorer.

“We are encouraged by the work that has already gone into this project and the experience behind it,” he said.

“TriEnergy has been looking for years for the right coals and the right setting for ISG, and what we have here at Leigh Creek is perfect.

“The technology is standard, the metrics are right and we think it has everything going for it.”

Williams said the SA government had been fully advised of the plans to develop ISG at Leigh Creek and was very supportive.

“TriEnergy lodged a work program with them a couple of weeks ago and is looking to get to work,” he said.

Leigh Creek has a number of advantages that augur well for a potential development.

Although it is a remote community located 550km north of Adelaide, the town is serviced by sealed roads and railway, thanks to the town’s long history as a source of coal for power generation at Port Augusta.

Williams said project staff could be based in the town, thus avoiding the costs and controversy of a fly-in, fly-out workforce.

Groundwater and environmental issues are helped by the fact that Leigh Creek is outside the Great Artesian Basin.

In addition, any ISG at Leigh Creek would occur in locations were water at depth was saline.

Williams said a development would need large capital expenditure in the order of $300 million, including the cost of building a pipeline from Leigh Creek to the Moomba-to-Adelaide pipeline about 150km to the east.

“We have interest already from a number of parties and that might create some options in terms of how the project is financed,” he said.

Leigh Creek is the initial focus of the project and is held under Petroleum Exploration Licence 650, where previous drilling has already confirmed 150 million tonnes of measured and indicated coal reserves and 350 million inferred tonnes.

This could be just the start though.

TriE as applications for additional PELs over more than 10,000sq.km to the west and north of Leigh Creek, suggesting it has much larger ambitions for ISG in the long term.