SRO Spitfire Oil Limited

    RNS Number : 4018L
  Spitfire Oil Limited
  12 January 2009
   

    First Oil Production from New Test Reactor


    Spitfire Oil Limited ("Spitfire"or the "Company") has produced the first oil from its new test reactor, designed to convert low grade
coal to oil - a milestone for Western Australian ("WA") technology development. This result brings one step closer the possibility of
converting Spitfire's current resource of 500 million tonnes of lignite at Salmon Gums into at least 200 million barrels of oil.
    The Company expects to produce up to 20,000 barrels of oil per day from WA's first low carbon footprint coal-to-liquids business, once
the process technology is scaled to commercial levels.
    "At 7.3 million barrels of oil per year, our proposed production facilities at Salmon Gums would make a significant contribution to
Australia's energy security and to employment and economic development in the Kalgoorlie-Esperance region," said Spitfire's Chairman Mr
Mladen Ninkov. "At this rate, Spitfire will be producing over 150% of recent Western Australia onshore liquid hydrocarbon production and 6%
of Western Australia's total liquids production. The current resource of 500 million tonnes of lignite at Salmon Gums would also yield at
least 200 million barrels of oil over its 25 year life, thereby increasing Western Australia's current liquid hydrocarbon reserves by 20%.
    "In addition to the energy security and trade benefits of substituting domestic for imported oil, Spitfire will be developing a home
grown environmentally friendly Western Australian technology and knowhow, rather than purchasing technology licences from overseas.
Ultimately, after having demonstrated the process in WA, we expect that subsequent overseas implementation of the technology would generate
further benefit to the State."
    The Company has already invested nearly A$10 million in Western Australia through its technology development and drilling programs,
including more than A$1 million spent on environmental studies.
    "The common technology currently being used around the world to convert coal into oil is very energy intensive, producing very high
levels of greenhouse gas emissions, and consuming large quantities of fresh water," explains Spitfire's CEO Mr Thyl Kint, referring to the
method of gasifying coal and applying the Fischer-Tropsch process - best known for its application in South Africa.
    "We have contracted with Curtin University of Technology in Western Australia to develop a pyrolysis process that operates at lower
temperatures, resulting in a much lower carbon footprint.
    "The pyrolysis process is not new, as it is a variation of the coal coking process which has been used for over 100 years and which is
known to extract oils and gasses from coals," Mr Kint said. "However, the major driver for further developing this technology for the
purpose of producing oil from coal is to minimise the greenhouse gas emissions. We intend for our whole operation to be environmentally
responsible. The technology we are developing will be compact with an environmental footprint that is much smaller than that of the much
more complex conventional process. The low carbon emissions are a necessity as the Salmon Gums to Esperance region is geologically underlain
by an extensive granite basement which precludes carbon sequestration.
    "To place things in perspective, production of a barrel of useable fuel by the conventional gasification plus Fisher-Tropsch process
would generate emissions four times higher than our pyrolysis process. In the context of the proposed Australian carbon Emissions Trading
Scheme, at a price of A$25 per tonne of CO2, our process would incur a cost of about A$4.1 per barrel of produced oil whilst the more
conventional process would incur a cost in excess of A$16.6 per barrel. In the absence of a nearby sequestration site, the scale of the
greenhouse gas emissions from the conventional process also means that other offsets, such as tree planting, would be impractical.
    "Further problems with the conventional gasification and Fischer-Tropsch process are its requirements for large quantities of fresh
water not available in the region and the high temperatures of the process which are usually incompatible with the hyper-saline water which
saturates the lignite available from the region. 
    "Because our process is less technologically complex and less energy intensive, both the projected capital and operational expenditures
per barrel of oil will be significantly lower than for the gasification plus Fischer-Tropsch process."
    Mr Kint said the Company is close to completing an extensive year-long test drilling program at its tenements near Salmon Gums, which
are located about 100 km north of Esperance. After recent relinquishments, Spitfire holds exploration licences over 368 square kilometres
and in June 2008 applied for two mining leases covering 9,855 hectares. The tenements contain a large lignite (brown coal) deposit with an
Inferred Resource calculated to the JORC code of 500 million tonnes of lignite which will soon be enhanced and brought to Indicated status.
    Spitfire raised funds in July 2007. The Company estimates capital expenditure on the project up to fully operational capacity at around
$1.3 billion (in 2008 dollar value). Its projected operational expenditure is $18/bbl of oil produced, with a breakeven oil price
(generating a 9% return on capital) of $40/bbl.
    Spitfire has had a laboratory built at Curtin University which houses a new test reactor, developed to assist the research required to
scale the conversion process up to commercial quantities. Curtin University's biomass conversion laboratories are also performing tests for
the program whilst further test reactors and laboratory equipment are being considered.
    "The research program must deal with a range of issues including materials handling, lignite de-watering (as it contains 55% water),
process optimisation for most efficient outputs, and how to upgrade the oil generated by the process for use as fuel or feedstock," Mr Kint
said.
    "We are pleased that Curtin University has secured Professor Chun-Zhu Li to lead the research. Professor Li, who recently joined the
Curtin faculty from Monash University where he spent years studying Victoria Brown Coal, has carried out extensive fundamental research in
various areas of energy science and engineering including coal pyrolysis. He is currently also leading a large project on biomass
utilisation involving researchers in Australia, China, Korea and Japan as a part of the Asia-Pacific Partnership on Clean Development and
Climate. In addition, with the input from Professor Li, it may be possible to design a process where a fraction of the process feed would be
biomass in addition to the coal which would give the project a renewable dimension."


    Further information

    Mladen Ninkov - Chairman                                                                     Telephone: +44(0)20 7629 7774
    Roger Goodwin - Director
    Spitfire Oil Limited

    Adrian Hadden                                                                                          Telephone: +44(0)20 7523 8350
    Collins Stewart Limited    

    Spitfire Oil Limited's shares are quoted on the Alternative Investment Market (AIM) of the London Stock Exchange (symbol SRO)
    The Company's news releases are available on the Company's web site: www.spitfireoil.com

This information is provided by RNS
The company news service from the London Stock Exchange
 
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