Australia: In the Center of it All

It’s a pretty impressive start to exploration activity for unconventional gas in Australia.

Trevor Shortt, Exploration Manager at Central Petroleum Ltd. told delegates at the Tight and Shale Gas Summit in Budapest, Hungary that his company’s landholding in Australia was about 42% the size of the US state of Texas.

He said: “We’re trying to bring in partners to help us drill some of this. We can’t drill all of it ourselves given the huge area that we have. We have finished stage one, the asset lock up; now were trying to boost up exploration, drill more wells and if we find some bigger discoveries, use UCG/GTL technology to capitalize on some of our coal reserves.”

“We’re concentrating on oil and condensates. Some of the wells have helium, and its price is 10-20 times the price of natural gas.

“We also have a huge tract of coal leases,” he added.

His talk was entitled Unconventional Hydrocarbons in the Amadeus and Georgina Basins, in Central Australia. Mr. Shortt’s observations on unconventional gas in Australia provided food for thought for the early days of shale gas in Europe.

Central Petroleum, he said, was a small company that has had long time experience working in conventional exploration in Australia. It had made a big commitment to exploring unconventional oil and gas in Australia.

He explained: “It’s a brand new thing in Australia, so it’s hard to get fraccing trucks and decent drilling equipment. It’s kind of a chicken and egg thing.”

Despite that, it was getting really busy in Australia, which he said was known for it’s mining more than for oil and gas. 

“It is the new LNG plants,” reported Shortt, “And there’s a push to get them going for gas exports to China.”  We need gas as a feed stock for these plants.”

He showed the exploration activity in Australia including the coal bed methane wells in Queensland, explaining that the Cooper basin had originally been a conventional O&G area, but was starting to become a place with more and more shale gas plays. New exploration activities were also going on in Australia’s Canning and Beetaloo basins involving several multinationals.

Central Petroleum, he said, was based in the central part of Australia, which had not yet experienced as much exploration activity for unconventional gas and where bigger targets may be found.

Shortt said that the present low price of natural gas of $4 Australian dollars per gigajoule will rise as demand from China grows. Already the Queensland government and the big Australian company Santos were predicting price rises to an average of $6-$9 per gigajoule by 2015 and in Western Australia natural gas prices averaged in the range of $9-$12 per gigajoule largely because the LNG industry was using more and more of the natural gas available.

“We’re more in the land gathering stage,” he said. “When the price does rise, you start making money on it.”

He said that the Australian government had been granting a great number of leases as demand for exploration acreage grows rapidly.  Luckily Central had already wrapped up a huge land holding.

“Australia is running out of conventional oil and gas,” he explained. “It’s looking at quite a large decline. Condensates are being shipped directly to China, which has driven up the domestic price, and that has upset a lot of people.”

According to Shortt, Australia’s oil trades on the TAPIS price which was generally higher, and could be up to 40% higher than WTI.

He said that Central Petroleum had $70 million in market capitalization, and the company was quite liquid with no debt.

He reported that a well drilled by Beach Petroleum for unconventional gas in the Cooper Basin  was producing 1.8 MMCFG/day, commenting, “It’s a pretty good rate for a vertical well. Horizontally I would expect it could be quite a stunning rate. There are going to be natural gas liquids that will really drive everything.  I think this shows the potential of what is out there.”  

The challenges, he listed included remote locations, lack of modern equipment, unfamiliar regulations, lack of data, public misconceptions and, until recently, lack of nearby analogues.

He said Central’s land manager is of aboriginal descent, which had helped in dealings with locals near the company’s concessions. He explained that in general locals greeted the company’s exploration activities positively, because the aboriginals in the area wanted jobs.

Shortt also emphasized Australia’s political stability as an asset for unconventional gas: “Nothing’s going to come out of left field.”

Opportunities are available in Australia and especially with Central Petroleum, according to him.

“We have more than 70 million acres tied up. The first one in gets the good land, and the last one gets the marginal land.”