Australian shale dream stalls as Chevron walks
The US company is leaving as it tries to balance the books amid low oil prices
US major Chevron has exited one of the most prospective unconventional patches in Australia as it strives to cut spending in the wake of falling oil prices.
The move, which will see it walk away from the $349m venture with local player Beach Energy, mooted at the most significant unconventional exploration pact in the country when it was struck in February 2013, looks set to stall Australia’s efforts to replicate the US shale production boom.
It was the largest shale gas deal in Australia, bringing a global heavyweight into a promising area, the Cooper basin, for future gas supply – both to the domestic market in the eastern states and the new liquefied natural gas (LNG) export plants in Queensland.
But falling oil prices and new cost pressures have forced Chevron to reevaluate its global portfolio to slash spending. In January the US company announced a $5bn cut to its investment budget this year.
Chevron, which has already sunk $190m into the first phase of work at the Nappamerri Trough in the Cooper basin, told Beach that extensive technical evaluation has confirmed a large gas resource and potential for further appraisal, but that the opportunity does not match strategically with Chevron’s global exploration and development portfolio. The second phase had it gone ahead would have cost a further $159m.
Investment bank JPMorgan was not surprised by the company’s decision, saying: “We had always found Chevron’s involvement in the Nappamerri Trough natural gas project a little confusing given the major had no direct path to the Gladstone export projects and another greenfield LNG project seemed unlikely."
In light of today’s oil price environment, it is difficult to draw a conclusion as to whether Chevron’s exit is related to a view on the commercial prospects of the asset or whether it was a soft target for spending cuts, noted JPMorgan analyst Benjamin Wilson.
Still, as Chevron announced its exit, Beach announced the upgrade of contingent resources – estimated recoverable volumes yet to be fully proven as commercial reserves - in the ATP855 permit in the Nappamerri Trough by 943bn to 1572bn cubic feet (cf). The upgrade stemmed from a four-well fracture stimulation campaign and flow testing carried out in latter half of 2014.
Nevertheless, Chevron relinquished its 30% stakes in petroleum exploration licences 33 to 49 in the South Australian section of the Cooper basin and its 18% stake in licence ATP 855 in the Queensland section. Beach will fully own the South Australian permits and shares the Queensland tract with Icon Energy, which holds a 35.1% share.
Beach said it will slow the pace of development in line with market conditions and is seeking new partners to carry out further studies. But analysts reckon it will be difficult to attract new funding to shale until oil prices recover.
Australian junior New Standard Energy has failed to find partners to replace ConocoPhillips and PetroChina in its West Australian shale acreage since putting out feelers last October.
It seems for Australia, which, according to US Energy Information Administration data, has the world’s seventh-biggest potential shale-gas resources and sixth-biggest shale-oil resources, unlocking any significant shale potential has been pushed back a number of years.
Still, as Icon Energy’s commercial manager, Richard Holliday, said “ while Chevron was a great partner it must be remembered that prior to them coming in, Beach as the operator, and Icon, as its partner, drilled the most successful shale-gas well in the Cooper basin, Halifax-1, which produced 4.5m cubic feet a day.”
Indeed, it’s not all bad news for Beach. It effectively got a “free look” at the Cooper basin’s shales after Chevron ploughed $190m into the venture and then handed back its stakes without compensation to the Adelaide-based junior.
Chevron also pulled out of a shale-gas exploration campaign in Poland and sold its 50% stake in Caltex Australia, a fuel refiner and marketer.