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Cooper shale gas’s competitive advantage

Despite concerns about gas demand, international players are taking closer look at Australia’s Cooper-basin shale play

International shale operators are paying close attention to unconventional developments in Australia, hot on the heels of US firms ConocoPhillips and Hess, which entered the nascent shale-gas play last year. And with new, low-price openings becoming increasingly hard to come by in North America, the big producers are on the hunt for enticing opportunities in emerging new plays.

Several companies are believed to be keen to take shale-gas acreage in Australia’s central Cooper basin, where the UK’s BG Group has already teamed up with Drillsearch Energy. The US’ EOG Resources and its fast-growing compatriot Continental Resources – both shale-gas operators in the US – are also said to be examining Cooper basin opportunities, where local firms Beach Energy, Drillsearch and Senex are the leading operators.

All three are among the leading holders of prospective Cooper basin acreage. Senex has just starting a three-well drilling campaign in the basin’s southern sector. Existing production and pipeline infrastructure, including links to the liquefied natural gas (LNG) export projects being built on the east coast, in Queensland, have boosted the attractiveness of potential shale-gas discoveries in the Cooper basin.

So far, BG Group is the only foreign investor in the basin’s shale-gas play, with ConocoPhillips focussing on on Western Australia’s Canning basin and Hess on the remote Beetaloo basin, in the Northern Territory.

Beach seeking partners

Beach Energy, which booked an initial 2 trillion cubic feet (cf) of shale-gas resources based on its first two shale wells last year, has started a partnering process for its Cooper basin assets. It estimates total recoverable gas resources of up to 60 trillion cf in the PEL218 permit: with half as much reserves again as Chevron holds at its huge Gorgon LNG project in Western Australia, the single largest natural gas resource project in the country’s history.

In the queue to take a stake could be ConocoPhillips, which is said to be keen to expand its presence in Australia’s shale plays. Supermajor Shell may also be interested, given its need for gas to feed its planned 8 million tonnes a year Arrow Energy LNG project in Gladstone, Queensland, even after its A$535 million ($544 million) take-over of local coal-bed methane (CBM) firm Bow Energy.

But, if the shale land grab in the Cooper basin mirrors the scramble for CBM – known locally as coal seam gas (CSG) – acreage in Queensland in 2007 and 2008, prospective buyers should expect to pay out big money. Numbers approaching A$500 million are being talked about, should Beach sell 30% of its Cooper shale assets.

Spinning the Cooper bit

Last week, Senex started drilling its first well, Sasanof-1, in its wholly owned permit PEL516. Targeting tight sands and coals, as well as shales, it will be immediately followed by the Skipton-1 and Talaq-1 holes. Each well will be subject to hydraulic fracturing (fracking) and flow testing to determine the potential for commercial production. No figure was given for how much drilling would cost, but the firm said the targets were relatively shallow, meaning conventional rigs could be used, avoiding the need for costly specialised casing and drilling materials.

MHA Petroleum Consultants previously estimated that the Roseneath, Epsilon and Murteree formations, deep in the PEL516 licence, hold up to 99 trillion cf of gas in place. Results from an initial shale-gas well, Vintage Crop-1, drilled last year, were in line with that estimate, Senex said.

Let drilling commence

Beach is preparing to resume its Cooper basin shale-gas campaign. The firm plans to frack the first well, Encounter-1, drilled as part of its two-well programme last year, in permit PEL218, by the end of January. Analysts are eagerly awaiting the frack results to see whether Encounter-1 can produce similar returns to Holdfast-1, which flowed up to 2 million cf/d following stimulation of the vertical hole last July.

Beach aims to use the results from both wells to design horizontal pilot wells to be drilled in the first half of the year. And the Adelaide-based firm also plans to start drilling the first of at least five holes designed to outline the resource potential of the shale-gas volumes of the Nappamerri trough in mid-January. Beach previously said it planned to start commercialising the resource in 2014.

Meanwhile, Drillsearch and BG have a five-year, A$130 million, three-stage exploration and pilot production programme lined up. The pair aim to finish shooting seismic across ATP 940P by June 2013, with drilling scheduled for completion by April 2014. Production and testing will be carried out during the final two-year stage and a final development decision is targeted by June 2016.

Australia’s biggest gas supplier, Santos, has proved plus probable contingent (2C) resource potential totalling 2.2 trillion cf in its Cooper basin shale zones, tight sands and deep coal plays. It aims to more than double this to 4.5 trillion cf by 2015 and is eyeing initial shale-gas production in the same year.

But where’s the gas demand?

But investors looking to cash in on Australia’s gas-export boom may be disappointed. Despite foreign interest and Australia’s bullish optimism, the likelihood of shale-to-LNG developments following Queensland’s breakneck development of CBM-to-LNG projects remains slim.

Analysts claim there will be insufficient demand expansion by 2020 for developers to bring all the country’s tabled LNG-export plants online – both conventional and unconventional – leaving little room for further proposals. And the lack of specialised equipment, as well as the high mobilisation costs across the Australian outback, are very real showstoppers for many potential developments.

Unlike most of Australia’s shale-gas hotspots, however, the Cooper basin lies near established markets and infrastructure – conventional gas and oil production has been under way for decades. And with Queensland’s CBM-to-LNG export projects threatening to triple long-term domestic gas prices and leave local users short of supply, it’s easy to see why the Cooper shale-gas gamble is an increasingly attractive proposition.

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