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Australia finds more gas for home and abroad

Santos’ discovery of a sizeable gas column in the Northern Carnarvon Basin should boost the NWS venture’s expansion plans

The relatively surprising find, announced by Australian independent Santos in April, has the potential to support both LNG exports through the North West Shelf (NWS) project and domestic supply into the burgeoning Western Australian (WA) market.

The gas column was discovered during appraisal drilling at the Corvus-2 well and inherited by Santos when it acquired smaller rival Quadrant Energy in a friendly takeover deal last year. The column lies adjacent to the substantial shallow-water Dorado oil find—the third largest oil discovery in WA's history when Quadrant found it in 2018.

The story goes that Santos was doing a quick appraisal, plug and abandon exercise at Corvus-2 before diverting the rig to assess Dorado's extent when it uncovered what CEO Kevin Gallagher called a "significant offshore resource" of natural gas with high liquids content.

"It is particularly exciting to have realised a higher liquids content and significantly bigger resource volume than we expected," says Gallagher. "Corvus could be tied back to either our Devil Creek or Varanus Island gas plants, where it has the potential to increase the utilisation of our existing facilities as well as provide backfill and extend plateau well into the 2030s."

The Santos CEO describes the find as "a great start to our 2019 offshore drilling campaign", highlighting the "value of the Quadrant acquisition and our strategy of pursuing upstream brownfield growth opportunities around existing infrastructure". While the exact size of the find is not yet known, consultancy Wood Mackenzie estimates it to be in the region of 2.5tn ft3 of natural gas and 25mn bl of condensate.

This would make it the largest gas discovery in the Carnarvon Basin since the Satyr-4 exploration well, which Chevron drilled in 2009, and potentially one of the largest columns ever discovered on the NWS, says Wood Mackenzie senior analyst Daniel Toleman.

"Santos' stated 254mn net pay is indicative of a very large gas resource in place, but recoverable volumes will be dependent on the size of the structure, area extent and sand thickness," says Toleman, adding that "Corvus is likely to be Santos' largest offshore gas discovery ever".

Shallow water advantage

If the resource comes in over 2tn ft3, Santos is likely to explore opportunities to export the gas as LNG. This is due to the discovery's proximity to the Burrup Peninsula, where Australian independent Woodside is Developing the Burrup Hub concept around the NWS, Pluto and Wheatstone LNG export facilities, and given a well-supplied domestic market in the short-to-medium term.

The NWS LNG plant has spare production capacity available from 2021, which may be an obvious solution for Corvus. If Santos did pursue an NWS backfill development, it would likely look to sell down some of its 100pc stake in the find, with one of the NWS partners—operator Woodside, BP, Chevron, Shell, Australia's BHP and a Japanese joint venture between Mitsubishi and Mitsui—a logical buyer, Wood Mackenzie believes.

A major advantage for the Corvus-2 well is that it lies in shallow water approximately 65m deep, making the underlying field's development a potentially low-cost prospect. It is also well sited close to existing domestic and export infrastructure.

Within Santos' wider permit area, the Pluto gas pipeline transects the southwest corner approximately 5km from Corvus-2. The well also lies just 28km from the Reindeer platform, which delivers gas to the Devil Creek domestic gas plant near Karratha, and about 62km from a Varanus Island tie-in point, should the domestic market offer at least part of the evacuation solution.

For Woodside, the potential for Santos to toll through its NWS facility would improve the chances of keeping processing trains running at capacity past 2020. Woodside is hoping to develop the remote Browse gas field for LNG export through NWS, but the business case for this concept assumes that costs, timing and partnerships are right. Santos tolling through NWS could help spread the risk.

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