drilling report 4th oct, page-28

And another.-


Australia set to be an 'early adopter' of shale development: Bernstein



Sydney (Platts)--4Oct2012/518 am EDT/918 GMT




Australia is at the forefront of the global shale revolution outside North America, and is likely to be an "early adopter" when it comes to developing its resources, just as it was quick to move into coalseam gas, according to a report Thursday from Bernstein Research analyst Neil Beveridge.

"While costs remain the big challenge, Australia has all the other right attributes 'above the ground' to make shale work," Beveridge said.

"Above-the-ground factors matter when it comes to shale and Australia has many similarities to North America," he added. "Australia is a large country, with low population density and a developed fiscal and regulatory oil and gas regime which will be supportive of shale exploration and development."

Australia is also open to foreign investment, essential for the capital expenditure required, and has a thriving small cap exploration and production sector willing to take the required exploration risks, the analyst said.

"The growing list of international E&P [companies] with North American shale experience farming into Australian shale acreage is positive [and] will provide the necessary capex requirements," he added.

Over the past two years, five international E&P companies have farmed into shale plays across Australia with a combined investment of nearly $700 million. Transactions concluded to date are Statoil's $210 million investment in Petrofrontier Corporation's Southern Georgina Basin acreage; BG's $130 million joint venture with Drillsearch Energy; a $152.40 million deal between Mitsubishi Corporation and Buru Energy; ConocoPhillips' $107.40 million agreement with New Standard Energy; and a $60 million joint venture between Hess Corporation and Falcon Oil & Gas in the Beetaloo Basin.

"There will be more," Beveridge said. "This not only provides the capex which is essential for Australian shale exploration but it also brings North America shale experience to Australia."

AUSTRALIA'S SHALE GAS RESOURCES

According to the US Energy Information Administration, Australia has an estimated 396 Tcf of shale gas resources, ranking it six in the world. Shale exploration is currently being conducted in five of 20 onshore basins, and test wells in two basins are already yielding positive flow results.

There are challenges, however, which make commercial shale production more difficult in Australia than the US, including water issues, infrastructure capacity and limited domestic gas markets, Beveridge said.

"Of particular challenge to Australia are high costs which are endemic throughout much of the Australian E&P industry. In particular, the lack of service-related equipment (rigs and frac spreads in country) could slow exploration progress," he added.

"Given higher costs in Australia, the presence of high-value liquids will be critical. With a limited domestic gas market, high costs and excess conventional gas reserves, dry gas plays will only work in eastern Australia where there is infrastructure capacity and market," according to Beveridge. "Some basins appear more liquids prone than others and liquids will be a key factor in separating viable from non-viable shale plays."

Bernstein rates central Australia's Cooper Basin Roseneath-Epsilon-Murteree shale as the most "likely to work," but its commerciality remains to be proven. The Cooper Basin is Australia's largest onshore petroleum province and has a long history of conventional gas production.

"Early well tests have demonstrated gas flow from shale, but at rates of 2,000 Mcf/d or lower. At these flow rates, we estimate that wellhead gas prices would need to be $6-8/Mcf to be economically viable," Beveridge said.

Liquids-rich shale plays in Western Australia's Canning Basin and the Northern Territory's Beetaloo and Georgina basins remain "highly speculative given their geological age and lack of historical conventional production -? but the upside could also be enormous," he added.

"While the risk is high, the enormous potential of these plays plus valuations of less than $100/acre makes the risk-reward balance interesting, in our view," Beveridge said.

"While it remains too early to tell who will be the winners in the race for Australian shale, we favor E&P [companies] with exposure to the Cooper Basin, and particularly exposed to acreage in the flanks of the Nappamerri trough where the REM shale is liquids mature."

--Christine Forster, [email protected]
--Edited by E Shailaja Nair, [email protected]