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This is a more recent article by the Australian Financial Review January 6, 2020 — 4.37pm

The rise of Perth Basin gas may trigger M&A

Angela Macdonald-SmithSeniorResources Writer

Western Australia's Perth Basinlooks primed to cast off its reputation as a modest local onshore oil and gasprovince and potentially take on international significance, in a developmentthat some expect to spark a wave of M&A in the sector.

The potential of recentdiscoveries means the Perth Basin is likely to overtake the Cooper Basin incentral Australia as the country's main onshore production hub by 2024, despitelow WA gas prices, according to consultancy Rystad Energy.

However, large-scale success for the exploration play willdepend on more than just finding gas, said Rystad senior analyst Daniel Levy,who pointed to the need for players "to work together, merge or syndicateto ensure access to favourable gas markets".

ASX-listed Beach Energy, StrikeEnergy, Norwest Energy and Warrego Energy all have direct or indirect interestsin recent gas discoveries such as Waitsia and West Erregulla, which have dramatically enhanced the prospectsof the region north of the WA capital in the past two years.

Japanese giant Mitsui is so farthe only major overseas player in the mix, but observers aren't ruling out moreforeign interest given emerging evidence of the quality of the resource.

Rich Lister Chris Ellison'sMineral Resources Ltd secured a bigger seat at the table in December when itacquired a 19.9 per cent stake in Norwest, whose Lockyer Deep and NorthErregulla gas prospects lie just north of the West Erregulla find made inAugust by Strike and Warrego.

Mineral Resources said themove, which came less than two years after it was outbid by Mitsui for formerWaitsia half-owner AWE, was part of its aim to be "self-sufficient in gas to provide energy security, reduce reliance on diesel and lower the company's carbon emissions".

"Having lost out in the three-waytussle for AWE several years ago it appears MIN wants to ensure it has a seatat the table, and have maximum leverage to control both the exploration,appraisal and potential supply of gas to its WA business," said independentindustry analyst Scott Ashton.

He noted Mineral Resourcesalready had an 80 per cent stake in the "highly prospective" EP368exploration permit, where a well is due to be drilled in the December half thisyear.

Beach's reportin December of a successful production test at its Beharra Springs Deep-1 well provided further evidence of a growing abundance of low-cost, conventional gas in the Perth Basin, which commenced gas sales in 1971 from the Dongara field.

Mr Ashton said he envisaged"a round of consolidation" in the area as players maneuvered tocommercialise resources.

Rystad expects gas productionin the area to reach over 400 million cubic feet a day within five years afteronly minor discoveries and modest production up to 2014, when the Waitsiadiscovery made by AWE's Senecio-3 well reignited interest. Current outputis under 20 mcf a day.

"Add to this Strike’srecent discovery of the 1185 billion cubic feet West Erregulla field, and the basinnow has the potential to eclipse the gas production of the Cooper Basin by asearly as 2024,” said Mr Levy.

'Pivotal moments' ahead

LowWA domestic gas prices – under $3 a gigajoule on the spot market – have so farkept a lid on production forecasts from the new discoveries, but Rystad expectsboth Waitsia and West Erregulla to be among the lowest cost gas resources inAustralia.

Ithas revised up its base-case domestic sales price to $5 a gigajoule, sayingspot prices don't reflect pricing in term contracts and foreshadowing atightening market.

“Oureconomic analysis of the basin suggests that its gas can be brought to marketfor less than $3/GJ, meaning that even if WA gas prices were to stay depressed,the Perth Basin would still go ahead with a reduced development,” Mr Levy said.

Hesaid that the success of upcoming exploration and the eventual timing anddesign of the second phase of expansion at Waitsia, where an initial expansion is due online in mid-2020, would be "pivotal moments" for the basin.