Petroleum players strike it rich in US Ian Howarth 2005/03/22
The Australian petroleum sector is enjoying its most bullish period in decades as high global crude prices and a worldwide shortage of greenhouse-friendly natural gas drive up prices.
Australia's smaller petroleum players, dismayed by lack of investment support in the Australian market and low local gas prices, are starting to make their mark in the US.
US gas prices are typically three to four times higher than in Australia, and the network of fully deregulated "open access" transmission pipelines gives small firms an opportunity to secure cash flow from even very small discoveries.
While the fundamentals in the energy-hungry US look good, the International Energy Agency has warned that the global petroleum shortage may not be as grave as feared.
The IEA said crude oil supplies from producers outside the Organisation of Petroleum Exporting Countries could be higher than forecast, while shortages of OPEC oil may not be as severe as predicted.
Deutsche Bank's Global Energy Wire newsletter said: "In our view, the IEA's demand figures look OK but their non-OPEC supply numbers are a bit low. Latest import data from China suggest that first-quarter oil demand might have to be revised down slightly."
Regardless of the absolute oil demand and production numbers, many Australian explorers are using the US as a launch pad for growth.
Sydney-based Petsec perfected the model in the early 1990s. After overstretching itself then, it has regained a strong position in the US gas market, and its share price has responded accordingly.
Petroleum sector veteran John Kopcheff is another to have made his mark in the US over the past 20 years.
Mr Kopcheff told The Australian Financial Review the US offered small companies a "transparent legal and fiscal system for oil and gas exploration and production very similar to Australia".
"Australian explorers are seen ... as having a greater appetite for risk than US domestic companies, making them attractive partners.
"If exploring for gas, it's better to explore in the US, where the gas price is three times that of Australia for the same or less risk," he said.
Geoff Towner's Amadeus Energy has been a top Australian performer in the US petroleum sector in the past year. Amadeus made a record after-tax profit of $5.2million for the December half, after sales revenue rose 72per cent. Oil production rose 24per cent and gas output doubled from its Texas properties.
Independent oil industry analyst Peter Strachan, producer of the Stock Analysis report, said: "The big plus for the US market is that it has largely been vacated by 'Big Oil'.
"The exploration costs are low - but property costs are high - and time to commercial production from discovery is very short."
Mr Strachan said the key to success in the US was a solid US partner.
"The successful ones, such as Petsec, Amadeus, First Australian Resources, Sun Resources, Victoria Petroleum, etc., have been there a long time; they know who to deal with and who to trust."
In the US petroleum market, massive infrastructure means any petroleum discovery can be brought into production very quickly.
The 20 or more Australian petroleum companies operating in the US have settled on four specific areas of interest, depending on their risk profile and exploration budgets.
Strong gas demand has also encouraged new gas extraction techniques such as coal bed methane in Wyoming, gas production from "tight reservoirs" in the mid-continent area and deep gas development drilling in the Gulf of Mexico. Much of that technology is spilling over into Australia.
Among the Australian companies operating in the US, BHP Billiton, Woodside Petroleum and Santos have each focused on the high cost deep-water offshore oil and gas plays or the deep onshore plays in Texas.
Petsec is the only medium-size company to explore offshore on the Gulf coast, while the junior and mid-sized Australian firms are pursuing more conventional oil and gas plays in the Gulf coast region, in Texas and Louisiana, the San Joaquin basin in California and in the mid-continent.
The same juniors are also pursuing the low-entry-cost non-conventional gas plays in coal bed methane and tight gas plays in Wyoming and parts of the mid-continent.
Samson Oil and Gas, run by well-known oil sector executive Terry Barr, is also poised to make its mark in the US through a merger with Kestrel Energy, listed on the Nasdaq exchange.
In conjunction with Victoria Petroleum, Samson has acquired the Kestrel petroleum portfolio that includes traditional oil and gas operations as well as coal bed methane plays in Wyoming.
One of the more successful US entrants in the past year has been Tony Brennan's Tomahawk Energy, which listed in 2004 after raising $3.1million to drill in Okfuskee County in Oklahoma.
Tomahawk listed in July last year and has since drilled eight wells with what it claims as a 100 per cent success rate. Its shares have soared from 20¢ to $1.47, although analysts have complained at the lack of clarity in many of the company's market releases.
Tomahawk now claims gas production of more than 700,000 cubic feet a day, which it estimates will generate revenue of $1.5million annually, a figure it says could rise sharply as new wells are brought into production.
First Australian Resources has also had success at its Welder Ranch lease in Victoria County, South Texas, where a significant natural gas discovery is likely to come into production very quickly."
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