minnow's prime cooper position

Minnow's prime Cooper position
BARRY FITZGERALD THE AUSTRALIAN OCTOBER 15, 2013 12:00AM


OIL and gas exploration-production of the conventional or unconventional type is no different from the exploration-production in the mining game in that if the proponent wants to steer clear of landowner access issues, it is also best to steer well clear of land with even a hint of greenness about it.

The more green grass and trees on the land, the more difficult it is going to be.

The battle in NSW and Victoria between the lock-the-gates brigade and the industry looking to unlock the massive potential of unconventional coal-seam gas resources drives home the point. Competition for land use is more keen where there are competing interests and in the case of NSW and Victoria, there are myriad competing uses.

Farmers, horse stud and vineyard operators, and well-to-do owners of hobby farms and weekend retreats, don't always appreciate the intrusion of a new competitor for land use in their back yard. And in many instances, no level of compensation or new deals on royalties will convince them otherwise. Throw in fear-mongering on the impact of "fracking" (hydraulic fracturing) on water tables, and opposition can and does run deep.

It is a lesson the CSG industry in NSW and Victoria, and to lesser extent in Queensland, have had to learn the hard way. All that is by way of background to why investors' interested in hitching a ride on the unfolding boom in Australia's unconventional gas industry are best advised to make the Cooper Basin in central Australia the focus. It, too, is not without its environmental sensitivities, but green grass and trees are a rare site, as is a fellow human being.

It helps explain why the local industry (including Santos, Beach, Senex and Origin) and a bunch of major foreigners (including Chevron and BG) are lining up to spend as much as $3.5 billion in the next five to seven years on exploration in the South Australian portion of the basin, according to estimates by the SA government, in the hunt for both conventional and unconventional (coal seams, shale and tight gas formations) gas and liquids.

But if it is leverage that the average punter is after, a little thing known as Ambassador Oil & Gas (AQO) has it over the bigger players in the Cooper. Headed up by seasoned oil and gas campaigner Tino Guglielmo, Ambassador was trading at 15.5c a share yesterday for a market value of $22 million.

The company owns 100 per cent of the decent-sized exploration permit PEL 570, which covers a large chunk of the Patchawarra trough to the north of the Cooper Basin's main engine room for oil and gas, the Nappamerri trough.

While the Nappamerri trough contains a massive volume of hydrocarbon-"filled" structure, the majority of the gas is dry in that it is not accompanied by much in the way of liquid hydrocarbons. The gas in the Patchawarra trough, though, tends to be much richer in the revenue-boosting liquids.

Ambassador has previously released estimates covering the potential for as much as 20 trillion cubic feet of gas to be in place in PEL 570, broken down into 13tcf of gas in coal seams, more than 8tcf in "tight" rocks and 1.5tcf of gas in shale formations. While the recovery factor for any of it would be much less, it is worth remembering that 4tcf means you have got an LNG export opportunity on your hands.

But it is early days for Ambassador, as its modest market cap suggests. More to the point is that Ambassador recently struck a deal under which it plans to farm out a 70 per cent interest in PEL 570 to the privately held Outback Energy Hunter in return for a $50m exploration commitment, and up to $9.1m from a share placement at 25c each, effectively replacing what would have come in from Ambassador's currently out-of-the-money options.

It gives Ambassador and its PEL 570 ambitions the momentum it was lacking, assuming that the deal as announced is completed.

Outback is the creation of Michael Fowler, former chairman and founding director of Nexus Energy, and is associated with US shale drilling legend Gary C. Evans, chairman and founder of US group Magnum Hunter Resources. Evans is the real attraction in the deal because of his unconventional exploration experience in some of the US shale plays in recent years.

The deal with Outback is conditional on it taking up the placement of shares as described above. Until it does, a question mark over the deal will remain.

Even so, industry talk since the deal was struck is that the momentum that Ambassador was seeking for PEL 570 is now assured anyway. That's because Ambassador has now effectively flagged the price at which it will deal on PEL 570. So if Outback doesn't complete, there will be plenty of others anxious to secure a foothold in the biggest energy game in town.

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