queensland gives green light to shale-oil proj

By DAVID WINNING
SYDNEY—Australia's Queensland state said Wednesday that it would allow companies to develop oil deposits trapped in shale rock formations, aiming to tap reserves estimated at more than 20 billion barrels.

Andrew Cripps, Queensland's natural resources and mines minister, gave the green light to existing shale-oil operator QER Ltd. to move ahead with plans for a commercial operation near Gladstone.

Amid the buzz around Australia's vast offshore gas fields and unconventional resources such as coal seam gas and shale gas, the country's potential to grow its oil output has been largely overlooked. Australia's oil production last year fell by 14.5% to 484,000 barrels a day—its lowest level since 1983—as conventional fields became depleted, according to BP PLC. BP.LN -1.40%
But international oil companies have been planting flags in parts of central Australia where the geology is similar to the Eagle Ford and Horn River regions of the U.S., which have become major production areas for tight oil. They also like the large tracts of land held there by a small number of companies like Central Petroleum Ltd. CTP.AU +7.69%and Canada's PetroFrontier Corp. PFC.V -1.52%
Tight oil can be freed from shale rock formations with hydraulic fracturing, or "fracking," technology. Production in these tight oil fields can be boosted quickly when enough capital is invested—a perfect fit for big oil companies with deep pockets and a mandate to extract more oil.

Norway's state-owned energy company Statoil ASA STL.OS -0.14%bought a stake in PetroFrontier's acreage in the lightly explored Northern Territory in June, agreeing to fund a phased program of exploration up to US$210 million. In November, France's Total SA FP.FR +0.38%agreed to help Central Petroleum explore in the Northern Territory.

Mr. Cripps said Queensland currently has around 90% of Australia's known shale oil resources, equivalent to around 22 billion barrels of oil.

"As the world supply of conventional crude oil diminishes, there are strong prospects for oil shale to become the next major source of liquid fuel supplies in Australia, and Queensland is well-placed to lead that charge," he said in a statement.

Developers must comply with environmental requirements, the government said. QER has built a small-scale demonstration plant to produce ultralow sulfur diesel, jet fuel and other transport fuels, and so it can move toward commercial production, while new entrants need to demonstrate their technologies for extracting oil from shale rocks in trials.

Mr. Cripps added that an existing 20-year moratorium on developing the McFarlane shale-oil deposit near Proserpine in central Queensland would continue until 2028