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Robust performance merely scratches surface

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THE CONFERENCE CALLER: Despite enjoying a high discovery success rate going back decades, Australia’s Cooper Basin is still not regarded as a mature exploration destination by some ASX-listed energy players. By Mark Fraser

Two of these companies – Oilex (ASX: OEX) and Real Energy Corporation (ASX: RLE) – made their feelings regarding the basin’s untapped potential clear at the RIU Good Oil Conference held in Perth recently.

During his presentation to the conference, Oilex managing director Joe Salomon said proven technologies like 3D had hugely impacted exploration in the Cooper Basin and suggested new technologies targeting depth would now see similar advancements.

It was also, “enormously rich in terms of the data that is available,” he said.

Earlier this year the company entered into an agreement with Holloman Energy Corporation to acquire a 48.5003 per cent interest in the PEL 112 and 444 licenses, which sit in the South Australian section of the basin.

Both blocks are located on extensions of the Western Flank oil fairway that hosts over 30 per cent of the Cooper Basin’s oil reserves. PEL 112 covers 1,086 square kilometres, while PEL 444 extends across 1,166 square kilometres.

“It’s under-explored, it’s underdeveloped, there’s an opportunity to build a big business in the Cooper Basin,” Salomon said.

“It’s proven, it’s a liquid rich gas basin, it has a world class source rock, and that’s the defining thing for all of our activities – we want to be next to world class source rocks.

“You have to understand the migration pathways. We are moving from structural plays to structural stratigraphic, and in fact pure stratigraphic, and that is a key part of our plan going forward.”

When it came the turn of Real Energy Corporation (REC) chief executive and executive director Scott Brown to present, he took the opportunity to compare the Cooper Basin with Texas, where around a million wells had been drilled as opposed to just 3,100 within the onshore Australian jurisdiction.

The company’s initial focus is on the exploration and development of unconventional gas resources and conventional oil and resources in both the Cooper and Eromanga basins.

“It (the Cooper Basin) is pretty similar size (to Texas), so there is a hell of a lot potential here for both oil and gas, and that’s why we are very bullish about it,” Brown said.

“Both Santos and Beach have announced pretty major programs to get after oil and gas in this basin.

“Santos is talking about a program of 100 wells over the next period of time.

“Obviously they are investing substantially.”

As with Oilex, REC was also looking to implement new technologies and methodologies as it further developed its permits.

This included incorporating updated well designs as well as finding ways to increase productivity and flow rates.

 

 

Polemical Leader Both a Plus and Minus for Energy Sector

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THE CONFERENCE CALLER: It seems some ASX-listed junior hydrocarbon players with North American projects are – like the rest of the world – a little polarised when it comes to controversial US President Donald Trump. By Mark Fraser

During the recent RIU Good Oil Conference in Perth, Trump was both highly praised and slightly berated by separate presenters with onshore assets.

Coming to the Republican president’s defence was Eon NRG’s Jerry McGann, whose company is currently focusing on its Powder River Basin play in Wyoming, where earlier this year it picked up some “juicy acreage” involving land which had been “tied up with government ownership effectively for sometimes 30, 40 or more years”.

“You might have various views as you sit down there about president Trump and some of the things he does, but one of the things that he has done is mobilise some of his government agencies, and one of those is the Bureau of Land Management – the BLM,” he said.

“And they had tens of thousands, probably hundreds of thousands, of acres that were tied up – sometimes for 30 or 40 years … and this was just fallow ground that was never available for hydrocarbon exploration.

“Trump has really got those chaps off their chairs, and ladies, and they had a lease sale here last July in the Powder River. This particular sale in the Powder River raised US$220 million.

“And what happens in these lease sales – it’s a lot of fun.

“A new lease package comes up every eight minutes, you bid online, and we have basically two technical guys in the office in Denver, and they are competing with big groups – sometimes 20 or 30 people – in other places on their computers bidding against us.”

McGann told RIU delegates under the terms of the Powder River deal Eon ERG had ended up paying just US$12/acre, was required to pay a 12.5 per cent royalty, and now held the land for 10 years with “no obligation for drilling or anything else”.

During the closing moments of his presentation, however, Samson Oil & Gas chief executive Terry Barr wasn’t so complimentary of the US president, suggesting Trump had to take some of the blame for the oil price’s volatility while commenting on his company’s hedge book.

Samson currently has an 87 per cent operated average working interest in the Foreman Butte project in North Dakota.

“Our hedges, and I guess this is an unfortunate part of the oil business, everyone likes to have a high oil price,” Barr said.

“But basically, our lender wanted to be hedged, and so our hedge book is currently valued at $2.7 million.

“It goes up and down, obviously, with the oil price every day – it was, I think, $2.1 million yesterday, so it’s all over the place.

“And I’ve never seen volatility like we have experienced … it’s quite disheartening, I think, to see (when) our beloved president comes out with some statement and the price goes down five dollars, and he comes out with another one and it goes up five dollars.

“So, it’s fairly hard to predict that in your planning.”

 

 

Unconventional Resources to Restore Balance

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THE CONFERENCE CALLER: Australia’s south-eastern energy market is facing a gas shortage which is almost at crisis point – and liquefied natural gas (LNG) producers will not be able to meet long term demand at attractive prices post-2020. By Mark Fraser

This grim prediction was made by RISC’s Joe Collins during the recent RIU Good Oil Conference in Perth, where he said energy uncertainty – particularly in Victoria and New South Wales – was partly being driven by electricity transition and government failure to adjust policy settings that would “allow more supply to come into the market”.

However, it was not all bad news according to Collins, who maintained there was not a shortage of gas on the east coast, but rather a shortfall of developed gas.

In fact, he noted, there was a “massive amount” of gas available to the markets in the form of unconventional resources.

“We’ve seen what happened in Queensland with the CSG (coal seam gas) boom – the massive amount of gas that they are now producing from a very modest total previously,” Collins said.

“The potential exists for them to do that in other basins across eastern Australia. They just need to prioritise the investment, prioritise the exploration and get after that gas.

“I wouldn’t over-invest on LNG import capacity given what we know of what happened in the United States, where they over-invested in LNG import capacity, and the high prices that were in place there just stimulated a supply-side response from the unconventional gas guys.

“The same thing could happen in eastern Australia. I’m not saying that it will happen, but it could happen.”

In Western Australia, however, it was a different story as oversupply and a lack of new demand were keeping gas prices down.

Collins said the reservation policy of the state’s DomGas Alliance – a member-driven industry body representing natural gas users, infrastructure investors and producers – was also impacting the supply side.

Furthermore, recent exploration success in WA, such as the Waitsia gas discovery in the Perth Basin, was contributing to this situation.

“So really, we’re waiting for some new projects to come to the market on the demand side in Western Australia, whether they be petrochemical-type projects or new gas-to-power projects for big mines or things of that nature,” he said.

“We really think that the picture is of continued oversupply going forward – it’s highly unlikely that the market will swing to undersupply … probably as long as five to 10 years, almost, and that should keep prices low for the foreseeable future as well.”