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Thursday, April 10, 2014

An interesting oil and gas market where junior companies have the opportunity to play an important role is developing in Australia, according to Armour Energy Ltd. Chief Executive Officer Robbert de Weijer.

Brisbane-based Armour is one of several exploration and development companies currently working to identify the potential of Australia’s frontier shale gas resources.

As it has in the United States, shale gas is tipped to emerge as a major new energy source in eastern Australia, particularly as three major liquefied natural gas (LNG) developments will be seeking supply after they come on-stream in Queensland during the next 18 months.

While it may be up to a decade before the potential of these frontiers is fully realized, de Weijer believes the impact of extensive resources in basins across northern Australia could be substantial.

He explained that the forecasted market conditions created by the major east coast developments were motivating junior explorers such as Armour to discover and develop unconventional resources.

“It is going to be an interesting market moving forward, especially as there will be huge demand for gas with the LNG plants coming on-stream,” de Weijer told Rigzone.

“To have this demand, and with gas prices expected to increase (in eastern Australia), it can only be a good thing for oil and gas companies with prospective exploration acreage upstream. This country will need more gas, it is just a matter of where can we find it?”

LNG Plant Supply

Significant contracts with unconventional gas companies are already being drawn up to secure future supply for the LNG plants.

WestSide Corporation Ltd. delivered an example of this last month when it announced a 20-year agreement to supply gas from the Meridian coal seam fields to Santos Ltd.’s majority owned Gladstone LNG plant.

GLNG, a joint venture between Santos, Petronas, Total and Kogas, joins the Australia Pacific LNG and Queensland Curtis LNG projects as major developments on target for completion in Queensland by 2015.

Santos continues to grow its unconventional presence and through its Moomba-191 well in the Cooper Basin of South Australia became the first company in Australia to be commercially producing shale gas.

In the Cooper Basin, which straddles South Australia and Queensland, Santos is joined by junior and mid-tier shale explorers such as Beach Energy Ltd., Senex Energy Ltd. and Drillsearch Energy Ltd.

Elsewhere, shale gas exploration and appraisal activity has rapidly increased in Queensland, the Northern Territory and Western Australia.

Frontiers Basins

Armour’s potential lies primarily in two shale frontiers, the McArthur and South Nicholson Basins which span across the Northern Territory and Queensland.

These assets give Armour a 100 percent interest in one of Australia’s largest shale gas provinces, with rights to about 133,900 square kilometers of adjoined tenements featuring significant unconventional (41.3 Tcf) and conventional (3.5 Tcf), third-party assessed gas prospective resources.

Since raising $70.3 million (AUD $75 million) through an initial public offering on the Australian Securities Exchange in 2012, Armour has further de-risked the potential of the acreage for significant hydrocarbons, albeit at a not yet commercially proven level.

The company has also broken new ground from a technological perspective after it became the first company in Australia to successfully use multi-stage hydraulic stimulation on a horizontal shale well to achieve continuous gas flow at its Egilabria-2 prospect in the South Nicholson Basin.

Armour’s next target is to secure a farm-out agreement to help fund future exploration activities at its northern acreage. de Weijer said he was confident of making an announcement this year regarding a farm-out after the company’s prospects had attracted outside interest.

“It is difficult to say when we will get something across the line but we have a good feeling about it,” de Weijer said. “I am often asked how we will fund our activities and a farm-out would be ideal – there a number of larger companies that will be short of gas moving forward and they are typically the companies we would expect to be interested in a frontier exploration company with large 100 percent owned exploration assets like Armour.”

Shale Industry Backing

A strong advocate of shale gas development is the Australian Petroleum Production & Exploration Association (APPEA), which believes the sector would have substantial benefits for the broader gas industry.

With particular focus on Queensland, the APPEA said there was enormous potential to safely explore and develop the state’s shale gas resources, and in the process create jobs and attract another wave of economic investment.

APPEA Chief Operating Officer Paul Fennelly said: “Across the border in South Australia about 685 wells have been safely fractured and stimulated in the Cooper Basin over the last 40 years.

“Shale gas also uses multi-pad horizontal drilling, which ensures that the surface footprint of activities is minimized so that there is little impact on agricultural operations or the environment.”

According to the APPEA, natural gas from coal seams feeds almost 100 percent of Queensland’s gas supply needs and has been responsible for generating almost 30,000 jobs, mostly in rural and regional communities.