The massive oil and gas projects in the north-west of Western Australia have overshadowed the development of the Perth Basin and the emergence of ARC Energy. Mark Beyer reports.
Oil and gas producer ARC Energy passed another significant milestone last week when it completed its takeover of Voyager Energy.
Following the doubling of its net profit, the Voyager acquisition has entrenched ARC’s position as the major player in the Perth Basin, an oil and gas province near Dongara, north of Perth.
The basin has never fully lived up to its potential but David Griffiths, the former Macquarie Bank divisional director who joined ARC as non-executive chairman in July, said that was changing.
“The Perth Basin is now producing serious volumes of oil and gas and has great potential, but it’s been a long, hard road,” he told WA Business News. “It is currently producing about 10 per cent of WA’s oil needs and the equivalent of its domestic gas consumption.
“It’s good to get involved with the company now. It has money in the bank and can look ahead and pursue a more structured approach to the basin.
“We’re now doing what everybody has wanted to do for the past 15 years.”
ARC managing director Eric Streitberg is a Perth Basin veteran, having previously run Discovery Petroleum.
He established ARC in its current form in 1997 and has overseen the growth in its market capitalisation from $10 million to nearly $500 million.
“We’ve built from the ground up a very substantial West Australian company that has become a major business in the Mid-West,” he told WA Business News.
“We’ve invested $200 million in the region in the last five years. The benefit of that has flowed through the Mid-West and we’re quite proud of that.”
Mr Griffiths said a distinguishing feature of ARC was that it had built an operating business.
“The spirit of that, you can feel it when you walk in the door,” he said.
“People are excited about what they have achieved. They have actually done it for themselves.”
ARC’s results for the year to June 2005 illustrate its progress.
Oil production was up 28 per cent, gas sales were up 41 per cent and revenue was up 66 per cent to $105.3 million.
Net profit doubled to $41.1 million and Patersons Securities has forecast an increase in net profit to $48.6 million in the current financial year.
However, to sustain its progress the company needs to develop more oil and gas prospects.
In pursuit of that goal, ARC plans to drill up to 31 holes this year.
Mr Streitberg said ARC’s base-case budget assumed it would be able to fund its drilling and development from cash flow, leaving plenty of scope for growth.
“We are keeping a nice big buffer in there of 30 to 40 million dollars to allow for acquisitions and diversification,” he said.
“If we factor in current oil prices, our cash builds up very substantially.
“If you are going to grow the company, having 70 or 100 million dollars in the pot and the ability to borrow a couple of hundred million is a very nice position to be in.”
Mr Streitberg said the company was assessing a range of growth options.
Within the Perth Basin, he said, one possibility was another offshore oil project “probably quite substantially bigger” than the $227 million Cliff Head development currently under way.
A more immediate goal for ARC is to expand its gas business, and in recent months it has locked in several deals, including a sales agreement with Western Power and a supply contract with Midland Brick.
The company also strengthened its position as the dominant owner of infrastructure in the region by purchas-ing the Dongara gas processing facility.
Mr Streitberg said finding new gas customers was the least of ARC’s problems.
“The customers are sitting there waiting, basically. We could double our gas production almost immediately if we had the gas.”
Mr Streitberg said gas sales (currently 30 terajoules per day) provided about 22 per cent of ARC’s revenue, and the company was aiming to double that in the next year.
He believes this is “not a particularly ambitious objective” given the prospectivity of gas fields such as Tarantula.
Like any growing business, ARC has had a few hiccups along the way, including in its management structure.
Long-serving executive Derrick O’Keefe left the company in May, just three months after he had been promoted to chief executive.
“The lesson to take from that is that if something is not working you fix it, and you fix it decisively,” Mr Streitberg said. “That’s a lesson a lot of people don’t learn.
“You have to be very dynamic to make sure the systems and processes and structures of the company change with its growth.”
