Apache spends big on WA gas projects

US-owned oil and gas producer Apache Energy has unveiled a dramatic investment program in Western Australia that will cement its position as one of the state’s biggest gas producers.

The company, which already supplies around 35 per cent of the state’s domestic gas from its Varanus Island facility, is currently half-way through construction of the $1 billion Devil Creek domestic gas project south-west of Karratha.

The project, of which Santos owns 45 per cent, is due to start production in the final quarter of next year, producing up to 220 terajoules of gas a day, equivalent to 20 per cent of current WA domestic supplies.

The project’s foundation customer is Citic Pacific’s $5.2 billion Sino Iron magnetite iron project 50 kilometres to the south.

On a tour of the company’s Pilbara business last week, the new chief of Apache’s Australian business Tom Maher said the company expected to sanction at least two additional gas developments in the coming months. It is also evaluating two new offshore oil developments in the region at its Coniston and Balnaves fields.

Apache has already budgeted $US1.1 billion for exploration and development in WA this year, representing around a fifth of the company’s global spend.

That is in addition to the $900 million recently spent to develop the nearby Van Gogh oil field, and its 28 per cent share of BHP’s $2 billion Pyrenees oil project, both of which started production early this year.

The two projects helped Apache attain record production of almost 95,000 barrels of oil equivalent a day from its WA assets in the June quarter, a 250 per cent rise year-on-year.

Apache’s first new development likely to be approved is the BHP Billiton-operated Macedon gas project, off Exmouth, that will supply a dedicated onshore gas plant planned near Onslow.

BHP has never publicly revealed the likely cost, though it is now expected to be in the order of $1.6 billion. That is significantly higher than the unofficial $1 billion estimate attributed to the venture in recent years.

Pending approval by BHP’s board, Mr Maher said he expected the proposal to be put before Apache’s own board next month.

“We expect (that) sometime in September,” he said, adding that first gas would then be possible around mid-2013.

In the interim, Apache also expects to start work on its $120 million Halyard gas project next quarter in a bid to start production next year.

“Our first gas target there is May next year,” Mr Maher said.

The Halyard field will be hooked up to Apache’s existing East Spar operation, from where the gas will be piped to Varanus Island for processing and subsequent sale via the Dampier-Bunbury pipeline. Halyard will be capable of producing around 160 terajoules of gas a day.

Meanwhile, Apache has also quietly boosted output at its Varanus gas plant with the addition of a new larger scale compressor.

The Varanus plant is now producing almost 390Tj/day per day, compared to the 330 Tj/day the plant was capable of before the disastrous Varanus explosion in mid 2008.

Mr Maher said subject to discovering more gas in the area, there was scope to increase capacity to around 450 Tj/day with an extra compressor.

“That’s part of the overall gas strategy we’re looking at,” Mr Maher said. “I think we’re going to need some more domestic gas reserves to justify that economically, but there is scope to increase production out there.”

“I’d love see us find enough gas to go 450 (Tj/day) plus there.”

Apache has not yet seen the state government’s final report on the 2008 Varanus explosion, and is yet to be notified of whether any charges will be laid against it.

However, Mr Maher said he did not believe the report would suggest extra measures were necessary beyond those already undertaken by the company.

“I don’t anticipate anything coming from the government or independent third party report that would oblige us to do anything differently than what we are doing,” he said.

While Apache is aggressively exploring for additional gas reserves to supply the WA market, its deal last year to take a 16 per cent stake in Chevron’s $25 billion Wheatsone LNG project by vending in its Julimar and Brunello gas fields has opened new doors.

Mr Maher said Apache was now reviewing its business plan in WA to determine what is the optimum mix of domestic and LNG production from its growing WA reserve base.

“It’s becoming a little more complicated now with Devil Creek, Varanus, Macedon and Wheatstone … so we’re trying to evaluate an overall strategy,” he said.

• The reporter travelled to Varanus Island as a guest of Apache.