Arc Energy Ltd has significantly expanded its exploration base by acquiring major exploration areas in the on-shore Canning Basin in north west Western Australia.
Arc Energy Ltd has significantly expanded its exploration base by acquiring major exploration areas in the on-shore Canning Basin in north west Western Australia.
The Canning Basin is one of the last under-explored areas in onshore Australia and has geological similarities with highly productive regions in Oman and the United States.
Its acquisition program in the area includes:
i. the purchase of a number of permits from European Gas Ltd;
ii. a letter of intent in regard to the petroleum rights to areas under application by Rey Resources; and
iii. the lodgment of applications for two Special Prospecting Authorities with the Western Australian
government.
Arc has consolidated a strong foundation asset in the Perth Basin, in WA's mid west, and is now in a position to assess a range of other basins in Australia for further oil and gas exploration.
On-shore basins are a target for the company, as it has an existing expertise developed in its on-shore operations in the Perth Basin.
It is also attracted to basins in Australia due to the stable tax, legal and royalty regimes.
Arc undertook a major regional review of the Canning Basin in 2001, and is now in a position to act on it as it expands the business outside the Perth Basin.
Further, in relation to on-shore basins, they have the advantage of having low capital and operating costs and short cycle times to production.
The company has been successful in getting fields in the Perth Basin on-stream quickly and cost-effectively, and in being able to maintain production effectively.
The Perth Basin and Canning Basin drilling seasons fit well with each other, with Arc able to use its rig in the Perth Basin during the "wet" season and then take it up to the Canning in the "dry" season.
The company believes the strong cash flows generated from the Perth Basin fields, including the recent start up of Cliff Head, will enable the Canning Basin program to be funded from operating cash flow.
THE FULL RELEASE APPEARS BELOW.
Open Briefing.. ARC Energy. Potential of Canning Basin
Record of interview:
corporatefile.com.au
ARC Energy Limited has announced that it has significantly expanded its permit
holdings by acquiring major exploration areas in the Canning Basin. Why has
ARC chosen to explore in the Canning Basin?
MD Eric Streitberg
Having consolidated a strong foundation asset in the Perth Basin, our business
development program has assessed a range of basins in Australia. Focusing on the
onshore basins makes sense for us given the expertise we have developed in
onshore operations in the Perth Basin. We are also very attracted to basins in
Australia given the sensible tax and royalty regimes and the lack of political and
legal risk.
I have been involved in the Canning Basin since the discovery of oil at Blina in the
early 1980s and we also undertook a major regional review of the Basin in 2001.
After we finished that review we were then distracted by the discoveries and
developments in the Perth Basin and it is only now, as we expand the business
outside the Perth Basin, that we have gone back to that review of the Canning and
are in a position to act on it.
corporatefile.com.au
Why does focusing on the onshore basins make sense for ARC and what particular
expertise do you bring to the Canning Basin?
MD Eric Streitberg
Onshore basins have the advantage of low capital and operating costs and short
cycle times to production. We have been very successful in getting our fields in
the Perth Basin on-stream quickly and cost-effectively, and in being able to
maintain production effectively. It is difficult for both larger and smaller
companies than us to do that; larger companies have trouble focusing on small to
mid size onshore fields and smaller companies don't have the resources. ARC, as
an operator, is of a size and has the skills to be able to really make onshore
discoveries work, and the areas we have acquired fit our core business model very
well.
corporatefile.com.au
Can you explain what you mean by the deals fitting your core business model?
MD Eric Streitberg
ARC prefers high equities and operatorship of projects and this gives us control
over timing, budgets and project delivery. I think the advantage and necessity of
this model has become increasingly obvious as we see junior partners in other
projects suffering delays and cost overruns and not being able to influence what is
happening. Of course in the offshore, a company of ARC's size would not be able
to apply this model because of the costs involved, but in the onshore we very much
want control over our own destiny. So we have essentially acquired 100% of each
of the Canning Basin permits and operatorship of them all.
corporatefile.com.au
You have said that you recognise the importance of working with traditional
owners of the areas you have under licence. What approach are you taking?
MD Eric Streitberg
We have always been very conscious of the need to recognise and engage with the
traditional owners of our lease areas, as well as the broader community in which
we operate. The Canning Basin has a very strong history of engagement by the
traditional owners with the people who are working on their land. We recognise
and support this. ARC has developed good relationships with traditional owners
in the Perth Basin and we are committed to pursuing this model in the Canning
such that we act appropriately in our exploration and, hopefully, development
activity.
corporatefile.com.au
Can you outline the history of exploration and the potential of the Canning Basin?
MD Eric Streitberg
Oil was found in the early 1980s at Blina, Sundown and Lloyd, and in some ways
this did the industry a disservice because it focused attention on the carbonate reef
and shallow sediment prospects, and there was little attention paid to the deeper
sections of the Basin.
These deeper sequences have now been shown to have classic reservoir/source
pairs and much better seals than the shallow sections, and this potential is largely
unexplored. There have also been several large in-place resources discovered,
including the 1967 Yulleroo discovery close to Broome, the Pictor wet gas
discovery with significant amounts of liquids in place and Shell's Looma 1 oil
discovery in the Kidson Sub-basin. Shell described this play as analogous to
proven plays in its Oman production areas and that it had very high potential.
Shell did not pursue the play due to a shift in corporate priorities, but they
generated a wealth of excellent quality data.
corporatefile.com.au
With that sort of potential, why hasn't there been more exploration in the Canning
Basin?
MD Eric Streitberg
The potential is rather unquantified as there has not been a great deal of
exploration done, but if the geological puzzle can be unravelled there is the
potential for very significant fields to be found. There are several reasons there
hasn't been more exploration. Firstly, the lack of commercial discoveries after the
initial 1980s discoveries, largely because of declining effort, also deterred other
explorers. We are a very precedent driven industry and sometimes areas are
neglected because of perceived wisdom rather than geological truths.
Secondly it is a huge area and that brings its own challenges. All of our Perth
Basin areas would fit into one small corner of our Canning Basin areas, so we will
need to be disciplined and focused in our activity, as we always are.
The third is that logistics have been a barrier, both because of the size of the area
and its isolation. However, the sustained high oil prices have utterly transformed
the economics of the area and made even smaller discoveries commercial. The
recent focus on domestic gas supply for WA and the potential for the offshore
Browse gas fields to be processed in the area means gas is also a prize worth
having, particularly given how wet most of what's been found has been. The
construction of the Telfer pipeline means that gas transportation options down to
the southwest markets are also starting to be developed.
corporatefile.com.au
The industry seems to be badly affected by a shortage of rigs and seismic crews.
How will that affect what you are trying to do in the Canning Basin?
MD Eric Streitberg
This is one area in which we also have a substantial advantage. Not only have we
developed substantial drilling expertise during our recent 28 well drilling program
in the Perth Basin, but we also recently announced that we had signed up Century
Rig 18 for the next phase of the Perth Basin drilling program. The Perth Basin and
Canning Basin drilling seasons are almost exactly counterpoised, so we have an
ideal situation where we can use the rig in the Perth Basin during the Canning
Basin "wet" and then take it up to the Canning during the "dry".
corporatefile.com.au
What are the expected costs of the program and will you be able to continue to
fund it out of cash flow?
MD Eric Streitberg
Given the strong cash flow we are generating from the Perth Basin fields,
including the recent start up of Cliff Head, we will have no trouble funding the
program out of operating cash flow.
Seismic can be more expensive in the Canning depending on the specific area.
However drilling costs are not expected to be much higher than the Perth Basin for
a program of wells, and we will be drilling substantial programs of wells in the
Canning. Given that we would look to have back-to-back drilling programs, we
would not expect our annual Australian exploration costs to be significantly higher
than currently. Of course we also have a potentially major exploration program
coming up in Yemen so that will put our total exploration budget for the year up a
little.
corporatefile.com.au
You have mentioned that there are potentially more wells in Yemen than you had
planned. Could you give some more details on that and on how the Canning Basin
fits into these exploration plans?
MD Eric Streitberg
I recently went to a joint venture meeting in Calgary for Block 35 in Yemen,
where we discussed drilling at least one and up to three wells on that block starting
in the fourth quarter of this calendar year. After the Block 35 wells are drilled, Oil
Search, as operator, is discussing drilling up to two wells on the newly acquired
Block 3, and is planning seismic survey on blocks 7 and 74.
Yemen is a very exciting area for us. On my recent trip to North America and
Europe, it was very apparent that Yemen is considered by the market and industry
to be a very "hot" exploration area because of the recent large discoveries,
particularly the "basement" play. This has seen some company-making
discoveries by relatively small European and Canadian groups. Between ARC and
our associate company Adelphi, we have very substantial exposure to these plays,
and the Canning and Perth Basins provide a very complementary fit on both
timing, prospect size and risk reward.
corporatefile.com.au
Can you summarise ARC's company-wide exploration program going forward?
MD Eric Streitberg
We will be drilling at least five wells in the onshore Perth Basin in the coming
year on a range of prospect sizes, with a good medium term prospect inventory in
the pipeline. So I have to say that securing Rig 18 to commence the onshore
exploration program in the Perth Basin, and the prospect of a couple of offshore
Perth Basin wells, together with the Yemen and Canning Basin wells, ARC is
looking in pretty good shape on exploration.