19/09/2013 - 15:37

Buru eyes production opportunity in Canning Basin

19/09/2013 - 15:37

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WA has long been known for its high potential for onshore gas; Buru Energy is getting closer to turning that into reality.

Buru eyes production opportunity in Canning Basin
AHEAD OF THE GAME: Keiran Wulff hopes to lead Buru from the ranks of junior explorer to significant gas producer.

WA has long been known for its high potential for onshore gas; Buru Energy is getting closer to turning that into reality.

Early next year, Perth company Buru Energy is due to make a final investment decision on the full development of its Ungani oil field, inland from Broome.

That will be a significant milestone for Buru, but is just a stepping-stone as it pursues bigger ambitions in the Canning Basin.

Buru is one of many companies exploring Western Australia’s onshore basins, searching for the vast gas fields thousands of metres below the surface.

New Standard Energy, Empire Oil & Gas, Transerv Energy and Norwest Energy are among other Perth companies in the search.

But Buru is a long way ahead, with exploration success, funding commitments and a state agreement locked in – and a $200 million work program mapped out.

The opportunity was a big lure for former Oil Search chief operating officer Keiran Wulff, who joined Buru in October last year as a non-executive director before taking the managing director role in January.

He will work alongside Buru veteran Eric Streitberg, who is planning to move to a non-executive role over coming months.

“I joined Buru because I was excited by what the team had achieved and I thought there were many parallels with my experience at Oil Search,” Dr Wulff told Business News.

That included making the transition from a junior explorer to a significant producer.

“After I joined Buru, I realised just how big the opportunity was,” said Dr Wulff, who grew up in Perth but spent most of his working life outside WA.

His initial focus is developing Ungani, which was discovered in 2011.

“It was a really pleasant surprise,” he said.

Ungani is the most significant oil field discovered in the Canning, and the biggest in WA in the past 10 years.”

The discovery was part of a 10-well exploration program, which also resulted in a potential oil discovery at Ungani North, and a “potentially significant” wet gas resource further inland, in the Laurel formation.

Dr Wulff said this experience illustrated how much remaining potential existed in the Canning, a vast area where many companies have undertaken ad hoc or regional exploration programs.

Buru is seeking to change that by acquiring a large seismic database and conducting an extensive drilling program.

“The potential is there but we need a systematic evaluation to prove it up,” Dr Wulff said.

The Ungani development is designed to give Buru access to cash flow to help it fund further exploration.

Funding agreements

Cash flow from Ungani will be on top of a four-part $117 million funding package completed this year.

Mitsubishi Corporation has agreed to contribute $27.5 million towards Buru’s share of costs for developing Ungani.

This is subject to the joint venture taking a final investment decision, after the drilling of the Ungani 3 appraisal well.

National Australia Bank has been mandated to arrange a loan facility.

Alcoa has agreed to advance up to $20 million to fund Buru’s share of the Laurel gas appraisal program.

Buru has also completed a $40 million capital raising, comprising a $35 million placement underwritten by Deutsche Bank and a $5 million share purchase plan.

The placement was three times oversubscribed, with new institutions joining the share register, while the share purchase plan was more than five times oversubscribed, signalling the keen interest of shareholders.

Another critical aspect of Buru’s planning has been securing a drilling rig, with new player Advanced Energy Group.

The lack of specialist rigs has been one of the main constraints facing companies looking to undertake onshore exploration programs (see page 13).

State agreement

These agreements follow the negotiation last year of a landmark 25-year state agreement, which provides a flexible basis for developing the Canning Basin’s gas reserves and supplying the domestic market.

It includes provision for building a pipeline from the Canning Basin to the existing gas pipeline in the Pilbara.

If Buru’s gas reserves grow sufficiently, the state agreement also provides for Canning Basin gas to support an existing or new LNG plant.

Dr Wulff said there was a long way to go before any development decision could be made.

However he emphasised that Buru had no intention of developing infrastructure at James Price Point.

“James Price Point has never been part of our plans.”

Dr Wulff said one of the main focus areas for Buru was building its internal capability, to ensure it could deliver.

It also focused on engagement with local communities, particularly the indigenous communities around Broome.

To support that, it has recently appointed former state government minister Jon Ford as general manager community relations.

Dr Wulff said indigenous engagement was a core focus for Buru, saying he would draw upon his 17 years’ experience with Oil Search, which is well known for its commitment in that area.

The company was criticised last year by Kimberley indigenous leader Wayne Bergman for failing to consult on its exploration program and damaging culturally significant sites.

“The alleged incident is still under investigation but we have resumed our activities after coming to a wide-ranging agreement with the traditional owners,” said Dr Wulff, who joined the Buru board around that time.

The company has also upgraded its processes and staff training.

$200m work program

The company plans to spend $200 million over the next 15 months, including $92 million at the Ungani oil field.

Buru is planning production of up to 3,000 barrels per day during 2014, increasing to as much as 7,500bpd by the end of the calendar year as extra production wells are drilled and export facilities commissioned.

In the Laurel formation, Buru plans to spend $54 million on testing the gas resource.

Its initial focus is completing community consultation, environmental planning, baseline surveys and regulatory approvals.

That will be followed next year by an appraisal program.

The company intends to spend a further $42 million on a regional exploration program, including seismic surveys, airborne geophysical surveys and up to four exploration wells.

Competitors

The progress achieved by Buru puts it ahead of other companies active in WA’s onshore basins, despite some negotiating major funding agreements.

New Standard Energy, for instance, raised $27.4 million last year by selling its shareholding in Buru, and negotiated a $US119 million farm-out with ConocoPhillips (46 per cent stake) and PetroChina (29 per cent stake) for its Southern Canning project.

Like many of its peers, New Standard is seeking farm-in partners, for its Merlinleigh and Laurel projects.

The Perth Basin has attracted many companies, based on its proximity to infrastructure, including gas pipelines, and a history of exploration success.

It has been home to 11 commercial oil and gas discoveries during the past decade, with Beharra Springs and Cliff Head still in production.

The newest producer in the Perth Basis is Empire Oil and Gas, which announced this week it had completed commissioning of its $34 million Red Gully gas plant.

Empire plans to deliver gas to Alcoa (up to 15 petajoules, with a $25 million forward sale agreement) and condensate to BP’s Kwinana refinery.

Empire also plans further exploration drilling and has engaged Macquarie Capita to seek a basin-wide farm-out partner, to accelerate drilling and development.

Transerv Energy is another company to have gained backing from Alcoa, which is one of the state’s largest users of gas.

Alcoa had agreed to spend up to $100 million on exploration and development to earn a 65 per cent interest in the Warro gas field.

The current discussions include bringing a new financial and technical partner to the project to accelerate the next phase of drilling.

Transerv is also in the process of selling some of its Canadian acreage to bolster its cash position.

Sydney-based AWE is planning to drill between 2 and 4 wells in the Perth Basin this year, and reviewing development options for its Senecio project.

Norwest is undertaking further testing at its Arrowsmith project.

 


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