The $US40 billion takeover of a US gas producer largely unknown outside North America could have major implications for WA.
LAST December, energy giant ExxonMobil stunned the North American oil and gas industry with a $US40 billion bid to acquire shale gas producer XTO Energy.
It wasn’t just the price of the deal that sent tremors across the US, but the formal recognition by one of the industry’s most conservative heavy hitters that so-called ‘unconventional gas’ will be critical to meeting global energy demand.
As the world’s conventional oil and gas resources have declined, focus has increasingly turned to unconventional reserves trapped in coal seams and impermeable (or tight) sedimentary rocks such as shale and fine-grained sandstones.
In the US alone, unconventional gas production has risen four-fold since 1990 to almost 50 per cent of all gas output, with shale gas accounting for about 15 per cent of the total.
The key to that trend has been a revolution in drilling and extraction technology.
Hydraulic fracturing (or fraccing) involves pumping sand and fluids at high pressure into almost impermeable gas-rich rocks, in turn cracking them to liberate the gas trapped within. Fraccing can be enhanced by horizontal drilling, which exposes a greater area of the host rock by drilling along, rather than vertically through, the host structure.
Critically for WA, that has the potential to massively boost local gas reserves and render the current debate over a supposed domestic gas shortage irrelevant.
Vast areas of mainland WA comprise huge sedimentary basins known to host gas, coal and thick layers of shale, most notably the Canning Basin in the Kimberley and the Perth Basin stretching from Geraldton to Augusta.
Leading the tight gas charge is unlisted explorer Latent Petroleum, which in partnership with Alcoa and Transerv Energy is testing the big Warro gas field 130 kilometres south-east of Dongara, estimated to host up to 5 trillion cubic feet of gas (tcf). That is equivalent to reserves at Woodside’s Pluto LNG project.
Though Warro has frustrated numerous past operators, a $40 million funding commitment by Alcoa could lead to first production within three years.
Last year, the Warro-3 well produced a commercial gas flow rate of 5 million cubic feet per day before water from an underlying aquifer entered the well.
Latent chief Stephen Keenihan said water should not be a problem in future wells and that a team of US specialists was now planning the next phase of work to boost gas flows even higher.
The joint venture has also secured a licence for a 150 terajoules per day pipeline linking Warro with the existing Parmelia gas pipeline to Perth to help speed development.
“So if we pushed the button next year, we would anticipate getting first gas out in late 2012 or early 2013,” Mr Keenihan said.
Following Latent is unlisted Whicher Range Energy, which is seeking a partner for the next phase of work at the 4tcf Whicher Range field, just south of Busselton. Though tests in 2008 produced semi-commercial flow rates, its high clay content has made past fraccing attempts ineffective.
Empire Oil and Warrego Energy are also evaluating the smaller Gin Gin and West Eregulla tight gas fields near Gingin and Dongara respectively.
The Perth Basin is also underlain by thick sequences of shale with the potential to host huge gas reserves, and billions of tonnes of marginal coal reserves, which could become viable with the advent of new underground coal gasification (UCG) techniques.
Similarly, Mid West energy proponent Eneabba Gas has estimated that its Sargon coal deposits near Dongara could yield up to 3 trillion cubic feet of gas using new UCG technology; that amounts to 50 per cent more gas than the giant Gorgon project is required to deliver to the WA domestic market.
Meanwhile, listed oil and gas producer AWE last month officially became WA’s first active shale gas explorer at a 2,500 square kilometre parcel of shale tenements near its Woodada gasfield, 300km north of Perth.
AWE has this month started its first drilling program at the site to extract shale samples for analysis, and hopes to complete its first contingent resource estimates by the end of the year.
AWE corporate development manager Garry Marsden said the program was still in its infancy, but the potential was enormous.
“It’s very early days, but ... there is a large potential resource there,” he said.
Meanwhile to the north, West Perth-based New Standard Energy is focusing on 37,000sq km of shale tenements in the Canning Basin, where conventional oil and gas shows have also been recorded.
Last year, the reserve potential of a comparable shale province in the Northern Territory was estimated at up to 64tcf of gas.
NSE managing director Sam Willis said initial work indicated the Goldwyer shale sequence covered an area 600km long by 300km wide, and was up to 500 metres thick. A detailed review by US shale gas experts, due shortly, would dictate the next stage of work.
“It’s too early to put any numbers around it, but it’s a very large acreage we are looking to exploit up there and we know that it’s got shale right across it,” he said.
“So the potential size of any resource that might emerge is certainly large ... and that would be very strategic for the state and of significant interest to big energy consumers here and overseas.”
Given the high cost of fraccing and horizontal drilling, partly due to the dearth of specialist rigs in WA, rising gas prices in WA and the state government’s halving of state royalties on tight gas production are critical to the growth of the industry here.
Mr Willis said current domestic gas prices of $6-$8 a gigajoule, versus $3.50 on the east coast, definitely made WA a much more attractive market structurally for shale gas explorers such as NSE.
With international energy giants now scouring the world for quality unconventional gas opportunities, activity in WA’s emerging shale and tight gas sector is sure to accelerate.
And if the XTO deal is any guide, the prize for success could be significant.
