WESTERN Australia’s ‘energy gold rush’ is overshadowing minerals exploration as investment in searching for oil and gas reaches a figure more than double that spent looking for minerals.
But while exploration spending may be ramping up in the petroleum industry, stakeholders are highlighting hurdles standing in the way of a viable onshore industry.
The allure of petroleum reserves has seen burgeoning investment in the search for oil and gas in the past year while there’s been little change, and even a slight contraction, in the amount spent on minerals exploration.
Latest figures from the Australian Bureau of Statistics show $985 million was spent searching for oil and gas reserves - a figure dwarfing the $470 million coming from minerals explorers’ pockets.
Expenditure on minerals exploration fell 3.6 per cent from $488 million spent in the September 2012 quarter and was 22 per cent down from the $603 million used up in the June quarter.
The fall in minerals exploration has seemingly tracked a sharp fall in the iron ore price in the second half of last year. Iron ore accounts for about 70 per cent of WA’s major mineral exports and has had an impact on exploration for the commodity. The iron ore price has since reclaimed some of its strength but some analysts have forecast further falls.
Conversely, petroleum sector operators have been splashing cash in the search for oil and gas - spending on petroleum exploration is set to break the $1 billion mark if it continues in its upward trajectory.
The latest figure of $985 million for the December quarter is a 57 per cent increase on the $624 million spent in the June quarter.
The $60 million cost of drilling one offshore exploration well can account for part of the high expenditure coming from the likes of big players Apache, Santos,
Inpex, Total and others searching offshore.
But anticipation of lucrative discoveries in the onshore Canning and Perth basins is likely to see this figure increase, as the entrance of another big player, Chevron, serves as a testament to the region’s allure for those in search of ‘tight’ and shale gas.
However, as outlined at a recent Committee for Economic Development of Australia conference on the potential for unconventional gas in WA, key onshore stakeholders concede significant hurdles need to be overcome.
Negative perception
The Canning Basin’s potential for significant unconventional gas reserves has drawn big names, including Mitsubishi, ConocoPhillips, Fortescue Metals Group and now Chevron to partner with local players Beach Energy, Tap Oil, Buru and New Standard Energy.
They admit significant work is needed before a viable industry can be established -and not just on the infrastructure front; a lot of the conversation at the CEDA event centred on the negative perception that has emerged of gas exploration in WA.
“While the potential for onshore gas is great, that does not equal development,” ConocoPhillips’ president Australia-West Todd Creeger said.
“There are a number of challenges to address before WA is on the path to development. This includes encouraging the sharing of scientific, accurate and transparent information about technologies, processes, safeguards and responding quickly to stop the spread of misinformation.”
Mr Creeger was referring to ‘fraccing’ methods, which are used in the US to release tight and shale gas in its well-established industry but which have been used as part of a popular argument against an onshore industry in Australia.
The federal government has indicated it will introduce regulations requiring coal seam gas operators in Queensland and NSW to prove activity would not jeopardise water sources.
The move, which does not yet apply to WA, follows claims by campaigners that fraccing can contaminate water aquifers.
Australian Petroleum Production and Exploration Association chief operating officer western region Stedman Ellis said there was significant misinformation around onshore gas production methods.
“There are some passionate crusaders against gas who are attacking the very basis of the industry ... many of the claims they’re making are quite vitriolic and wildly exaggerated,” Mr Ellis said.
“Personally, I think those campaigners could achieve a lot more working with industry, with regulators and with local community stakeholders to ensure the highest standards are employed both in terms of transparency, environmental management and stakeholder consultation.”
Mr Ellis said the industry was committed to working with stakeholders, including farmers, to ensure all involved could benefit from an unconventional gas industry.
In a bid to dispel what he called “myths”, Mr Ellis said the very argument that fraccing put water aquifers in jeopardy was already proven to be incorrect. “If you look at the track record in the state, there’s been 780 wells fracced in WA over the past 50 years and no evidence of water contamination,” he said.
Funding challenge
While those involved in oil and gas exploration face the challenge of overcoming negative perceptions, the challenges for junior miners and explorers is the long-running one of funding.
Towards the end of last year, many faced dwindling bank balances and negative market sentiment after the collapse in commodity prices.
A Grant Thornton study showed nearly 70 per cent had less than $5 million in the bank, with one in three of those holding less than $2 million. Grant Thornton partner corporate finance Holly Stiles said the environment was expected to remain difficult for WA juniors.
Association of Mining and Exploration Companies chief executive Simon Bennison has warned that the future of the economy is in jeopardy if nothing is done to ease the funding challenge faced by juniors.
The association has put together a policy framework for the federal government, which includes a Minerals Exploration Tax Credit model similar to that adopted by Canada in 2000.
