Australian Shale Gas Investing

Chevron (NYSE: CVX) Enters Farm-In Deal


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Chevron (NYSE: CVX) slides its way into the Cooper Basin.

Beach Energy Ltd. (ASX: BPT) and its subsidiaries signed an agreement with Chevron to farm in to South Australian permit PEL 218 and Queensland permit ATP 855. The joint venture is named Nappamerri Trough Gas Ventures, and the project covers unconventional gas reserves.

new zealand shale oil rockThe first step of the transaction began with a 30 percent equity transfer to Chevron for PEL 218 and 18 percent for ATP 855. The transfer has already been accomplished, but it remains subject to government approval from Queensland and South Australia.

Chevron paid Beach $36 million for PEL 218 and $59 million for ATP 855.

Stage two of the deal is entirely dependent on Chevron’s initiative. For an additional 30 percent interest in PEL 218, Chevron can pay $41 million cash with a carry of $47 million. After stage two, Chevron would pay a commitment bonus payment of $35 million for PEL 218.

Stage two for ATP 855 would require a $36 million payment in cash for another 18 percent interest.

If for any reason Chevron decides not to proceed after stage one, Beach Energy would be within its right to transfer all Chevron interest back to the company, and if Chevron failed to commit beyond stage two, Beach is free to transfer equity to another interested party.

The first stage of the deal alone gave Beach Energy $400 million in cash.

In the company’s press release, managing director of Beach Energy Reg Nelson discussed an impending shortage of gas in Eastern Australia, and he hopes the deal between Beach and Chevron will give a boost to domestic industry while engaging the international market.

The deal will be a shoe-in for Chevron, and Beach Energy will get the capital needed to commence more operations in the Cooper Basin.

Cooper Basin

According to the Energy Information Administration, the Cooper Basin contained 110 tcf of natural gas as of 2011. The basin itself is mostly dry desert and covers the north-east portion of South Australia, encroaches into southern Queensland, and touches upon the northern portion of New South Wales.

It is located in the east of Australia, the perfect location where drillers can revive the dying gas market in that region.

Australia itself is a perfect haven for the natural gas industry, especially in the realm of exports, where the country can ship directly to high-demand markets in Asia.

The Australians have long specialized in LNG exports abroad. Japan has been Australia’s largest importer of LNG, followed by China, South Korea, and Taiwan.

Australia was once the world’s largest coal exporter, but is now the heaviest exporter of LNG in the world.

Chevron has a strong gas presence in Australia and has been exporting LNG to Asian countries since 1989.

Chevron already has LNG operations in Australia, one of them a LNG processing plant known as the Gorgon Project, which is currently under construction on Barrow Island. There is also the LNG-based Wheatstone Project, with an expected capacity output of 8.9 million tons per year. The company also has offshore interests in the northwest and a technology center in Perth.

With Chevron operations all over Australia, the Cooper Basin deal will more than likely boost Eastern Australia’s fledgling gas market.

Beach Energy has many operations across the Cooper Basin, making Chevron and Beach a perfect match in the natural gas sector.

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Cooper Basin Activity

Currently, operation campaigns from companies in the basin are still in the beginning stages. It is an exciting time for investors and companies because reserve estimates could increase pending further exploration.

There have been many test wells from energy companies, with some hits and misses, but the Cooper Basin has revealed it can indeed carry the East Australian gas market.

The best way to determine what type of output may come from Chevron's farm-in deal is to assess reserves already found in the basin.

The following Beach Energy gas wells in South Australia have future potential for conventional gas: Munkarie-10, Dullingari-61, Dullingari North-20, Burke-12 and Goyder-6.

Beach encountered gas in the Rosetta-1 and Destress-1 wells, but the reservoir quality proved to be poor.

According to the Beach Energy quarterly report for March, unconventional gas testing in PEL-218 is ongoing, but it has proven to hold significant reserves that cover the entire area. ATP 855 also tested positive for a high amount of reserves.

Other unconventional wells, such as the Gaschnitz-ST1 and Roswell-1, are also undergoing further evaluation.

These companies have a major presence in the Cooper Basin:

  • Beach Energy Ltd. (ASX: BPT)
  • Senex Energy Ltd. (ASX: SXY)
  • Strike Energy Ltd. (ASX: STX)
  • Bengal Energy Ltd. (TSX: BNG)
  • Exoma Energy Ltd. (ASX: EXE)
  • Drillsearch Energy Ltd. ( ASX: DLS)
  • Buru Energy Ltd. (ASX: BRU)
  • Santos Ltd. (ASX: STO)

Strike Energy is also trying to serve the East and South Australian markets by drilling and testing in the southern Cooper Basin. Strike Energy has a 75 percent stake in potential conventional gas areas, covering 4,609 kilometers, and a 100 percent interest in another area covering 3,039 kilometers.

As the Cooper Basin is being further developed, you can expect more farm-ins from other oil and gas giants.

And attracting big-name companies and investors will not be a problem, considering the positive results in the Cooper Basin and Australia’s already stellar reputation as a gas exporting nation.

The Chevron-Beach deal will certainly add a new dynamic to the East Australian market and the Australian gas sector as a whole. Local and smaller companies have been in Cooper for the most part, but mass capital and more farm-ins from big-name companies are needed to unlock the Cooper Basin’s true potential.

 

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