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Australia's Bakken

The Shale Oil Boom Down Under

Written by Brianna Panzica
Posted February 7, 2013 at 7:58PM

The United States proved the success of shale oil and gas drilling in the last few years as its production efforts grew into a boom.

News stories swirled around shale formations like the Marcellus, the Eagle Ford, and the Utica. At the center of it all was the Bakken.

Now the focus is on which nation will be the next U.S. Could it be the U.K., which just lifted a ban on fracking? Or China, which is said to have massive shale reserves? And which play will be the next Bakken?

One nation has been calling out that it's found it. But amid all this concentration on Europe and Asia, the rest of the world has yet to listen.

The Shale Down Under

Energy production isn't what comes to mind when thinking of Australia. Kangaroos, maybe, and valuable wildlife, but not energy.

In fact, the country ranks firmly hidden in the middle for most things. According to the CIA World Factbook, it was ranked 29th for its 2009 crude oil exports, 13th for 2011 natural gas exports, and 53rd for 2009 refined petroleum exports.

It's not even a very big consumer. It's the 31st biggest natural gas consumer and the 16th biggest electricity consumer.

But that is to be expected, as the total population is only 22 million. It lands somewhere in the middle with that, too.

So what is surprising, then, is the fact that the nation is claiming to have massive shale reserves. And because of this, few have paid much attention.

But it's time we started. Australia's Arckaringa Basin could be the next Bakken.

The Arckaringa Basin

The basin is located near the town of Coober Pedy in southern Australia, 500 miles north of Adelaide. Linc Energy (ASX: LNC), the major stakeholder, holds roughly 25,096 square miles.

It's at an early stage right now, but the Australian media has placed its value at $20 trillion. Linc estimates show what it calls “unrisked prospective resources” between 103 and 233 billion barrels of oil equivalent. At least 3.5 billion barrels may be recoverable.

Compare this to the Bakken, with an estimated 5.4 billion barrels. The Arckaringa is not that far off, and estimates might increase—as they did with the Bakken—when production begins.

Linc Energy's CEO Peter Bond seems highly optimistic about the prospects. He told CBC News:

“If you stress test it right down and you only took the very sweetest spots in the absolute known areas and you do nothing else, it's about 3.5 billion [barrels] and that's sort of worse-case scenario. So if you took the 233 billion, well, you're talking Saudi Arabia numbers. It's massive, it's just huge.”

Australia had relatively good levels of oil production in 2000. Production peaked that year at 721,566 barrels per day. Consumption, meanwhile, was just above that at 872,429 barrels per day.

But in 2011 consumption had risen to over 1 million bpd, while production dropped to 517,360 bpd. According to Bond, the nation was “falling off the peak oil curve.”

This shale deposit holds the potential to bring the nation back to its relative self-sufficiency. In fact, if the deposit proves significant enough, Australia could become a net energy exporter.

Cost will certainly be a factor, however. According to Reuters, shale well drilling costs are 50% higher than they are in the U.S.—where they already run high. The average U.S. shale well costs $10 million, while the average Australian well is closer to $15 million.

Bond puts the project cost for the Arckaringa somewhere around $300 million. Production is still some way off, expected to begin around the end of 2014, but hopes are high. Bond estimates “big commercial operation” in as little as four or five years.

And just as the Bakken brought prosperity to the town of Williston, where unemployment now hardly touches 1%, the Arckaringa is promising for Coober Pedy locals.

Steve Baines, Mayor of Coober Pedy, told the Australian:

“They've got to source their labour from somewhere, and a project such as what Linc are proposing would need a huge workforce.”

“I've no doubt that they will be sourcing labour primarily from Coober Pedy where they can.”

Perhaps Australia is the next shale oil boom nation. With major production not five years off, Australia could very well be where the U.S. was in 2006—on the verge of an energy boom, and at an opportunistic early stage for smart investors.

That's all for now,

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Brianna Panzica

follow basic@brianna_panzica on Twitter

Energy & Capital's modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends. For more on Brianna, see her editor's page.



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