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Chevron (NYSE:CVX) Natural Gas Discovery

Brian Hicks

Written By Brian Hicks

Posted April 24, 2013

Chevron Corporation (NYSE: CVX) has found natural gas success in the Carnarvon Basin off Australia.

Offshore Oil RigThe Elfin-1 discovery in the Exmouth Plateau area marks Chevron’s 21st such discovery off Australian shores since around the middle of 2009. The well was drilled through 3,570 feet of water, reaching a total depth of 11,909 feet.

Chevron has major liquefied natural gas projects in progress in the Australian region. The company is now the second-largest American oil major after Exxon Mobil (NYSE: XOM). This latest natural-gas discovery struck 132 feet of net gas pay, and the actual well is operated by Chevron Australia, who holds a 50 percent operating interest.

Chevron Natural Gas

Chevron has been investing heavily in natural gas. Right now, the company has ongoing natural gas operations in Africa, Australia, Southeast Asia, the Caspian area, Latin America, and North America. It produces more than 4.9 billion cubic feet of natural gas each day, and it’s quite likely that this figure will increase sharply over the next ten years or so.

Chevron’s committed itself to almost the entire supply chain for natural gas. That means it’s involved in production, liquefaction, shipping, regasification, pipeline development, marketing and trading LNG, power generation, and even gas-to-liquids operations.

And Australia is an especially valued asset in Chevron’s natural gas operations. Through the Gorgon and Wheatstone projects, the Browse Basin, and the North West Shelf Venture, Chevron currently has the biggest natural gas resource position in all of Australia.

The North West Shelf Venture is an offshore production field region with onshore facilities, including five LNG processing trains and a gas plant. Some 70 percent of the natural gas produced here is sold as LNG to various Asian markets—primarily those of Japan, South Korea, and China—under long-term contracts.

The Gorgon project is a three-train, 15 million metric tons/year LNG facility located on Barrow Island, where the facility comprises a natural gas plant and a CO2 injection project. This is a massive project that’s still in development—about 40 percent has been completed so far.

Another major offshore project is the Browse project, comprised of three gas fields (Brecknock, Calliance, and Torosa) located some 155 miles off the coast of Western Australia. Back in 2011, operations got underway to explore environmental, geophysical, geotechnical, and design aspects.

Australia: The Next Shale Boom?

Clearly, Australia is where Chevron is focusing. And with good reason. Australia’s Arckaringa Basin could very well prove to be one of the biggest shale finds in the world.

The basin is located some 500 miles north of Adelaide. The major stakeholder is Link Energy (ASX:LNC), which holds about 25,096 square miles. The Australian media recently pegged the value of the Basin at about $20 trillion because Link has indicated that unrisked prospective resources could be as high as 103 to 233 billion barrels of oil equivalent, of which some 3.5 billion barrels could be recoverable.

By contrast, the Bakken Shale has an estimated 5.4 billion barrels. Consider, further, that these are preliminary figures for the Arckaringa, which means that the numbers could very well go up—as they did for the Bakken.

Canada’s CBC quotes Link’s CEO Peter Bond:

“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.”

If the shale in the Arckaringa can be developed appropriately, Australia would easily become energy independent, to the point where it could begin to export energy. However, shale drilling costs over there are nearly 50 percent higher than they are here in the U.S. This is partly because we now have substantial infrastructure in place, whereas Australia would face heavy startup investment costs to get that infrastructure set up.

According to Bond, the Arckaringa project could end up costing about $300 million, with production estimated to begin around the end of 2014.

Australia’s oil production levels as of 2000 were at a peak of 721,566 barrels per day, and consumption was around 872,429 bpd. In 2011, however, consumption had increased to over 1 million bpd, while production had decreased to 517,360.

With all these recent shale finds, though, Australia could very well become the next big shale nation.


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