Encouraging signs for Australian shale gas

Recent results from Beach Energy and interest by ConocoPhillips are encouraging for Australian shale gas.

The US Geological Service believes that Australia has at least 396 Tcf of technically recoverable shale gas, based on an assessment of the following basins: Cooper (85 Tcf), Maryborough (23 Tcf), Perth (59 Tcf) and Canning (229 Tcf).

ConocoPhillips has just entered into a non-binding heads of agreement to farm-into and jointly explore New Standard’s acreage in the Canning Basin.

Beach Energy (ASX:BPT), which has now drilled two wells targeting shale gas in the South Australian portion of the Nappamerri Trough. Encounter-1 reached total depth of 3,612 metres and has been cased and suspended. Data from wireline logging indicated the Roseneath-Epsilon-Murteree (REM) shale intersected was 30% thicker than expected. Good gas shows were encountered throughout this section with no evidence of water. The second well, Holdfast-1, has also been drilled, with a 353 metre intersection of the target shale sequence recovered. Analysis of the core has commenced with the thickness of the REM target section in line with pre-drill estimates. The REM section is interpreted to be fully gas saturated.

A key risk has been the fraccability of the shale, the production rates achieved and being able to commercialise the gas. The results of the first frac are now in, with a significant gas flow of up to 2 million standard cubic feet per day (MMscf/d) from Holdfast-1. Holdfast-1 is a vertical data gathering well that was flow stimulated in seven stages. The gas flow rates remained steady at around 1.8 MMscf/d.

Assuming these results can be replicated, the big question is ultimate commerciality. Beach hopes that it will be possible to reduce costs over time via optimisation of well design (horizontal lengths, number of frac stages), pad drilling (sharing surface infrastructure) and improved technology (reducing drilling times and costs) such that by 2014/15 it will be able to prove that the shale gas in the sweet spots in the Basin will be commercial at a gas price of around A$4/MMcf. Moreover, with strong demand for Australian LNG the signs are that domestic gas prices are likely to rise to LNG net-back equivalents of A$6-8/MMcf and possibly linked to oil.

Beach could well be in the right spot at the perfect time.