shale be right as international big boys arriv

Shale be right as international big boys arrive

by:MATT CHAMBERS
From:The Australian
April 01, 201312:00AM

Ian Davies, managing director of Senex Energy, outside his CBD office in Brisbane, says he's reminded of the Queensland CSG boom. Picture: Lyndon Mechielsen Source: The Australian


IAN Davies feels like he has been here before. And if things play out in Australia's growing shale and tight sands sector as he thinks they may, there is gas company consolidation on the horizon.

As managing director of Senex Energy, Mr Davies is part of an expanding group exploring the undeveloped shale and tight gas resources of the onshore Cooper Basin that crosses the South Australia-Queensland border.

Recently the outback basin and others nearby and in Western Australia have had a spate of big international companies committing more than $1 billion to partner local companies such as Beach Energy, Santos and smaller explorers in search of shale gas.

Davies, who was Richard Cottee's chief financial officer at Queensland Gas when it was taken over by British gas giant BG Group in 2008, says what is happening in central Australia is similar to the early stages of the Queensland coal-seam gas boom that has resulted in $70bn of liquefied natural gas plants being built.

First, there was small-scale consolidation as companies such as QGC and Arrow Energy bought smaller players to become mid-sized companies. Then the majors moved in. BG took over QGC, Shell and PetroChina acquired Arrow, and billions of dollars were spent by ConocoPhillips, Petronas and Total for stakes in the CSG export projects owned by Santos and Origin Energy.

"Now in the Cooper you have Chevron coming into a joint venture (worth up to $349 million with Beach) and BG coming in with Drillsearch, " Davies says.

"There is a real similarity -- BG did an original farm-in to QGC, Shell did an original farm-in to Arrow."

What often happens when small companies find a large resource and partner with a bigger player is that things get too big for the smaller company to fund. This can result in consolidation.

"When the resource is proved up a bit more, I think you will see a number of potential acquisitions," Davies says. "I think it's a bit down the track, but I had thought where we are right now with Cooper Basin unconventionals was a couple of years away -- it's happening quickly."

Senex, which is drilling 11 wells targeting tight gas sands (rather than shale) in the Cooper across the next 18 months, has yet to bring in a partner but is likely to.

Tight gas is held in conventional style reservoirs that are not porous enough for gas to flow unassisted. This means hydraulic fracturing, or fracking, is needed, which is the same process that has driven the US shale gas boom.

Davies again references recent history when trying to work out what comes next in the development of the Cooper Basin's gas, now that the easy-flowing conventional gas reserves are mostly tapped into. "In the US . . . they moved into coal-seam gas," he says.

"After the low-cost CSG was discovered they moved to tight gas sands and then, when they started running out of low-cost gas sands, people moved to shale."

He also points to the quality of Cooper Basin shales, which he says are likely to contain less organic material and have more clay than in the US, adding to shale's cost and reducing its appeal when compared to tight gas.

"There is a massive resource in the tight sands," he says. "My view is that once that is proved and you have more surface infrastructure, targeting the shales will become a lot more economic."

Davies, 35, took the helm of Senex (then known as Victoria Petroleum) in 2010 after working for BG Group in Queensland for two years following the QGC takeover. He was brought in by a group of investors that had backed QGC, including former chairman Bob Bryan, to expand the company when the east market was seen as becoming short of gas.

Since Davies joined, Senex's market cap has nearly tripled to $770m but is down 40 per cent from heights of more than $1bn it reached early last year.

Davies says his thesis for moving into the Cooper is Queensland's CSG fields are not performing as well as expected.

"From my time at BG, I knew the market was going to be massively short, that the upstream was going to underperform in the CSG projects and that the only basin with existing infrastructure capable of supplying large swathes of undiscovered new gas was the Cooper."

http://www.theaustralian.com.au/business/companies/shale-be-right-as-international-big-boys-arrive/story-fn91v9q3-1226609968716