France’s Total the latest major lured by Aussie shale gas – Natural Gas Daily – Interfax Global Energy

French energy major Total has entered the nascent Australian shale gas market in a $190 million farm-in deal with local explorer Central Petroleum. The agreement shows the sustained international interest in unconventional gas, despite uncertainty over the size and cost of Australian shale reserves, analysts said.

Total and Central’s three-stage exploration agreement covers four shale gas permits amounting to about 2.5 million hectares in the South Georgina Basin in central Australia. Three are located in Queensland and one in the Northern Territory. Recent investors in the region include Norway’s Statoil and Australia’s Santos, the latter through a farm-in with Central (see Santos joins hunt for onshore shale gas in NT, 3 October 2012).

Total will fund $48 million of the exploration venture’s four-year first phase, with the remaining $12 million to be supplied by Central. If it decides to proceed through two further phases, Total will invest $130 million and earn a 68% equity stake in the permits. Central will operate the farm-out areas for the first four years. After phase three, Total will assume operatorship for 90% of the venture area with Central responsible for the remaining 10%.

For Total, the main draw is the chance to take operatorship of highly prospective onshore acreage with proximity to the two LNG export projects it has under development: the $34 billion Ichthys LNG development with Japan’s Inpex in Darwin and the $18.5 billion Gladstone LNG facility being built in Queensland with Santos, Petronas and Kogas.

A spokeswoman for Total told Interfax: “Australia is already a key focus for Total, given Total is one of the world’s leading producers and marketers of LNG. Increasing our interests in Australia is a natural step, especially where we have the opportunity to become an operator.”

Australian shale gas investments

Investor Partner Region State Value (A$ mln) Announced

Total Central Petroleum Southern Georgina Basin Queensland and Northern Territory 190 Nov 2012

Statoil PetroFrontier Southern Georgina Basin Northern Territory 225 Jun 2012

ConocoPhillips New Standard Energy Canning Basin Western Australia 114 Sep 2011

BG Group Drillsearch Energy Cooper Basin South Australia and Queensland 130 Jul 2011

Hess Falcon Oil & Gas Beetaloo Basin Northern Territory 153 Jul 2011

CNOOC Exoma Energy Galilee Basin Queensland 73 Dec 2010

Bharat PetroResources Norwest Energy Perth Basin Western Australia 15 Aug 2010

Mitsubishi Buru Energy Canning Basin Western Australia 152 Jun 2010

Operatorship appeal

The farm-in is Total’s first onshore investment in Australia and will help provide long-term supply to gas-hungry Asian nations such as Japan, Malaysia and Korea. In a statement, Total E&P Australia Managing Director Mike Sangster called it “an important part of Total’s strategy to grow its global gas business”, adding that “Australia has become a core area for Total”.

Sajal Kishore, director of energy and utilities for Asia Pacific at Fitch Ratings, told Interfax the location of Central’s permits “seems to suggest they have been done with Total’s two LNG developments in mind, possibly as feedstock gas. Central’s earlier deal with Santos too supports this view of gas being used at Gladstone LNG and is, presumably, close to the APA-owned Carpentaria gas pipeline”.

However, Kishore cautioned that “shale gas exploration-to-production timeframes are longer than for conventional gas – which may put the shale gas flows from these permits beyond the timeframe for development of current LNG capacity.”

Future potential

Total joins several global players – including ConocoPhillips, Hess, China National Offshore Oil Corp., Statoil and Mitsubishi – in demonstrating a firm financial commitment to Aussie unconventionals.

“The agreement is a significant commitment to shale exploration in Australia and means over A$1 billion has now been allocated to shale or tight hydrocarbon exploration in the last two years. However, it’s still a fraction of what’s required to fully assess Australia’s shale potential,” Ross Millan, senior analyst for upstream research at Wood Mackenzie, told Interfax.

“Onshore exploration licensing in Australia has exploded in recent years and is being fuelled by an interest in unconventionals. A good example is the Northern Territory. In 2009, under 25% of onshore areas were awarded or under application, but this rose to over 90% by the middle this year,” he added.

The investment comes at a time when small local operators are struggling to fund ongoing exploration, meaning farm-ins such as Total’s will be crucial to the development of shale gas.

Australia has an estimated 11 trillion cubic metres of onshore shale gas reserves. This does not include the Southern Georgina Basin, which could hold shales “analogous” to the highly prolific Bakken and Eagle Ford shales in the United States, regarded as “the most economic of all US shales,” analysts DJ Carmichael said this week.

Overall, it is still early days for Aussie shale gas. “Until wells are drilled we don’t know the full economic potential of shale gas, its size and the cost to develop,” Millan said.

For now, the French major is keeping an open mind. “Total sees potential to monetise any gas found in this area by piping it to existing LNG developments, or supplying it to the domestic market, if that is more economically attractive. How the gas will be developed will, ultimately, depend on how much gas is found and the comparative economics of each development option,” the spokeswoman told Interfax.

via France’s Total the latest major lured by Aussie shale gas – Natural Gas Daily – Interfax Global Energy.