State budgets are in surplus for those with active producing sectors. For instance, Queensland announced A$2.33 billion in petroleum royalties for 2023, helping underpin a record A$12 billion surplus and a projected A$7 billion over the next five years.
Similarly, Western Australia announced a A$4.2 billion surplus for 2023 with the WA LNG industry comprising $66 billion or 23% of state gross production. Changes to the Petroleum Resource Rent Tax system will also result in an additional $2.4 billion over four years by capping deductions at 90% of annual income of large-scale projects.
Overall, the gas industry alone will contribute A$16.2 billion in state and federal revenue in 2023 alone.
However, the 2023 Federal Licence Round, for which nominations closed on 1st September is yet to progress with no consultation on included areas yet commenced. Only 10 areas were released in the 2022 Federal License Round with anectodical evidence suggesting over 40 areas were nominated by industry.
Firm spend on the GHG bid rounds exceeds spend on Petroleum exploration bid rounds by a factor of four.
In contrast, over 63,000 sq km of the offshore was offered in the 2021 Greenhouse Gas (GHG) Acreage release. Firm spend on the GHG bid rounds exceeds spend on Petroleum exploration bid rounds by a factor of four. Australia’s permit awards, area under title and exploration spend have been in decline since 2013.
Australia is clearly taking its net zero by 2050 target seriously, but also understands the role of gas in the transition and the fact that manufacturers rely on gas for 42% of their final energy consumption, including many of the miners providing the various materials for making electrification possible around the globe.
Indeed, exported LNG is preventing many countries, including Japan, Germany and Korea, from expanding coal-fired generation further. However, the Federal Minister for Resources Madeleine King took her Keynote speech at the recent APPEA conference to express her desire to build a “world class decommissioning industry” in Australia, which may signal more of her intentions.
Australia has also introduced the “Safeguard Mechanism”, which effectively legislates that all future oil & gas developments should be net zero. This is a pragmatic solution to a problem where the use of hydrocarbons can never be avoided totally, but its impact on emissions is reduced.
Whilst gas production is healthy and exports are rising, domestic gas markets are tight. The Federal government have attempted to install a price cap of $12/GJ on wholesale prices on the East Coast, which quickly resulted in explorers and producers signalling drastic reductions in future activity. The mechanism is still being modified to provide certainty to the industry.
West Coast
Even West Coast gas prices are approaching $10/GJ despite many years of exploration success for onshore gas. Beach Energy historically has taken a front-row seat with several producing fields after its first entry into the Perth Basin in 2008. Beach and operator Mitsui first identified the potential of the Kingia Sandstone during the drilling of Senecio 3. However, the company did not really capitalise on that knowledge and allowed Strike and others to license prospective areas.
To further Beach’s woes, reserve write-downs and cost blow-outs at its Mitsui-operated Waitsia Stage 2 project have delayed first gas and reduced its chances of exporting gas via Karratha as the export exemption it received only lasts 5 years. Coupled with recent poor exploration results at its Trigg-1 well, the running room for Beach in the Perth Basin seems limited. This fact may have been behind Beach Energy’s bid for Perth Basin explorer Warrego in November 2022. Beach’s bid galvanised two other Perth Basin contenders, Hancock Energy and Mineral Resources, with Hancock Energy the victor.
Yet, the onshore Perth Basin remains an exploration hotspot with up to 11 wells scheduled to be drilled in 2023 by Beach, Strike and Mineral Resources.
Exploration muted
Exploration elsewhere is muted, not surprisingly with no refresh of portfolios via bid rounds seemingly available. Chevron and Woodside are due to drill Wheatstone Deep-1 and Gemtree-1, respectively, as exploration tie-backs to Wheatstone LNG. Central Petroleum and Santos plan to progress exploration in the Amadeus Basin in the Northern Territory with two sub-salt plays to test not only gas, but helium and hydrogen potential.
The approval of a gas pipeline to connect to the East Coast gas market could re-ignite the embers of Australia’s central basins. Following this theme, the Beetaloo and MacArthur Basins offer immense gas potential after the fracking moratorium was lifted in the Northern Territory in April 2018. Empire Energy have drilled multiple wells at the Carpentaria site, proving up around 1.7 TCF contingent resource although flow rates will need to be increased for a commercial development. Current flow is sub 6 mmscfd from 2 km long lateral wells.
Santos, Origin and several other smaller players have exploration and appraisal plans as well.
At the same time, Tamboran Resources has taken a long-term view by securing land in the Port of Darwin, adjacent to Inpex and Santos LNG terminals, on the back of the expectation that the Beetaloo basin will export 6.6 MTPA by 2030 to meet domestic shortfalls.
Looking overseas for growth
What does this all mean for exploration in Australia? Gas and oil tell different tales, with gas production healthy and efforts to bring new (albeit tight) onshore gas to market, along with some backfill exploration offshore. Gas exploration and production is healthy with the exception of Australia’s South East which is where most demand lies and most regulatory restrictions are present. Oil exploration, on the other hand, is being left to wither to 40-year lows whilst Australia imports 190,000 bopd of crude and over 800,000 bpd of refined products and demand is not set to fall below currents levels before 2040.
Larger operators are looking overseas for growth, evidenced by Santos’ acquisition of Oil Search and growing its portfolio in Papua New Guinea and North America over developing its previously much heralded Dorado discovery on the North-west shelf. Santos was forced to redesign the development to reduce emissions from gas re-injection. Woodside has expanded its international portfolio with recent entries into Egypt, Congo and Namibia, along with imminent new oil production offshore Senegal.
Australia has excellent exploration potential both onshore and offshore, even for oil. Unless it wants to forgo energy security, importing crude rather than producing its own, the government could encourage many very willing companies to get back to exploration. Otherwise, it will be using high-emission barrels from international exporters to run its trucks for many years to come.
