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Exploration downturn now a long-term trend in Australia

Gas production climbing but oil output slides as drilling activity falls to lowest level in decades

Upstream oil and gas activity in Australia accelerated for nearly a decade as big companies clambered for a bigger slice of the liquefied natural gas market, but while the same LNG motivations remain today the industry’s work rate has dropped dramatically.

Just one new offshore project proposal has been submitted to the national regulator since 2014 — the ConocoPhillips-led Caldita-Barossa development. This is a far cry from when new projects came thick and fast in the years before 2014.

The collapse in oil, gas and LNG prices, which began in late 2014, has had a withering effect on exploration activity in Australia and the take-up of new exploration acreage.

The Petroleum Exploration Society of Australia (PESA) recently provided some harsh facts on activities in 2016. 

 The number of exploration wells drilled offshore was just eight — the worst in 30 years — while onshore it was at a 40-year low.

Of the eight exploration wells, five were operated by Quadrant Energy — Davis-1, Driftwood-1, Hyde-1, Outtrim East-1 and Spartan-1 — while Quadrant also drilled two appraisal wells called Phoenix South-2 and Roc-2.

Woodside drilled two exploration wells — Skippy Rock-1 and Stokes-1 — while Hess drilled a solitary well called Snapshot-1.

It is understood there were only two commercial discoveries — Spartan and Davis — while Quadrant also had success with its two appraisal wells and in the process confirmed the Greater Phoenix area is a new gas and condensate province.

Industry concern

PESA said the slowdown in exploration was not just a response to the oil price crash, although that had exacerbated it, but a long-term trend that was concerning to the industry.

In terms of new acreage awards, PESA said of the 28 offshore blocks offered last year only eight were awarded, down from 12 in 2015 and 19 in 2014. Also of concern was that fact that none of the successful bids contained guarantees for exploration wells in their primary three-year term.

Last year also saw a decline in seismic acquisition, although a number of landmark surveys were carried out, most notably the 1700 square-kilometre Snowball seismic shoot —  the largest onshore 3D survey ever to be acquired in Australia.

In addition, the first ocean bottom nodal survey in Australia was acquired by Chevron over the Gorgon field in 2016.

The industry is clearly in the midst of a heavy downturn, but PESA noted that there are some positives. One of those is that the industry is starting to “huddle together” to meet and discuss ways to improve its fortunes.

Another definite positive in Australia is rising gas production. The energy consultancy EnergyQuest says Australian petroleum production in the quarter ended 31 March 2017 was up 13.6% year-on-year, at 184.9 million barrels of oil equivalent, due to higher LNG production.

Shell is currently Australia’s largest petroleum producer on an annual and quarterly basis, followed by Woodside and BHP Billiton. The trio accounted for 35% of Australian production in the first quarter of 2017. Furthermore, three LNG projects — Wheatstone, Prelude and Ichthys — are due for start up soon, meaning production will rise again.

Crude output falling

Oil production, meanwhile, continues to slide. EnergyQuest, for instance, saw its first-quarter 2017 output dip to 12.6 million barrels, down 23.7% compared with the same quarter last year.

Australia has long desired a new oil province, and the Great Australian Bight could be that source, despite heavy resistance from the green lobby. Chevron has exploration drilling commitments in Blocks EPP 44 and EPP 45 next year, Murphy Oil has an obligation in 2019 in Block EPP 43 and Statoil has drilling duties in Blocks EPP 39 and EPP 40 in 2019 and 2020, respectively.

The Bight is an ultra-deep water area off the state of South Australia, which has a state government supportive of gas and oil development. The same cannot be said for the state governments in New South Wales, Victoria and the Northern Territory, all of which have temporary or permanent bans on onshore gas activities.

These actions have been partly responsible for serious domestic gas supply shortages and high prices in the eastern states.

As a result, the federal government has stepped in to control the volumes of LNG exported from Queensland, while its pleas to the three state governments to lift the bans on onshore gas operations have fallen on deaf ears.