An Australian Oil Rig
Oil selling for more than $70 a barrel has breathed life into the downtrodden Australian oil and gas industry even as it battles criticism from environmental protestors and investor activists.
Last week saw the best and worst conditions for Australian oil and gas producers with a national energy conference marred by attacks from the usual suspects in the conservation movement and unusually from leaders in other parts of the country’s all-important resources sector.
Iron ore billionaire Andrew Forrest sided with organisations such as the Australian Conservation Movement to call for a ban on the expansion of the oil and gas industry and a focus on renewable energy sources.
But the flipside of the negative views was an upbeat research report which said Australian oil and gas was preparing for the next wave of growth.
Published by the Australian arm of Jarden, a New Zealand-based investment bank, the key finding was that the four biggest oil and gas companies in Australia are preparing to double their annual spend on new projects from the $2.9 billion annually of the last five years to $6 billion over the next five.
Expanded Budgets
The expanded budgets of Woodside Petroleum, Santos, Oil Search and Beach Energy conflict with forecasts of an industry-wide decline caused by last year’s collapse in the oil price and demands from the protest movement that the industry be wound back.
Jarden acknowledged the challenge of navigating a pathway through rising investor concerns about the role of fossil fuels in the energy mix and pressure from rising costs and greater regulatory complexity.
But the bank concluded that the four leading producers were preparing for a period of expansion thanks to the oil-price recovery and the need to replace barrels produced.
Jarden said the last major expansion phase of the four leading oil and gas companies ran from 2010 to 2015 and primarily involved the construction of liquefied natural gas (LNG) projects which elevated Australia to the top of the global LNG table, slipping past Qatar.
Unfortunately for the producers their new capacity coincided with a steep fall in the oil price which ultimately determines the price of LNG, slowing their plans to rapidly retire debt incurred during the building binge.
Times change and the Australian oil patch is moving back into expansion mode, aided by healthy balance sheets and an oil price above $70/bbl.
“Well And Truly Back In Investment Mode”
“From 2021, the sector is well and truly back in investment mode,” Jarden said.
“Key activities include four (new) LNG projects. Barossa, Scarborough, Papua and Waitsia, up to three oil developments (Sangomar, Pikka and Dorado) and domestic gas supplies (Otway, offshore Western Australia and possibly Narrabri in New South Wales).
“Average aggregate organic investment expenditure from 2021-to-2026 should double to around $6 billion a year if projects proceed as currently planned.”
The expansion plans are being rolled out even as the oil companies involved outline how they plan to comply with new emissions from oil and gas fields.
Jarden said that once investors recognise that the oil companies are taking steps to reduce emissions and eventually achieve net zero emissions the debate will shift to cost of achieving net zero.
2021 Round of Oil launched
Meanwhile the Australian government has launched the 2021 round of oil and gas licensing as part of strategies to promote offshore exploration.
The government announced that it has opened bidding for 21 exploration blocks across the Bonaparte, Browse, Carnarvon, Otway, Sorell and Gippsland basins off Western Australia, Victoria, Tasmania and the Ashmore and Cartier Islands. The blocks cover an area of around 80,000 square kilometers of new acreage, with bidding expected to close in March 2022.
Each year, Australian authorities invite companies to bid for the opportunity to invest in the oil and gas industry in the country, which is still committed to fossil fuels. “Exploration will continue to play a key role in supporting Australia’s economic growth by encouraging investment in development prospects, as well as unlocking additional supply,” said Keith Pitt, Minister for Resources, Water and Northern Australia.
He added the acreage area provides opportunities in established oil and gas provinces as well as under-explored areas that are within reach of existing infrastructure. “The continued release of areas for exploration is important to providing a steady supply of energy for the future. I would welcome and encourage industry bidding on the released areas,” he noted.
Australia has emerged as an attractive investment location for offshore exploration owing to its vast seabed, which covers more than 14.6 million square kilometers. It is one of the largest marine jurisdictions in the world.
Many of the country’s oil and gas basins remain largely underexplored and have the potential to host significant volumes of hydrocarbons. Currently only around 20 percent of Australia’s offshore basins are covered by E&P lease agreements.
“The annual acreage release is a crucial component of the government’s gas-fired recovery plan. It is vitally important that Australians have access to reliable and affordable energy both now and in the future,” said Pitt.
Australia is witnessing a significant increase in exploration interest since Quadrant Energy, now owned by Santos Ltd, struck oil in the Dorado field in 2018. This was Australia’s biggest oil find since 1996.
A decision by Prime Minister Scott Morrison to anchor post-COVID-19 economic recovery on the gas industry has also incentivized exploration, considering that Australia is determined to overtake Qatar as the world’ largest exporter of liquefied natural gas.
The government reckons that the annual acreage licensing is crucial to its gas-fired recovery plan, something that saw the allocation of $45 million to fund various projects. Government data show that following a decade of decline, exploration spending rose 30 percent to $880 million in the year to June 2019.
The opening of the 2021 round of licensing comes after the country closed the 2020 round in June in which a total of 15 bids were received for 11 blocks. There were 42 blocks made available for bidding in the round.
