BRISBANE, Australia -- Horizontal drilling and fracturing onshore Australia, for either oil or gas shales, is still in the concept phase with long distances, remote locations and high costs a very real challenge, speakers told attendees at Hart Energy’s first annual DUG Australia, held in Brisbane in late August.

Holding to the experience seen in the U.S., even if an Australian shale play works, companies have to expect wide differentiation of production and returns within each play area. It takes a lot of drilling to identify the sweet spots and the best completion practices.

“The more companies that get involved, the better chance of value creation and an improved chance of success,” said Ross Millan, senior analyst for Australasia, Wood Mackenzie. “The Cooper Basin has a lot of competitive tension but in the Canning Basin, for example, there are very few companies.”

The geology of unconventional plays in Australia looks highly promising, with the country ranked 7th in the world for proven shale resources, he said. But moving those into the proved producing column is going to take many years, and will be done much more slowly than it was in U.S. plays. Testing, coring and infrastructure build-out are necessary before full development is even possible.

Because companies are not pressed to drill to hold leases, as they have been in the U.S., they have plenty of time.

With the proximity of China, Japan and Korea, demand for natural gas is not going to be a problem. “Once these LNG plants are up and running, [these plays] will be cash cows. The molecules are there; it’s really a question of the cost structure,” said Millan.

In terms of value extraction to date, coal seam gas (CSG) drilling has been very active and successful in Queensland, he said. That gas is supposed to supply four liquefied natural gas plants now under construction on the coast of that state, north of Brisbane.

“But the value proposition has changed, given the vastly higher costs we are seeing. We are still trying to find that wet-gas play that would increase returns. The Georgina Basin will be mostly liquids. In New South Wales, companies are really struggling and are leaving.”

With the lack of infrastructure and the great distances in Australia, “you really have got to understand it early and not keep changing from dry gas to liquids to oil like we saw in the States,” Millan said.

Indeed, five of the largest E&P firms in Australia are focused on only one basin, the Cooper, as they want to master one and not be jacks-of-all-trades, said Brad Lingo, managing director, Drillsearch Energy Ltd., which has a joint venture to 2025 with Aussie powerhouse Santos Ltd.

The latter has been logging conventional and unconventional wells there since 1998. In September 2012 it completed Australia’s first commercial shale gas well, the Moomba 191, with a test of 3 million cubic feet per day.

“Our overnight sensation was 10 years in the making. In 2004, we formed a dedicated team for unconventional reservoirs,” said Diana Hoff, Santos vice president, technical and engineering.

“They didn’t always know what to do with the unconventionals information — but it was the glimmer of a new idea,” Lingo said.

Their JV is poised to drill its first shale well in the basin. It has the only high-pressure/high-temperature rig in Australia.

Three key factors are changing the Cooper Basin for the better, Lingo said. First, there is dramatic growth in oil production. It has even surpassed the offshore Northwest Shelf in black oil output and is soon to surpass the offshore Bass Strait. Second, growth in gas demand will favor the Cooper Basin, and third, the emergence of unconventional gas, tight gas and basin-centered gas formations in the basin bodes well.

“Probably the sleeping giant in the Cooper Basin is the tight-oil play,” Lingo said.

Drillsearch is the first independent in the basin to secure oil-linked pricing, which improves the commerciality of natural gas. The challenge is that the plays tend to be high temperature-high pressure and there is competition with CSG players for rigs and equipment.

“Unconventional plays look like they’re an overnight success, but they’re really not. They are a result of a lot of people trying to make a living with tight rock,” Hoff said.

Santos is in five basins with shale-rich rock and deep coals. It has fraced more than 300 wells in the Cooper Basin, mostly verticals. But as she said, one well does not make a play. Next year the company plans nine wells in the area. “One thing we have to overcome is that there aren’t as many players here, so we move more slowly. That’s why we have to share data and partner and have more close relationships with the service companies,” she said.

“In terms of technology the rocks here are absolutely unique, but a lot of the technical processes will be similar. We’ve brought in people from North America … to adopt the North American shale lessons with early positive results.”

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