Back in 1989 my then boss, Barry Goldstein (now executive director of energy resources, South Australia), wrote what was then the seminal technical paper on the onshore Canning Basin petroleum geology entitled, “Waxings and wanings in stratigraphy, play concepts and prospectivity in the Canning Basin”. Perhaps what he should have added to that list was “exploration effort”.

The Canning Basin has proven to be a teaser to the oil industry. The petroleum explorers have been lured by good indications of oil and gas, but their hopes have been dashed by failure of the drill bit to find significant quantities of hydrocarbons. The question is: Will the recent round of drilling and testing shale gas and new conventional oil concepts break the cycle and set the basin up for sustained exploration and development effort?

There are many time-consuming and expensive issues facing today’s explorers—from lack of infrastructure (roads and pipelines) to environmental and native title approvals—that prevent efficient use of exploration dollars when available.

Geological setting

The Canning Basin is located in central and northern Western Australia and is the largest sedimentary basin in the state. It covers an area of 530,000 sq km onshore and about 110,000 sq km offshore. It initially formed in the Early Palaeozoic between the Precambrian Pilbara and Kimberly cratons as an intracratonic sag basin. A series of troughs and platforms filled with sediments of Ordovician through to Early Cretaceous age.

A long history

Exploration interest was first sparked when a seep was discovered in 1919 in the Eastern Kimberley on a station called Texas. A water well driller named Harry Price detected oil shows in a water well near Fitzroy Crossing, which kicked off the first exploration effort in the Canning Basin and, indeed, the whole of Western Australia.

The first exploration well in 1922 was Mount Wynne-1, which caused great excitement and led to further drilling but did not result in any discoveries. Enthusiasm for the Canning was rekindled after World War II when West Australian Petroleum Pty Ltd (WAPET) drilled the first well on the Lennard Shelf called Meda-1. The well recovered a few gallons of oil from the Laurel Formation. WAPET’s focus shifted to Barrow Island and the Canning remained dormant for another 20 years.

Then the Canadians came, chasing Devonian Reefs that had proven productive in Alberta, Canada. In 1981, Home Oil drilled Blina-1 and recovered oil from Lower Carboniferous and Upper Devonian Limestones. The discovery caused the first really big waxing in exploration effort through the mid-1980s, both on the Lennard Shelf and further afield.

This peaked in 1987 when 22 wells were spud. However, only a handful of small discoveries were made and only about 3 million barrels were discovered, so, not surprisingly, interest waned.

In the mid-1990s, Shell had begun exploring sub-salt plays in the Ordovician section in the southern Canning Basin, Kidson sub-basin. Hydrocarbons were recovered from its Looma-1 well proving a deeper oil source, but Shell lost interest and the Canning went very quiet until the latest group of explorers, led by Buru Energy and New Standard Energy, got the ball rolling again in 2009.

The Buru era

Buru Energy, which had demerged from Arc Energy in 2008, started with the first 3-D seismic survey to be acquired in the Canning Basin. By mid-2010, Mitsubishi Corp had farmed into approximately half of Buru’s acreage for a potential expenditure commitment of $150 million.

Another Buru-led first for the Canning was the fracture stimulation of Yulleroo-2, successfully demonstrating the unconventional wet gas potential of the Laurel Formation. In October 2011, Buru made the conventional oil discovery at Ungani-1 with a 50m oil column in dolomitised limestone.

The Canning Basin was on an upswing when oil was more than $100 per barrel and interest in the unconventional potential by the larger companies. ConocoPhillips made a $110 million commitment to New Standard Energy to support its exploration program, and Hess Corp bought Kingsway’s interests in two permits for an undisclosed sum. Mitsubishi upped its stake by farming into Buru’s “Fitzroy Blocks” (EP457 and EP458) for $21 million with Chinese-backed Rey Resources in 2013.

Delaying factors

The exploration continued, albeit slowly. There were the usual restrictions on vehicle movement during the wet season, preventing drilling and seismic operations through the summer months away from the main roads.

New Standard Energy drilled a couple of wells in 2012 and intersected dry gas in Nicolay-1. Buru drilled Yulleroo-4, and Key Petroleum drilled Cyrene-1 on the Broome Platform in the wet season of early-2013, both adjacent to the Great Northern Highway. New Standard deferred its commitments in 2014 after having trouble getting various stakeholder approvals for the Brooke North-1 well location, but plan to be back drilling in the latter part of 2015.

Extended production testing of Ungani-1 and Ungani-2 in late-2013 and during 2014 provided the first export of Ungani crude oil to Southeast Asia refineries through the Port of Wyndham via a trucking operation. Disappointingly, the failure of Ungani-3 in 2014 reduced the estimated Ungani oilfield reserves to around 6 million barrels recoverable (2C).

The oil price dive in late-2014 has done considerable damage to exploration programs around the world, but the Canning Basin has managed to weather the initial storm with Buru actually increasing its activity levels.

Buru’s 2015 drilling program included Sunbeam-1 on the Lennard Shelf and Olympic-1 on the Broome Platform, the latter funded by Apache/Quadrant, but unfortunately no significant hydrocarbons were found in either well. The next well in the series is Praslin-1, another conventional oil target on the Ungani structural Trend, 15km west of Ungani. This will be followed by bigger step outs on the Ungani Trend with the Senagi-1 and Victory-1 exploration wells. Success in one of these wells would maintain the exploration momentum for conventional oil created by the play opening Ungani oil discovery.

Unconventional potential

The outlook for unconventional activity remains positive, despite the fall in oil price and the general turn away from shale plays. However, the Canning is a very long-term prospect, and Buru is making the most of falling contractor rates and greater availability of expertise and equipment. The large size of the prize is also still in the big boys minds.

The U.S. Energy Information Agency (EIA) has done its best to advertise the fact that it believes the Canning is the largest “shale” or unconventional gas play in Australia. It estimates that the basin contains 229 Tcf of prospective resources. Independent estimates put Laurel Formation contingent and prospective resources net to Buru at 47 Tcf of gas and more than 1 billion barrels of associated condensate, though the uncertainty range is large. The presence of gas within the Laurel Formation has been shown on both sides of the Fitzroy Trough at Yulleroo and Valhalla.

The six wells Buru has drilled into the Laurel Formation have defined it as a basin-centred gas system that has extensive overpressure at drillable depths, which is a good thing. The gas is generally low in impurities and high in liquids content (condensate). The initial trial frack program at Yulleroo in 2010 was sub-optimal, but confirmed the gas quality and showed promising results with regard to liquids content, flow rates and deliverability. The 2015 evaluation program will involve larger fracture stimulation programs and extended flow tests to ascertain the long-term deliverability.

The Goldwyer Shale, which lies below the Laurel Formation, is also being pursued as a liquids-rich resource play. Buru’s independent resource estimate puts a net 7.2 Tcf of gas and 4 billion barrels of oil in its acreage.

Finder Shale, a newcomer to the basin, is planning to test the Goldwyer this year with Theia-1, in what they have mapped as the sweet spot for the play in EP493.

Unconventional commercial considerations

The chance of commercial success in the Canning will be driven by gas deliverability (flow rates and recovery per well), driving down the drilling and completion costs and the eventual gas price into LNG or domestic gas hubs. The financial bonus of producing condensate will also be an important factor. Buru has some good alliances to help it achieve commercialisation, including Alcoa (potential long-term gas contracts) and Coogee Resources (one of Buru’s largest shareholders and tank/terminal operators).

Buru’s vision is for four phases of commercialisation of the Canning Basin. The first is on its way to being achieved via oil exports through Wyndham. The second phase is to deliver gas for power generation through the north and midwest of Western Australia. The third phase is to connect into the Bunbury Dampier pipeline and deliver 1500 petajoules of gas per year. The fourth phase is LNG sales, post-2020, through existing LNG plants along the North West Shelf. All this seems achievable, even if the timing appears to be optimistic.

There is undoubtedly still a long and bumpy road ahead for the Canning Basin, particularly with the current uncertainty in the oil and LNG markets. Further “waxings and wanings” of exploration and development activity are likely due to the remoteness of the area and its lack of gas pipelines and other basic infrastructure.

Access issues and other red tape will continue to keep a check on the pace of exploration, as will the availability of risk capital for petroleum exploration ventures. Buru and others have gone a long way to crack the technical code, but the pace of exploration is slow. Patience and deep pockets are required to commercialise the undisputedly large unconventional prospective resource.

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