BP-Beach Energy key growth prospect gas venture fails to fire

The eagerly anticipated well drilled at the Ironbark-1 joint venture hit no hydrocarbons.

Woodside's Goodwyn A offshore gas production facility in the North West Shelf (NWS) gas project off the northwest coast of Australia.

A key growth prospect for BP and Beach Energy has come up dry, with an eagerly anticipated well drilled at the Ironbark-1 joint venture hitting no hydrocarbons.

The news sent shares in Beach down 4.3 per cent on Tuesday, and crashed the market value of junior partners Cue Energy and New Zealand Oil and gas. Beach closed down 8c to $1.78, with Cue tumbling 13.2c or 58.7 per cent to close at 9.3c, and NZOG off 25 per cent, or 17.6c, to close at 52.5c.

The Ironbark-1 well was seen as a risky play, but a potentially lucrative one given its proximity to the existing North West Shelf gas complex, with the joint venture partners having previously expressed the hope of hitting a field of up to 15 trillion cubic feet of gas.

The 5618 metre well was the first drilled by BP’s Australian operations in more than a decade, and was planned as the deepest well drilled in Australian waters.

But the much anticipated result came up a duster, with Beach telling the market on Tuesday the well had intersected its primary target without finding any significant shows of hydrocarbons.

Beach owns a 21 per cent stake in the project, with operator BP at 42.5 per cent, Cue at 21.5 per cent and NZOG at 15 per cent.

NZOG chief Andrew Jeffries summed it up with a single word in his market release.

“Bugger,” he said.

“A very disappointing result for us all. Ironbark was a world scale prospect in a highly prospective address, and it needed drilling. We got an answer, but it was not the one we wanted.”

The joint venture partners said the well would now be plugged and abandoned, with the group retiring to crunch the data from the drilling and consider their strategy for the rest of the acreage controlled by the partners.

The Ironbark prospect was targeting 15 trillion cubic feet of gas, which could have made it the largest undeveloped gas resource in Australia, ahead of Woodside’s Browse at 14tcf.

That would have equated it to 10m tonnes of LNG annually if the Iron-bark-1 had proven successful. Citi had valued it at $9.2bn on a gross unrisked basis, based on an LNG price of $US7 per million British thermal units.

The dry well will also come as a disappointment to the North West Shelf gas partners, as it sat on 50km from existing infrastructure and could have been tied back to the ageing processing infrastructure relatively easily.

Australia’s biggest LNG plant may be forced to cut gas exports unless new offshore supplies can be secured, consultancy WoodMackenzie has said. More than 40 per cent or 7 million tonnes of its 16.9 million tonne annual capacity could be spare by 2027 unless supplies from big offshore fields are found to fill the gap.