Energy giant ConocoPhillips strikes new gas discovery off Victorian coast

The first Otway Basin gas discovery since 2021 has sparked market excitement as Victoria faces critical energy supply decisions for the coming decade.

ConocoPhillips' Otway Basin natural gas drilling operation.

US energy giant ConocoPhillips has made a major gas discovery off the Victorian coast, raising hopes of a supply boost amid warnings of shortfalls that could hit the state later this decade.

The US oil and gas giant made the discovery in the Otway Basin, southwest of Port Campbell, at the Essington-1 well. It came just two weeks after drilling commenced in the area, which is about 50km offshore and 12km from existing gas production wells.

Shares in partner 3D Energi, which owns a 20 per cent stake in the joint venture, soared by as much as 60 per cent in early trading on the discovery and closed up 39 per cent at 16c.

Conoco controls 51 per cent of the venture, with the Korea National Oil Corporation holding a 29 per cent share.

The Otway project positions Conoco among a small but growing number of producers seeking to expand or extend domestic gas supply as production from legacy fields in the Bass Strait rapidly declines.

The Australian Energy Market Operator predicts that by 2029, the eastern seaboard could face “catastrophic” supply gaps without fresh investment in exploration and production.

“The early results from Essington-1 are very encouraging, with clear indications of gas-bearing sandstones in both the primary and secondary targets,” 3D executive chairman Noel Newell said. “We look forward to the upcoming Ora program to confirm gas composition and reservoir deliverability.”

3D Energi executive chairman Noel Newell.

Estimates place the Waarre A target reservoir as a 62.6 metre gross hydrocarbon column with the secondary Waarre C target a further 33.2 metre gross hydrocarbon column.

“The Essington-1 well is the first discovery in the Otway since 2021 and is a promising start to ConocoPhillips’ exploration activities in the region. The initial results are encouraging, and we look forward to continuing drilling our second exploration well in December,” Jan-Arne Johansen, ConocoPhillips Australia president, said.

On November 1, ConocoPhillips commenced drilling the first of two planned exploration wells for 2025. Work on a second well, Charlemont-1, is to begin in December, subject to weather and operational conditions.

AEMO’s latest forecasts show that southern states could face deep supply deficits within four years, threatening power reliability and industrial operations unless new gas sources are developed. The federal government is considering reforms to the gas market, including a proposal to link LNG exporters’ access to international sales with their contribution to domestic supply. That proposal, aimed at shoring up energy security, has divided the industry. Santos, which would be significantly hindered if the policy is implemented, says it risks regional energy supplies.

Victoria, which has long relied on declining offshore reserves, has resisted new onshore gas development and faces rising dependence on interstate supply.

Drilling of Essington-1 is expected to continue until the end of November, and the results will determine whether further appraisal wells are warranted. Additional drilling could follow under the approved environment plan if the initial results are promising.

Mr Newell has previously said gas from conventional offshore basins will offer a more competitive source of supplies than LNG import projects mooted in Victoria and NSW.

Royal Vopak in September secured a critical piece of infrastructure for its planned Victorian LNG import terminal, as it bets it will beat a rival development pushed by Viva Energy despite it recently securing a key state government approval.

Both Vopak and Viva are positioning themselves to fill the gap by importing LNG to secure long-term supplies for households and industry.

Both have recently completed navigation simulations with Ports Victoria, Port Phillip Sea Pilots and others, which it said confirmed LNG carriers could safely access its proposed site without dredging the bay or disrupting shipping channels.