Exxon chairman Nathan Fay exits after turning on the West Barracouta gas
Nathan Fay’s two-year stint as chairman of ExxonMobil Australia is up and next month he will be heading back to Texas with a new milestone under his belt.
Nathan Fay has timed things well. His two-year stint as chairman of ExxonMobil Australia is up and next month he will be heading back to Texas with a new milestone under his belt.
Last week, the gas turned on from West Barracouta, the US oil & gas giant’s latest offshore development in the Gippsland Basin, delivering into the east coast gas market in time for winter.
“It will be the largest new source of domestic gas supply that the Australian market sees this decade,” Fay says.
For those involved in a horror year for oil and gas, this was a high. “There is always a huge uplift when you open those valves and you see all of that hard work and effort and those hardships translate into a finished product and gas flowing,” Fay says. “It’s not always as visible as flow streaming through a pipe but for people to see the response in the control rooms, it’s incredible.”
The new supply will help address fears of a shortfall on the east coast in 2023. And it makes the gas game of supply and demand with LNG import terminals just a little more interesting.
The West Barracouta project is pin-up for ExxonMobil execution: drilling two wells and subsea infrastructure in the middle of the pandemic, with lots of stakeholders including state and federal governments. Much of the equipment was installed in the late stages of the lockdown, and normal inter-rigging — where flight operations picked up and dropped off workers — had new constraints.
“During COVID-19 we made a lot of changes to make sure there was no cross-contamination of people between infrastructure, so effectively setting up a bubble around a drilling rig,” Fay says. “And asking people to extend, modify shift patterns — people perhaps being able to have less flexibility on travelling backwards and forwards between home and the workplace — it’s a tough ask for a lot of people.”
COVID-19 hammered all the global oil and gas giants. In February, ExxonMobil reported a loss of $US22.4bn ($30bn) for 2020 compared to a $US14.3bn profit in 2019. It was the first loss since Exxon and Mobil merged in 1998. In Australia, it announced the closure of its Altona Oil refinery in Melbourne.
With gas, however, ExxonMobil has chosen to stick. Its subsidiary Esso Australia operates the 50/50 Gippsland Basin joint venture with BHP, worth well over $6bn. Last year, ExxonMobil put its entire stake up for sale, but in November it changed its mind.
That decision keeps ExxonMobil very interested in just how the supply, demand and price of gas in Australia’s South Eastern states pans out over the next five to 10 years. At the moment, there is not much certainty.
This month Andrew McConville, CEO of gas peak body APPEA, in this paper called for gas to be properly recognised as the transition fuel to renewables. Any day now, the Energy Security Board is due to release its work on new designs for the National Electricity Market. Top of mind is the resource adequacy to deliver firm power through the transition. Nathan Fay says the supply already developed in the southeast is in decline and new on-land developments further north will be needed to balance supply and demand. “Ultimately, most forecasts do see the potential requirement for LNG imports to help with the supply demand gap. The question is just how much and how quickly. As significant and important West Barracouta is, more supply is going to be needed.”
Supply risk also affects those looking to build import terminals. This is no doubt one reason why Andrew Forrest is planning to build a 635 megawatt gas and hydrogen-fired power station next to the Port Kembla import terminal to help underwrite demand. The power station is to be fast-tracked to meet the government’s demand for dispatchable power when AGL’s Liddell coal generator closes in 2023.
Fay would not be drawn on whether ExxonMobil gas from its PNG LNG operation could ever end up on the east coast, but he does see LNG imports as part of the solution. “There is enough resource yet to be developed that we can certainly minimise the dependency on imports and slow the pace at which those are needed. But that requires a significant amount of investment.”
Within the industry, ExxonMobil has developed a reputation for underplaying its resource hand in the Bass Strait. So, could there now be more than 10 years from this depleting resource?
“West Barracouta is a great example of additional potential that does remain and that part of our decision to retain the business is a focus on working to see how we can find ways to bring additional molecules over and above WB forward as well,” Fay says.
Peter Coleman, who recently stepped down from the top job at Woodside, believes that there will be no more giant greenfield developments offshore for Australian gas like the Gorgon joint venture where ExxonMobil has a 25 per cent stake. Fay agrees but says that even in brownfield developments, investment decisions are getting harder. “The importance of getting a framework right that underpins investment is even more critical as we move into those more challenged higher cost, potentially less competitive global opportunities.”
One issue that is proving tricky for the sector is the proposed changes to laws around decommissioning oil and gas projects. The government was caught short after old assets were sold by Woodside to a company which then went bankrupt and left the taxpayer with a bill of over $200m.
Asked if the reason that ExxonMobil abandoned its Bass Strait sale was that Resources Minister Keith Pitt had warned it of tightening restrictions, Fay says the decision came down to realising the most value. “As we worked through this, we came to a conclusion after a great deal of interest in the business, that there was more value to be obtained by continuing to operate and decommission these assets ourselves.”
The risk that under new laws, claims for reparation might even reach back to the company long after it had on-sold assets in good faith clearly played a part in ExxonMobil’s thinking.
“A process of reaching back to prior titleholders cannot become the first line of defence. That is well understood and we are keen to make sure that we provide the benefit of our perspective. When we look at potential divestments we are always looking at the potential buyers and looking at that proposition and making sure that we feel very, very confident of their ability to follow through.”
Regulation risk and a general lack of certainty still plagues the gas sector. Australia has no new emission target for 2050 or 2030 and the government’s plans to help firm up renewables are a work in progress. And the government still carries a big stick with the domestic gas intervention mechanism and is price-sensitive for both retail and business customers.
After 50 years of upstream work in oil and gas in Australia, Fay says confidence in the stability, regulation and market underpinned investment. “I’m hopeful that we will continue to work through a lot of the different initiatives in play right now, without undermining any of that,” he says.
“People love to take a discussion to price. That often resonates well for sound bites but I like to come back to supply/demand fundamentals, focus on how do we take cost and inefficiency out of the system for both the producers, the manufacturers, ultimately to get outcomes that are beneficial for both.”
Nathan Fay heads to Houston, Texas as vice president acquisitions and divestments for ExxonMobil. Taking over in Australia is Dylan Pugh, the former general manager of US Conventional at ExxonMobil.
