Exxon Mobil to invest in Bass Strait gasfields

Exxon Mobil has flagged major new investment in the big offshore Victorian gasfields it owns with BHP Billiton.

The Kingfisher rig in Bass Strait.

ExxonMobil has flagged a major phase of new investment in the big offshore Victorian gasfields it owns with BHP Billiton, saying that completion of the $5.5 billion Kipper Tuna Turrum project paves the way for “Bass Strait 2.0” amid surging domestic gas demand.

The strong language from Exxon Australia chairman Richard Owen about potential future investment in the nation’s most prolific and profitable oil and gas fields is likely to ease concerns about a coming east coast shortage and forecast Bass Strait decline. It comes as Macquarie eyes boosted Bass Strait free cash flow for Exxon and BHP by a combined $US400m a year because of rising east coast gas prices.

New investment would help Bass Strait’s Longford plant — the nation’s biggest domestic gas supplier, which can produce at about the same level as each of Queensland’s three export plants — maintain production, and potentially marginally increase it.

Mr Owen made the comments yesterday at Longford, where the completion of a $US1bn carbon dioxide-stripping plant and gas production from the Kipper fields has marked the final completion of Kipper Tuna Turrum, which was started in 2007 as three separate projects.

“This is the largest single investment, ever, in Australia’s domestic gas market,” he said.

“It could not have come at a better time and I doubt there has ever been a period in history when gas supplies have been in greater need.”

He said the development, which also includes equipment to remove mercury belatedly discovered in the gas, represents a turning point in efforts to develop the remaining gasfields in Bass Strait. The fields are smaller, deeper, more geologically complex and contain more carbon dioxide.

“We’re hoping this is only the start of actually being able to develop further resources in Bass Strait and, hopefully, essentially create Bass Strait 2.0,” Mr Owen said. “It allows us to develop these more complex fields that have different chemical complexity and we are hopeful this will allow us to then look at another phase of drilling and development in Bass Strait over the coming years.”

The Exxon-operated Gippsland Basin joint venture between Exxon and BHP in Bass Strait started in the 1960s and has produced 4.7 billion barrels of oil and 8 trillion cubic feet of gas. Mr Owen said the Bass Strait fields had produced 2.5 per cent of commonwealth government tax receipts since 1967.

Illustrating the slump that will come without new investment, Macquarie estimates that, based on current reserves, Bass Strait gas production could fall more from about 22 million barrels of oil equivalent in 2016-17 to less than 5 million barrels by 2024-25.

“There remains significant contingent resources that could be developed to extend the life of the project beyond our current end date of 2027, but we note that progressing these options is likely to require significant capital,” the bank said.

The prospect of investment has been helped by rising east coast gas prices. After a detailed review of the tight east coast gas market, Macquarie raised its Bass Strait gas price assumption from $5 a gigajoule to between $7 and $9, resulting in a forecast $US200m per year free cashflow boost for 50 per cent owner BHP.

Exxon has given limited visibility on its reserves and resources in Bass Strait, which may be part of the reason for downbeat forecasts on the region’s sustainability. But it has for a long time, even before gas prices surged in response to east coast prices, said it believes it can produce another 7 trillion cubic feet of gas. Exxon has three main discoveries in Bass Strait it has been considering developing for more than a decade: South East Remora, South-East Longtom and East Pilchard.

Last year, the joint venture had record production of 312 petajoules of gas as it sold more on to east coast markets that have seen demand rapidly triple, as $80 billion of LNG plants at Gladstone ramp up. “This year looks likely to follow suit,” Mr Owen said.

Resources Minister Matt Canavanapplauded Mr Owen’s announcement. “It’s great to hear Richard talk about a Bass Strait 2.0 because we’ll need continuing investment,” Mr Canavan said. “For our oil and gas sector in our history, this project has been a Snowy Hydro. .”