ExxonMobil approves new Bass Strait field as gas reserves decline
ExxonMobil has approved a $US400m ($550m) Bass Strait development as it tries to make up for falling Victorian gas reserves.
BHP and ExxonMobil have approved the $550 million development of the offshore West Barracouta gas field in Victoria’s Bass Strait as it seeks to offset declining fields and maintain supplies to the squeezed east coast market.
First production is due in 2021 with the two-well project to be tied back to the Barracouta platform, which started producing gas in 1965 and was the first offshore field discovered in Australia.
Both Exxon as operator and BHP as equal partners will tip in $US200m ($276m) each to develop the project, which is expected to generate a 20 per cent internal rate of return at consensus commodity prices, according to Bank of America Merrill Lynch.
While the injection of 128 billion cubic feet of gas will not free up more supplies for the local market it should at least help to stem steep forecast declines.
Exxon revealed in September last year that production from the Bass Strait fields, which are eastern Australia’s biggest domestic gas source with about 40 per cent of supply, would drop by nearly a third this year, returning to pre-2015 production levels.
Since that announcement, which caught most observers of tight east coast gas markets by surprise, Exxon has stepped up its public efforts to show it is doing what it can to find gas to offset its declining fields.
That ambition took a blow last month when its search for a giant gas field at the Dory prospect in Bass Strait came up dry, with the most anticipated east coast offshore oil and gas well in decades unable to deliver a source of gas for tight domestic markets.
It was hoped Dory could provide gas next decade to the Longford gas plant, which is facing spare capacity as the big Bass Strait fields that have been the nation’s biggest domestic producer for most of the past 40 years start to decline rapidly.
The lack of a new Bass Strait discovery means the southeast of Australia is likely to be more reliant on importing gas through pipelines from Queensland or from the LNG import terminals that four proponents including Exxon are studying.
At the same time, there are growing concerns over the performance of Queensland’s vast coal-seam gas fields, raising questions over whether they will produce enough gas over the next 20 years to supply the LNG export contracts that underpinned their development.
“The West Barracouta project is an important investment, underpinned by strong economics and rates of return, that will unlock a high quality, new gas resource and will help offset Bass Strait production decline at a vital time for the east coast market,” BHP’s general manager for Australian petroleum Graham Salmond said.
BHP and Exxon will also separately market the gas from the project after the threat of legal action in 2017 from the Australian Competition & Consumer Commission.
The two resource majors agreed to end a 50-year joint marketing operation for gas from the giant fields that have long dominated east cost supply with separate marketing to start on January 1, 2019.
The two companies entered court-enforceable undertakings to market gas from their Gippsland Basin Joint Venture so that customers will have a choice of competing and different offers from the largest supplier to the southern states.
The scrap between the regulator and the energy majors stemmed from a 2015 inquiry into east coast gas amid mounting concerns about the price and supply of the fuel as exports from the $60 billion Gladstone export facilities increased.
Gas prices for contracted supply have tripled as exports from Gladstone began and moratoriums on drilling in Victoria, NSW and the Northern Territory stalled new supply development.