It may be over half a century on but kickstarting gas supply out of the Northern Territory’s Beetaloo Basin and the historic move to get oil flowing from the Bass Strait by the Menzies Government share similar themes. There’s an interesting discussion happening in Australia regarding energy security right now – a discussion that is assuming greater importance given the highly unstable nature of energy markets, created in part by an equally unstable geopolitical environment.
The debate is also being driven in part by the implementation of hydrocarbon exploration restrictions by the Victorian and NSW governments and the insatiable demand for renewable energy sources – many of which are simply not yet ready to push the oil and gas industry into a ditch.
With the reduction of oil refineries in Australia - which includes the impending closure of BP’s Kwinana refinery in WA - the nation has little more than 90 days’ supply of refined petroleum products, even less if you discount shipments that have not yet reached port.
Despite a move to renewables that will take some time to mature and the want on the part of those on the far left to close down the hydrocarbon industry altogether, there appears to be a growing realisation that only the oil and gas industry can address the east coast energy supply shortage in the short term – and the taxpayer has its cheque book out in order to make that happen.
Enter the Northern Territory’s seriously underexplored Beetaloo Gas Basin that some think may be harbouring a gas resource that is capable of rivalling Western Australia’s North West Shelf that made Woodside a household name in Australia. Unlike the offshore North West Shelf however, the Northern Territory’s Beetaloo Basin is land-based and perhaps in the same way that Bass Strait oil attracted Menzies Government money all those years ago, the Morrison Government appears to be equally enamoured with the Beetaloo and is putting its money where its mouth is to develop it – and lots of it too.
Last month the federal Government committed $50 million to the Beetaloo for what it calls the “Beetaloo Co-operative Drilling Program” that will see approximately 10 additional wells co-funded with private enterprises who will tip in a further $150m this year alone.
Notably one company, ASX-listed Empire Energy Group, will soak up nearly $20 million of that commitment.
Empire is perhaps the tip of the spear in the vanguard of companies seeking to prove the Northern Territory’s Beetaloo Gas basin is capable of underwriting the substantial energy needs of Australia’s east coast for decades to come.
Earlier media focus stemmed from the fact Empire planned to frack its horizontal wells, a decades-old, globally accepted reservoir stimulation technique that has attracted significant global activist attention and drew a temporary moratorium from the NT Government back in 2016.
In 2018, in the final report of the Scientific Inquiry into Hydraulic Fracturing of Onshore Unconventional Reservoirs in the Northern Territory, Justice Rachel Pepper said the panel believed if all its 135 recommendations are implemented, the risks associated with any onshore shale gas industry can be reduced to an acceptable level and in some cases eliminated.
Pepper noted however the ban on hydraulic fracturing in the Northern Territory was a political decision for the Government to take. Later in 2018 NT Chief Minister Michael Gunner lifted the ban and Empire and its peers were free to proceed to explore the Beetaloo and its prospective Velkerri shale formations.
Empire Energy Group Managing Director, Alex Underwood:“There are extensive environmental protections in place to ensure that what matters for the people of the Northern Territory, such as protection of their aquifers, that those risks are effectively mitigated,”
Curiously, the Northern Territory’s Environment Centre - with the Environmental Defenders Office acting for them – brought an action against the Federal Resources Minister claiming he should have considered climate change risk in both putting forward the grant program and then making the decision to award the grants to Empire.
All of the activist’s substantive claims failed however the grant agreements were voided at the time due to a legal technicality. Those grant agreements are now back in place and the rods are about turning in the Beetaloo and the east coast in particular has a lot riding on the outcomes.
And the encouraging early exploration in the Beetaloo and its serious potential seems to have resonated with both major political parties.
Mr Underwood said: “There is now bi-partisan support for the industry in the Northern Territory. Similarly at a Federal level, the Coalition’s support for the industry is quite well known. Labour has made statements of support with Anthony Albanese saying recently he is supportive so long as the environment and the wishes of traditional owners are respected.”
The legal action surrounding the exploration grants raised a few wry eyebrows among those with an eye to the history books, pointing out the significant parallels between the Beetaloo Cooperative Drilling Program incentives and Robert Menzies’ exploration subsidies that saw 50 per cent of exploration budgets reimbursed to BHP and partner Exxon to drill and develop the Bass Strait oilfields, a move that led to a decades-long economic boost for Australia. Empire and fellow recipients will only receive a miserly 25 per cent reimbursement for their Beetaloo activities.
The Menzies subsidy scheme for frontier exploration was designed to make Australia self-sufficient in oil. He strong-armed BHP into oil exploration, flew in both US geologist Lewis Weeks and Esso - now ExxonMobil - who drilled the Bass Strait and made historic discoveries. This foresight cushioned the nation against the oil shocks of the 1970s and neatly sidestepped the economic shocks that crippled the US and other western countries.
There are also parallels with Sir Charles Court’s state-driven construction of the Dampier to Bunbury natural gas pipeline in WA and the take-or-pay gas purchasing mandate foisted by Court upon the State Energy Commission of Western Australia, or "SECWA".
The proposed development of the North West Shelf gas fields needed a foundation customer to be a valid investment and SECWA filled that gap. Downstream business that evolved from cheap gas in WA included Wesfarmers and its LPG distribution arm, WA’s massive bauxite processing industry and fertiliser production to name just a few.
Empire is in a significantly better position than those early infrastructure-deprived developments. For example there is no need for a new pipeline to take its energy to market as there is already one close by.
The company also has MOU offtake agreements in place with the NT Government’s state-owned gas aggregator, the Power and Water Corporation, or “PWC”.
A little closer to home than global LNG markets, Glencore’s McArthur River zinc mine, one of the largest zinc mines in the world, is just down the road and with the PWC MOUs in place, the Glencore mine is perhaps a logical and local potential customer.
Mr Underwood said: “We’re working very closely with PWC on early production going into those pipelines to support gas supply in the Northern Territory,”
Remote drilling operations take time to shake out the cobwebs and after a couple of seasons in the field, Empire’s drilling crew is showing its prowess. It managed to horizontally drill and case the Carpentaria 2H well, a complex engineering exercise, for roughly the same cost as drilling the simpler, previous Carpentaria 1 vertical well.
Empire’s fracking crew will get boots on the ground on the Carpentaria 2H well site to test a 1345m long horizontal drill section in a few months when site conditions have dried out from the NT wet season.
Mr Underwood said: “It’s the longest horizontal well drilled in the Basin to date and we’ll be carrying out a big frac job on that well to do two things: test deliverability and also to assess some different fracture stimulation designs we’re working on.”
"All of that activity is supported by the Government grant. That well will be able to be used as a production well under future production scenarios.”
After shooting and interpreting seismic in 2019 Empire drilled the vertical Carpentaria 1 discovery in 2020 and fracked it in early 2021, flowing gas to surface from all four target zones – the best production coming from the B shale horizon.
“All of that work last year drove a quite substantial increase in the resource numbers independently assessed by consultants Netherland Sewell,” said Underwood.
Independent consultant Netherland Sewell and Associates conservatively calculated a 1C low estimate resource - the most conservative grading - at 81 billion cubic feet of gas, or “bcf” for the tenement.
The standout headline number was the upgraded, mid-range 2C best estimate figure of 396bcf, up 866 per cent from the previously modest 41bcf.
Oilfield contingent reserve figures usually range between three parameters: 1C being the most conservative estimate; 2C being a mid-range ‘probable’ figure and 3C being the ‘blue sky’ high case estimate.
Empire had $25 million in the bank at the end of the December quarter after shareholders exercised $3.8 million worth of unlisted options. When added to its $19.4 million share of the Government’s Beetaloo Co-operative Drilling Program grant, Empire is flushed with cash and ready to prove its theory that the Beetaloo is harbouring potentially biblical quantities of economy enhancing gas.
With the rear-view mirror now clear of distractions, the company is set to hit the ground running on its Carpentaria 2H well test next quarter and one thing seems certain - there will be a lot of stakeholders pouring over the results when Empire eventually tables them.
And who knows, maybe history will repeat itself and Menzies will manage a quiet smile from the grave when the east coast finds itself in the middle of a gas fired economic boom.
Is your ASX-listed company doing something interesting? Contact: matt.birney@businessnews.com.au
By Matt Birney
