Article by Matt McKenzie courtesy of Business News.
Billions of dollars of investment could be in the pipeline for Perth Basin as the state faces a crippling gas shortage within a decade.
THE Perth Basin has rapidly become the state’s hottest asset, and businesses near the action have ambitious plans for investment.
The basin has captured the attention of companies linked to billionaires Gina Rinehart, Chris Ellison and Kerry Stokes, while John Poynton-chaired Strike Energy has continued interest.
In early November 2022, ASX-listed Warrego Energy revealed it had received a takeover bid from Strike Energy in a deal valued at $227 million.
Three months and an extended bidding war later, the landscape of the basin has shifted substantially. Mrs Rinehart’s Hancock Prospecting marched into a majority stake of Warrego in February.
Mr Ellison’s Mineral Resources surpassed 50 per cent ownership of Norwest Energy days later.
The gas market has also had some frights in that period.
The Australian Energy Market Operator released a report warning Western Australia may have a shortage of gas within a decade, with up to a quarter of demand to be unmet.
Those gas fields in the strip running north of Perth into the Mid West have become more critical to the state’s energy transition.
WA then got a taste of what a shortage might look like when Chevron’s Wheatstone, and Santos’s Varanus Island and Devil’s Creek suffered outages.
Industry leaders have told Business News the Perth Basin is set for a record level of activity.
Mineral Resources will drill about eight wells in an exploration campaign worth more than $100 million, while Beach Energy and Mitsui are jointly planning 11 wells, expected to cost north of $200 million.
Beach – 30 per cent owned by Kerry Stokes’ Seven Group – and Mitsui are already building stage two of the Waitsia gas project, which could now cost as much as $850 million.
That means there’s already more than $1 billion of investment on tap for the basin, with plenty more possible.
Beach Energy chief executive Morné Engelbrecht said the level of activity in the basin was likely a record.
Recent merger and acquisition activity also showed high interest in the basin. “
This is probably the most exciting onshore play in Australia currently,” he said.
Mr Engelbrecht said Beach would begin an 18-month drilling campaign this year with plans to drill 11 of 19 potential prospects.
High on the list is the Trigg field, where drilling is expected to start later this year; followed by Beharra Springs Deep 2 and Tarantula Deep 1.
The Adelaide-based company has several growth options.
That includes a further expansion of the Waitsia project, and development at Beharra Springs.
Waitsia is already the biggest project under construction in the basin. Gas from that project will have domestic uses and be exported through a swap deal.
But Waitsia has been caught up in the issues with Clough, the Perth-based contractor that fell into administration late in 2022.
“We’re very pleased with the more recent progress,” Mr Engelbrecht said, noting that Webuild had worked through its rescue of Clough.
He said the project would be on track for first gas at the end of 2023. Waitsia was the first project permitted to export following the state government’s introduction of rules banning onshore gas fields being shipped to overseas markets.
When asked if Beach would seek to extend its export licence, Mr Engelbrecht said the company took its domestic gas obligations seriously.
“We’re not focused on [the] need to be exporting, or be a certain product,” he said. “We’re focused on … being domestic first.” There’s also been speculation Beach could be a takeover target, with Santos a potential suitor.
First strike Strike Energy moved early in the battle for Warrego, its partner at the West Erregulla project, and came up short. Chief executive Stuart Nicholls is relaxed about that outcome.
“If you had said to me… (the transaction) would have removed a difficult joint venture partner, given you $136 million and increased your share price 40 per cent, I would’ve signed up for second place at the beginning,” he said.
Strike told markets in February it had sold its stake in Warrego, earning $136 million in proceeds as the target’s price rocketed.
That gives the company cash for its next moves. Strike intends to bring the Walyering field online in March, has two drilling campaigns planned, and has a final investment decision on the Erregulla gas project on its radar.
Beyond that is Project Haber, a big fertiliser manufacturing development. “You can only sell your gas once,” Mr Nicholls told Business News. Moving into value adding, such as fertiliser, would likely deliver a better return than selling all the gas directly into the domestic market.
“The state government domgas policy is actually incentivising Perth Basin producers to use the gas themselves,” Mr Nicholls said.
The cost of production in the basin would be on par with Qatar or Russia, because WA’s gas was onshore in very productive wells and close to a pipeline.
“The economics of fertiliser is extremely reliant on its gas feedstock,” Mr Nicholls said. Strike is not the only business assessing the value-adding potential, with Mitsui announcing it would explore low-carbon ammonia production using Mid West gas.
There’s still an existing gas market to feed, and it will be hungry for a large amount of gas, driven partly by plans to shut down coal power stations by 2030. The shortage was a serious situation, Mr Nicholls said. “Where’s that gas going to come from?” he said.
AEMO expects Perth Basin fields can bring on new fields and backfill supply. “It’s not a pretty picture if that’s what you’re relying on,” Mr Nicholls said. Mineral Resources would have its own uses for gas, Beach and Mitsui have export deals, while Hancock had signalled interest in a magnetite development. With good funding, high reserves and as an asset operator, Mr Nicholls said he saw potential for Strike to be a significant domestic gas player.
Valuable resource Mineral Resources executive general manager energy, Shelley Robertson, said the company had a big portfolio in the basin. High on the priority list is further drilling at the Lockyer Deep prospect, which Mineral Resources owns with Norwest Energy (20 per cent stake).
That field is still at a reasonably early stage, needing more subsurface data. Ms Robertson said Mineral Resources was considering its options for how it would use gas, depending on how much it found.
The company would consider downstream, value-adding options, she said, including pelletised magnetite, lithium, urea and ammonia. But the priority was ensuring the business had sufficient gas supply for its existing operations. “Mineral Resources has the balance sheet to move in either direction,” Ms Robertson said.
She said the basin had been heading for consolidation for the past 15 years. For Ms Robertson, the Norwest deal is back to the future. Before moving to Mineral Resources in 2019, she had served as Norwest’s chief executive.
Mineral Resources has secured a majority share of Norwest and briefly flirted with a surprise position in Warrego, but eventually retreated. “We’re always looking at opportunities,” Ms Robertson said, adding the company had recognised the value of Warrego and West Erregulla, but opted to focus on Norwest.
The deal supported a big revaluation of the company’s oil and gas business unit by investment bank Credit Suisse, lifting from $2.50 per share to $10. Credit Suisse also upped its estimate for WA gas price, driven by the forecast supply deficit.
