Australia shale gas looms after Santos drilling success


Australia shale gas looms after Santos drilling success


SYDNEY--Santos Friday said Australia is poised to join the ranks of global shale gas producers, targeting first sales of the unconventional fuel in October following encouraging drilling results in the Australian Outback.

Reports of the drilling success came as Australia's third-largest oil and gas producer reported a 48% fall in first-half profit to U.S. $275.6 million. The decline was largely due to the company benefiting from asset sales in the previous period. Underlying earnings beat expectations by growing 20%, buoyed by higher natural gas prices.

Like many of its peers, Santos is transforming itself from relying on oil for profits into a major natural gas exporter as it seeks to ride growing demand in Asia for cleaner-burning fuels. Investments include projects in Papua New Guinea and Australia's Queensland state, starting as early as 2014.

It's already developing a first wave of unconventional fuels through a gas-export facility fed by coal seam gas in Queensland, and is now trumpeting the potential of trillions of cubic feet of gas trapped in shale formations in Australia's Cooper Basin--an area the size of Mississippi.

Santos, which has a market value of around A$11 billion, said its Moomba-191 shale gas well flowed at 2.6 MMcfd. "This result enables Santos to announce Australia's first commercial production of gas from a shale well," the company said in a statement.

Rival gas producer Beach Energy has drilled three shale gas test wells in the Cooper Basin with encouraging results. Santos, however, claims its well directly targeted gas in the Roseneath, Epilson and Murteree shales.

Santos' US$18.5 billion gas-export venture in Queensland is scheduled to ship its first cargoes of LNG, to Asian utilities in 2015. The plant will be fed with coal-seam-gas from Queensland's coal fields, but there's concerns it and three rival LNG plants nearby won't be able to produce enough gas for their projects long term.

Shale gas in the Cooper Basin, which straddles Queensland and South Australia states, could act as a back stop. It also has the potential to meet domestic power needs and Beach says it may be able to support construction of a standalone gas-export project in South Australia.

Holding back production is a lack of knowledge about the properties of shale gas in the Cooper Basin. It's also likely to be more expensive to produce than conventional gas and coal seam gas, given the shale rocks have to be fraced for production.

So far, Santos and Beach have only drilled vertical test wells. If they are to produce the shale gas economically they are likely to employ large horizontal drilling rigs that may be expensive to import to Australia on a large scale. Both companies are planning to drill horizontal test wells in the coming months.

Dow Jones Newswires

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