Until a few days ago, the “oil mob” was trying to play down the intensifying interest it has in Australia’s potential to be a world-class producer of oil and gas from unconventional reservoirs.
“Joe Cool” is one way to describe the mood of the majors as they sniffed disdainfully at the antics of junior explorers in the Cooper, Canning, Perth and other sedimentary basins around the country.
Frequently heard explanations for this condescension was that the potential shale-gas producing regions of Australia were too remote and/or too deep. Plus, they suffered from the disadvantages of limited infrastructure services such as suitable drilling equipment and even more limited access to markets because of poor pipeline connections.
But if the appeal of Australian shale is that bad, why is there a queue of wanna-be players forming at the front doors of junior oil and gas companies that have been sufficiently fleet-footed to snatch acreage in the best locations?
The answer is surprisingly simple and has everything to do with the “big oil mob” not wanting to be seen to be moving too quickly in case their rush to strike deals pushes the price too high.
Far better, goes the thinking of anyone buying an asset, to adopt the Joe Cool position and pretend you’re not really interested, though that’s a stance that cannot survive once the mob’s ranks are broken – which is what Chevron did two weeks ago when it offered to spend up to $US349 million on some of the tenements held by Beach Energy in the Cooper Basin.
That deal reverberated around the oil world, flushing out oil majors who thought they had time and balance sheet spending power on their side to quietly pick up shale acreage on their terms, but now realise the Chevron/Beach deal was the equivalent of a shot from a starting pistol.
Suddenly, the spotlight is on BHP Billiton, Royal Dutch Shell, ExxonMobil and the other late-moving majors who have been forced to acknowledge publicly what they must have recognised privately; that the US Geological Survey was correct in putting Australia near the top of its list of countries with big shale-gas potential.
The questions now are: (a) how fast will the majors move?; (b) what “price” will they offer in terms of upfront entry payments and future exploration spending commitments?; And, (c) what vision will they have for monetising discoveries – with LNG for Asia likely to be the preferred route?
The Chevron/Beach deal is the benchmark that other majors must match to strike a deal with a junior such as Buru Energy, which has its foot on a large part of the Canning Basin and already has several big corporates as its partners.
That means there will be little time left for the likes of BHP Billiton to play the “studious” analysis game flagged last week by its petroleum division head, Michael Yeager.
Mustering all the self-confidence for which he is famous, Yeager told a reporter from the Bloomberg news service on the sidelines of an oil conference in Houston that he expected to soon start taking land positions in the Australian shale-gas sector.
“We’re going to be very studious” Yeager said of BHP Billiton’s interest in shale acreage in Australia and Europe. While there’s a lot to be said for being very studious, especially after grossly over-paying for shale-gas acreage in the US two years ago, there is a risk that Yeager and other late arrivals are leaving it too late and playing the Joe Cool role too well.
It is, given how the US shale-gas game moved from slow start to hectic stampede in a matter of months, a case of move quickly or risk being left on the sidelines. The Australian game has picked up speed courtesy of the Chevron/Beach deal and the likely entry of Royal Dutch Shell and other majors keen to not miss out on a chance to play, even if the game peters out later.
There will be much to watch over the next few weeks, especially if the oil mob stampedes and goes into land acquisition overdrive, which can often happen when members of the mob think that someone knows more than they do.
For companies with acreage under their belts, the price of farm-ins has just blown out. For latecomers there will be an added urgency to drop the studious analysis and snatch the best deals on offer.
There will be mixed emotions for Yeager, having overpaid once for acreage in the US. Dare he risk under-offering this time and missing the best acreage, a result that would not please his new boss (and former oilman himself) Andrew Mackenzie.
