It has been a long and winding road for Empire Energy (ASX: EEG) , but at last all the stars appear to be aligning for the aspiring Northern Territory gas producer.
The company is in line to become Australia’s first commercial producer of shale gas later this year from the Top End’s massive 33,000 square kilometre onshore Beetaloo Basin.
Its new 3.3-kilometre C-5H horizontal well – now the longest horizontal well in the Beetaloo Basin - has been drilled out and is awaiting a final “beneficial use of gas” nod of approval from the traditional landowners.
The past two months must have been an anxious time for the company ahead of delivering its first commercial molecules to market, given the forecast of heavy weather during the Territory’s infamous wet season.
Without that, the company would already be off to a flying start.
Instead, Empire made the tough decision to delay the hydraulic stimulation - known as fracking - of its new well.
The company is now gearing up to open the well up in May and will work through about 60 fracture stimulation stages. Unlike the company’s previous smaller wells, Carpentia-5H has been completed using 5.5 inch casing, allowing sufficient horsepower in the stimulation phase to significantly increase gas productivity.
Empire last year signed a long-term gas sale agreement with the territory government for up to 25 terajoules (TJ) of gas per day for 10 years, with an option to increase sales by an extra 10TJ per day if Empire’s daily production rates reach more than 100TJ per day.
The company also received the crucial production licence in November for up to 12 wells, allowing for gas extraction. Additionally, a T-junction has now been installed into the McArthur River pipeline that runs straight past Empire’s processing plant. This will provide an all-important link to move gas towards its end markets.
Nothing is ever set in stone when it comes to the notoriously risky oil and gas industry. If Empire can prove that Beetaloo is a massive new source of commercial gas then there is likely to be no shortage of big boys - especially some of the American majors with shale gas experience - who suddenly start to take an interest in the basin.
The Beetaloo has been a bit of a revelation in oil and gas circles, with some estimates placing its gas endowment as high as 500 trillion cubic feet (Tcf) of gas.
In a strong signal that energy major Santos Limited believes there is a rosy future for the basin, the Adelaide-based company is now planning two wells in 2026 and considering a second LNG production unit at its Darwin plant to open up a pathway to international gas from Beetaloo.
Santos’ plans come hot on the heels of another nod to the region’s prospectivity after gas pipeline operator APA Group revealed it was gearing up to build a new $66 million gas link in the territory.
The 37km pipeline, which is due for completion by 2026, will provide ASX-listed Tamboran Resources’ Shenandoah South Pilot project with access to APA’s Amadeus gas pipeline running between Alice Springs and Darwin.
Other existing nearby but offshore gas producers will no doubt be keeping a close eye on how the basin develops, including ENI, a top 10 global oil and gas producer partially owned by the Italian government.
ENI operates the Blacktip gas field 300km southwest of Darwin but has been plagued with production issues of late, forcing its main customer - the territory government - to sue the producer for non-delivery and to compensate it from having to pay expensive spot market gas prices to make up a supply shortfall.
A position in the Beetaloo could potentially provide ENI with a quick fix.
The 21 per cent Japanese government-owned INPEX Corporation is another major oil and gas company with substantial interests in the region. Its majority held Ichthys LNG facility in Darwin processes 9.3 million tonnes of liquified gas per year from its gas fields, 820km southwest of the capital.
INPEX is a huge supplier of LNG to the Japanese market. Seventy per cent of its production goes back home, equating to 10 per cent of the country’s total LNG requirements.
Ichthys gas, however, also contains very high levels of up to 11 per cent carbon dioxide, which many see as a rapidly growing problem in a world looking to reduce its carbon emissions.
One obvious solution for INPEX would be to get on the Beetaloo gas production bandwagon, which, in contrast to offshore gas, has impressively low carbon dioxide levels of about 1 per cent.
Empire’s reservoirs sit along the eastern edge of the onshore basin and generally host wet gas that is richer in heavier hydrocarbons such as ethane and pentane. The addition of these gases could command a 10 per cent premium sale price to gases in other parts of Beetaloo.
The “wetter” gas is likely to be of particular interest to the Japanese export market, which prefers this composition. Ethane is a key ingredient for producing ethylene, a vital building block in plastics manufacturing.
The territory - now governed by the Country Liberal Party – is hugely supportive of gas development in the region. If the coalition gains a majority in the upcoming federal election, it’s possible a new national government could also throw its weight behind further gas projects.
State or federal governments are growing increasingly anxious about a potential impending gas supply crunch in the Eastern States. They, multinational players looking to expand into a newly proven gas field, or nearby producers aiming to improve their production profile will all have an interest in a successful outcome for Empire’s endeavours.
As Empire edges closer to delivering its first commercial gas, all eyes are on the company. With so many vested parties watching - each with something to gain - the stage is set for a high-stakes moment in Australia’s energy landscape.
As the old saying goes: It’s better to be looked over, than overlooked.
Source: Bulls N' Bears
