Australia's optimism continues - petroleum discovery and exploration activities - South Pacific - Industry Overview

World Oil, August, 1998

Operators struck a record number of oil and gas discoveries while achieving a record level of seismic survey activity and conducting the second-highest rate of offshore exploratory drilling

AUSTRALIA

Petroleum discoveries and exploration are at record levels. Figures released by the federal Petroleum Resources Branch (PRB) show 1997 was one of the most successful years for oil and gas exploration in Australia.

Seismic acquisition and re-processing of older data in newly released government acreage should generate greater exploratory drilling and additional discoveries.

NATIONWIDE DATA

The country's industry continues to expand, but several problems may force Australian producers to scale back E&P activities. According to the Australian Petroleum Production and Exploration Association Ltd. (APPEA), this past year's mild northern winter, lower world oil prices, recent increased exports from Iraq, and the continuing Asian financial crisis all have negatively impacted demand for Australian oil and petroleum products.

However, as of May 1998, Australian E&P activity was still growing. A very active exploration trend should continue through 1998, and spending may increase 25%, from around US$800 million in 1997. Development expenditures should be between $930 million and $1.1 billion.

Australian drilling, overall, took another big jump last year, increasing to 300 wells and 2.21 million ft of hole. Average well depth was 8,877 ft offshore and 6,346 ft onshore. Average active rigs rose slightly, to 14.2 from 13.9, including 6.9 offshore.

In 1997, oil production reached 535,200 bpd, nearly identical to the 1996 level. Australia contains 2.3 billion bbl of proven oil reserves, down from 2.36 billion bbl in 1996. Crude oil and condensate production in first-quarter 1998 rose 8.2% from a year earlier, to 561,139 bpd. Half the liquids produced came from the Carnarvon basin, 42% came from Gippsland basin, 6% from the Cooper/Eromanga basins, 2% from the Timor Sea and 0.3% from the Surat/Bowen basins.

Australia's natural gas production in 1997 stayed roughly level with 1996, at 2.85 Bcfd. Proven gas reserves rose 11.4%, to 51.9 Tcf.

OFFSHORE

APPEA's annual forecast indicates that Western Australia's offshore Carnarvon basin will capture 50% of the Australian industry's exploration spending and up to 60% of offshore development spending.

Exploration. Increased exploration in the Browse basin, Carnarvon basin and Timor Sea resulted in significant finds at Cornea, Athena, Keast, Woollybutt, Hingkip, Kelp Deep, Sunset and Tenacious. The Cornea discovery spurred further strong interest in the Browse basin.

In its 1998 Offshore Licensing Round, the Australian federal government released a record 58 blocks. The blocks include virtually all of Australia's offshore basins.

According to the PRB, offshore operators planned to acquire 24,856 mi (40,000 km) of new 2-D seismic this year. They also expected to shoot 3,860 sq mi (10,000 sq km) of 3-D seismic. In 1997, offshore exploratory wells totaled 55. Unlike the onshore sector, where the success rate is much higher, only 12 of 55 offshore exploratory wells were successful. Exploratory footage drilled totaled 465,118 ft (141,768 m).

Shell (50%) organized an aggressive exploration drilling program on Browse basin permits WA-256-P and WA-266-P, [TABULAR DATA OMITTED] offshore Western Australia. Four firm wells will be drilled back-to-back, and a further three may be included in the imminent operation.

In the Carnarvon basin, Petroz NL acquired a 10% stake in the EP-359 tract, where it is helping to fund drilling of the Melanie 1 exploration well. The well was due to be completed in mid-1998.

In April 1998, production tests of Shell's Evans Shoal 2 well, in permit NT/P48 of the Bonaparte basin in the Timor Sea, produced a maximum flow rate of 25.5 MMcfd of dry natural gas. The test confirmed the produceability of the Evans Shoal structure.

Drilling/development. Offshore wells drilled nearly doubled last year, to 121. Footage drilled grew 64%, to 1.074 million ft. The forecast this year is for 115 offshore wells.

One major Timor Sea project is the Laminaria/Corallina field development. With proved oil reserves of 103 million bbl, the fields should produce at a peak of 140,000 bopd. Start-up originally was planned for first-quarter 1999. However, in February 1998, Woodside Petroleum announced project cost overruns and a six-month delay in the fields' commissioning.

Woodside has begun a development project based on a floating production system, similar to that used for Wanaea and Cossack oil fields, although in much deeper water. The original $670-million cost estimate was revised to $900 million, due to adverse impact of exchange rates; higher equipment, material, and services costs; and a shortage of materials to construct an FPSO amid high demand for such vessels. Start-up is now expected by September 1999.

Another Timor Sea development is BHP's offshore Buffalo oil field in block WA-206-P. The Buffalo 2 appraisal recently tested 11,800 bopd and 328 MMcfgd. Last February, BHP sold 50% interest to Canadian Occidental. BHP plans to install an FPSO as part of Buffalo's development. CanOxy will help develop the field with a four-well drilling program, scheduled for November 1998.