The spotlight on energy has intensified as governments around the world look to secure supply.
Investors are buying into the theme, which has only strengthened as world economies grapple with global supply issues post Russia’s invasion of Ukraine and the effects of inflation, caused in part by rising fuel costs.
With gas increasingly being recognised as an essential component of the energy mix for the coming decades, major energy players are focused on growing their stakes in the sector, with a number turning attention to the onshore North Perth Basin in Western Australia.
Only a handful of companies have exposure to the area’s prolific Permian gas play that has recently revealed itself, with all the prospective acreage now tied up. What is most surprising is how this world-class play was only discovered in 2014.
Among them is billionaire Chris Ellison’s Mineral Resources (MIN), which is working in a joint venture with Norwest Energy (NWE) to produce the first gas from its Lockyer gas discovery in 2025 — in time to meet a forecast domestic gas shortfall in Western Australia set to strike around 2026-2027.
The Lockyer Deep-1 gas discovery of late 2021 exceeded the joint venture’s expectations, encountering a very significant conventional and highly-productive gas column. It could quite possibly be proven to be the largest onshore conventional gas discovery in Australian history.
“The apparent height of the gas column leads us to believe that gas could well be present across a vast area, some 102 sqkm,” Norwest Managing Director Iain Smith said.
“Production testing of the well in March this year resulted in a maximum flow rate of 117 million standard cubic feet per day — that’s a phenomenal result: a record for the basin and more akin to the sort of rates you would hope for from an offshore well”
The discovery has earned market recognition for Norwest, with the company recently being announced as the Deloitte WA Index High Growth Award winner for FY22.
But the Norwest team regards this as just the start, with plenty of upside to come as further exploration, appraisal and development work is carried out on its Perth Basin acreage.
With Credit Suisse forecasting a WA domestic gas price of between $6 to $8 per gigajoule (GJ) and current netback LNG spot pricing of roughly $35/GJ (Source: ACCC), we wonder who wouldn’t want to secure “$1 something”-per-GJ gas?
Given the vastness of the Lockyer structure, additional wells are required to confirm the true size of the gas resource, and the joint venture is about to begin drilling two back-to-back wells.
Norwest Energy holds $21 million cash, which fully funds its share of a comprehensive appraisal program, comprising of drilling of up to four wells and a 385 sqkm three-dimensional seismic survey. Norwest holds a 22.22 per cent interest in permit EP426 (MIN 77.78 per cent) and a 20 per cent interest (MIN 80 per cent) in permit EP368.
Not only is Mineral Resources Norwest’s joint venture partner, but the mining behemoth also holds a 19.9 per cent stake in the junior energy company. Another resources giant, Hancock Prospecting, holds 3 per cent.
The remaining top 40 shareholders account for 29 per cent of the company and the register includes other well-known institutional funds and WA names.
The Perth Basin: The right place at the right time
The onshore Perth Basin was not always expected to become such a booming hub of exploration and development activity for the petroleum industry.
However, since the Waitsia discovery by AWE (now part of Mitsui E&P Australia) eight years ago, the location has attracted a host of major and small-cap oil and gas players.
There’s been significant success as more deep Permian gas discoveries have been made.
The Waitsia project is being developed by Mitsui in a joint venture arrangement with Kerry Stokes-backed Beach Energy and will export 250 terajoules of gas per day as liquefied natural gas (LNG) from late 2023 into a hot international LNG market.
“Before Waitsia, the Perth Basin was considered mature as a petroleum province, with little additional gas or oil expected to be discovered,” Mr Smith said.
“Since Waitsia, there have been another four major gas discoveries, including our own.
“The industry is extremely confident that there are more significant discoveries to come, including in our own acreage.”
Next moves and the Energy Transition
Analysts have long anticipated corporate consolidation within the basin, and that is now finally playing out. Warrego Energy (WGO) has proven to be the first target, with Beach Energy, Strike Energy and Hancock Prospecting all vying to acquire the company.
The merger and acquisition activity is unlikely to stop there — it is expected that more big players will look to expand their positions or make an entry into a basin that will see its most active year to date in 2023, with significant exploration, appraisal and development activity slated to occur.
From an infrastructure perspective, the North Perth Basin is perfectly placed, with the Dampier to Bunbury regional pipeline running through the heart of the Permian gas sweet spot, providing an easy connection to the North West Shelf facility some 1200 kilometres to the north and to the southwestern domestic gas market to the south.
Norwest Energy sitting pretty
After a stellar year in FY22, Norwest is perfectly placed to reward investors even further with a high-impact, multi-well drilling program scheduled to commence shortly against a backdrop of increasing competition from players with deep pockets looking to secure low-cost gas resources.