Beach Has Held Talks to Develop Australian Shale Gas Project

Beach Energy Ltd. (BPT) has held talks with “quite a few people” to help develop its shale gas fields in Australia, where prospects have already lured ConocoPhillips (COP), the third-largest U.S. oil company, and Hess Corp. (HES)

Beach, which is studying a proposed A$1 billion ($1.1 billion) liquefied natural gas plant with Itochu Corp., has had “numerous inquiries,” Reginald Nelson, managing director of the Adelaide-based company, said in an interview, declining to identify any companies or give a timeline for signing an accord.

BHP Billiton Ltd., the world’s biggest mining company, has joined a global drive into shale, having chalked up about $20 billion of acquisitions this year. Australia “appears poised to commercialize its shale gas resources on a large scale,” the U.S. Energy Information Administration said in April.

Major global companies have “missed out in the U.S. and have now, as you saw with BHP, had to pay full valuations,” said Adrian Wood, a Sydney-based analyst at Macquarie Group Ltd. “If people like Beach get more encouraging results, I suspect Australia will be more on the radar of the majors.”

Beach, developing shale gas resources in the country’s Cooper Basin in Central Australia, was unchanged at A$1.05 at 1:20 p.m. in Sydney. The shares have climbed 21 percent in 2011, while the S&P/ASX 200 Index has dropped 3.9 percent.

ConocoPhillips reached an initial agreement with New Standard Energy Ltd. (NSE) to fund $109.5 million of shale exploration in the Canning Basin of Western Australia, the Perth-based company said July 13. New York-based Hess completed an agreement to join in a shale project in the Northern Territory, Denver- based partner Falcon Oil & Gas Ltd. said July 13.

‘More Activity’

“It’s inevitable we’ll see more activity in Australia,” Nelson said in a July 20 phone interview.

GAIL India Ltd., the nation’s biggest natural gas distributor, said last month it may spend as much as $2 billion on acquisitions, including shale gas assets in the U.S. and Australia, while Oil India Ltd., the nation’s second-biggest state-run oil producer, also wants assets in Australia, according to two people with direct knowledge of the matter.

Beach reported a flow rate of as much as 2 million cubic feet a day at the Holdfast-1 shale gas well, the company said July 12. The explorer expects its first shale gas “resource booking in the next couple of weeks” and the drilling of pilot production wells in the first half of 2012, according to Nelson.

Drilling and fracturing expenses in Australia are higher than those in the U.S. and “longer-term, costs are unlikely to reach parity with U.S. shale,” Citigroup Inc. analysts, led by Mark Greenwood in Sydney, wrote in a July 13 report. “Marginal economics may make development challenging.”

Louisiana Fields

The Cooper Basin in central Australia may rival the successful Haynesville formation in Louisiana, which BHP has bought into, Beach said in a presentation last month.

Shale gas prospects previously were considered too costly and difficult to exploit. Shale-rock formations require injection of water, sand and chemicals to release gas. Environmental groups have opposed using the process called hydraulic fracturing, or fracking.

“The scale of any development is going to be quite huge,” Nelson said. “Our preference would be to find a partner with the expertise and the understanding of how to move to full-scale delivery, and we’d be looking for someone with the financial substance to move everything forward.”

To contact the reporter on this story: James Paton in Sydney jpaton4@bloomberg.net.

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

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