US energy giant Chevron has made its second exit of an Australian business within hours, abandoning the country’s biggest unconventional exploration venture and leaving Beach Energy searching for another partner.
The oil and gas major has walked away from its drilling venture with Beach with no compensation. This means Beach will need to find a new partner to fund further drilling in the Nappamerri Trough, an area of the Cooper Basin in central Australia.
The decision follows Chevron’s sudden but not wholly unexpected $4.62 billion exit from fuel refiner and marketer Caltex Australia and comes as the California-based company committed to divesting an additional $US5 billion of assets.
Speculation had been growing over the past few months that Chevron may abandon the Beach venture, after what were seen in the market as unconvincing results from the first stage of drilling. At the same time, the plunge in crude oil prices has caused oil and gas players around the world to reassess spending, particularly on long-dated, high-risk ventures.
The decision is a blow both to Beach and to Australia’s emerging shale gas exploration sector as a whole, with analysts having warned sentiment toward the sector would take a hit if Chevron walked away.
But former Beach managing director Reg Nelson said recently that even if Chevron decided to exit, he still had confidence in the prospects for unconventional oil and gas production in the Cooper Basin. Beach’s new chief executive Rob Cole has echoed those sentiments.
In a statement released late Friday, Beach said Chevron told it that while extensive technical evaluation confirmed a large gas resource in the Nappamerri Trough, “at this time the opportunity does not align strategically with Chevron’s global exploration and development portfolio”.
“Chevron’s spending on exploration is being high-graded and significantly reduced in response to market conditions,” Beach added.
With Chevron’s exit, all the US player’s equity interests in the joint ventures return to Beach at no cost. That leaves Beach with 100 % of PRL 33 and PRL 49 permits in South Australia and 64.9 % of ATP855 in Queensland.
Junior Icon Energy holds 35.1 % of ATP855 and is also set to see a hit from Chevron’s decision in the market when the Australian Securities Exchange opens on Monday.
The loss of deep-pocketed Chevron as a partner means spending on the unconventional play will be drastically scaled back.
In Friday’s statement, Mr Cole said Beach looked forward to progressing the work “at a pace consistent with prevailing market conditions”.
Beach said “minimal” spending would be made in the permit with Icon and it would seek an alternative partner for the project, which it said involved a “vast resource with potential to supply gas to Australian and export markets for decades to come.”– Sydney Morning Herald