Does this hardy explorer have the answer to our gas crisis?
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A hardy little explorer with the hi-tech moniker of 3D Oil just might have the answer to the gas crisis in the eastern States, writes Barry FitzGerald in his weekly Garimpeiro column.
Trading at 5c for a market cap of $12 million, 3D (ASX:TDO) holds 100 per cent of the exploration permit T/49P in the Otway Basin, offshore from Tasmania, and to the south-east of the biggest producing gasfield in the basin, Origin’s neatly named Thylacine.
It is a good time to be gas producer — or to be making a big gas discovery — and it looks to only be getting better as the Queensland LNG export projects which started production in the last couple of years suck up every spare molecule of gas along the eastern seaboard.
Gas demand in the eastern States has tripled as a result of the LNG export projects, driving gas prices up from the long-term average of $3-$4 gigajoule to $8-$10.
Prices could go higher still if, as expected, the big supply from the Exxon-BHP joint venture in Bass Strait starts to dwindle from 2020 onwards.
Then there are the fracking and onshore exploration bans in Victoria and elsewhere putting a squeeze on supplies, signalling that the 50-year era of “cheap’’ gas supplies in the eastern States is well and truly over.
Headed up by industry veteran Noel “Ray-Bans’’ Newell, who has skin in the game as the biggest shareholder with a 16.25 per cent interest, 3DO has positioned itself to become part of the solution to the supply problem.
Commercial gas discoveries in the Otway Basin’s Victorian waters were common in the 1990s but it was not until the 2001 that the Thylacine discovery confirmed commercial potential of the basin’s Tasmanian waters.
Thylacine and the nearby Geographe gas field have been producing since 2007 from infrastructure close to the northern boundary of 3D’s T/49P permit, home to two wells drilled in 1967 and 1970 on the basis on old-style exploration information.
3D has applied a modern touch to the permit and has what is called a “best estimate prospective resource’’ across a number of prospects of 10 trillion cubic feet of gas.
It is a lot of gas. To put it in context, economic modelling by engineering group WorleyParsons commissioned by 3D suggests 1tcf of gas alone in the T/49P permit could have a $1 billion post-tax value.
The new economic modelling also found that even a small field (0.5tcf) could have a post-tax value of up to $350m, depending on gas price assumptions.
But first the gas prospects in 3D’s permit have to be tested by the drill bit, something the tiny company cannot afford to do itself.
That is why Newell is on the hunt for a partner with deeper pockets to become a partner in the permit in return for funding a drilling program.
“The large and under-explored area has attracted the attention of international companies and 3D has spent significant time in confidential discussions with an array of companies with a view to securing funding for a future well via a farmout,’’ Newell recently told the ASX.
Under that scenario, which is normal practice in the oil and gas exploration industry, 3D’s interest in the permit would be watered down. But because it goes into its farmout talks with 100 per cent under its belt, it would still be left with a significant interest.
And besides, 3D’s modest market cap means that even with a reduced interest, its upside leverage to a commercial discovery in the permit is extreme.
But again, there are no guarantees in the oil and gas exploration game.
Work on proving the presence of a commercial gas resource is likely to kick off with the drilling of the Flanagan prospect in the northern part of the permit.
It is rated as a 1.34tcf chance. If it were to be a success at that scale, it would put the neighbouring Thylacine in the shade.
With permanently attached Ray-Bans, Newell is ready for 3D’s day in the sun.