GOT GAS: Kipper compression project won’t ease gas supply woes

ExxonMobil and partners finish Kipper gas project in Gipsland Basin, keeping crucial natural gas flowing
Meanwhile Beach Energy and Cooper Energy are set on drilling the Otway Basin
And ASX energy juniors catching the eye this week include EXR, VEN and TDO

Oil and gas supermajor ExxonMobil and its partners have completed the Kipper Compression Project, which will keep gas flowing from the Kipper field in the Gippsland Basin, Bass Strait.

This will allow the joint venture with Woodside Energy Group (ASX:WDS) and Mitsui E&P to keep production volumes stable and access a further 200 petajoules of gas from the field, by overcoming the loss of reservoir pressure caused by depletion.

For context, each petajoule equates to about 0.95 billion cubic feet (Bcf) of gas with 1Bcf being enough to power more than 24,000 homes for a year.

However, anyone thinking that the compression plant will ease the expected East Coast gas supply woes will be sadly disappointed.

The production from Kipper field is already accounted for in the Australian Energy Market Operator’s forecasts, which has flagged that even with the Kipper Compression project, output from the Gippsland will fall by 55% from 243PJ in 2024 to 109PJ in 2028.

There are other initiatives underway that might help (if not solve) the coming crunch.

The Gippsland Basin joint venture of ExxonMobil and Woodside has proposed the Longford End of Life Optimisation project, which will involve a number of workover programs to maximise production from depleting reservoirs.

Meanwhile, Beach Energy (ASX:BPT) and Cooper Energy (ASX:COE) are undertaking drill programs in the Otway Basin to support the Artisan field and Otway Phase 3 development project respectively.

None of these efforts take away from the need to find and develop new sources of gas in order to ensure the East Coast’s gas supply security.

ASX juniors pushing ahead

Here’s where ASX juniors are chomping at the bit to demonstrate their ability to at least find new sources of gas.

Over in the Taroom Trough of Queensland’s Bowen Basin, Elixir Energy (ASX:EXR) has successfully flowed gas from five out of six of the stimulated zones at its Daydream-2 vertical well.

However, shares in the company plummeted by nearly 60% to 6.8c on October 8 after the announcement was made due to the revelation that the stabilised rate of 1 million standard cubic feet of gas per day prior to shut-in was significantly lower than the maximum flow rate of 2.6MMscf/d.

More importantly, it is below the breakeven flow rate of ~2.5MMscf/d flagged by the company’s economic modelling.

EXR said this was due likely due to condensate or water banking immediately around the wellbore, which was in turn caused by the multiple open and closures of the well during recent operations, or by adverse reactions to fluids introduced into the wellbore.

It added that these issues are common in early stage tight gas plays globally and can be remedied by operational changes to fluid use and well management.

While the result is disappointing – a belief shared by investors, there are some positives to take away.

Firstly, in spite of any reservoir damage at this location, the well did flow gas. This de-risks further wells at Project Grandis as it is a clear sign that the tight reservoir is productive following stimulation.

Secondly, EXR has already identified potential steps it can take to prevent the same issue from occurring in future wells. This will require testing and evaluation to confirm, but it nonetheless offers a way forward.

It is also worth noting that Daydream-2 was drilled as a vertical appraisal well while other operators in the Taroom Trough – Shell and Omega Oil & Gas (ASX:OMA) – have drilled or are drilling horizontal wells that have vastly increased exposure to the targeted reservoirs and potentially greater flow rates.

Meanwhile, Vintage Energy (ASX:VEN) will soon have greater gas production from its Odin and Vali fields in the Cooper Basin after commissioning the Odin-2 gas field.

The well was first brought online on October 13 and flow gas at rates of between 3-3.5 million standard cubic feet per day (MMscf/d) before it was shut-in to monitor pressures.

It has since being brought back into steady production at an average rate of 3MMscf/d with produced gas to be sold to Pelican Point Power under a long-term contract for supply from the field.

This will significantly increase gas production from the Odin field given that the Odin-1 well was noted in early October to be flowing gas at an average rate of 3.3MMscf/d following optimisation operations, up 135% from previous flow rates.

Vintage and its partners are also flowing gas from the Vali-1 well at a rate of 1.1MMscf/d while performance of Vali-2 is being monitored to assess evidence of de-watering and potential root causes.

While a relatively drop in the ocean compared to major gas projects, the greater output from the Odin field will nonetheless be welcome as absent any major gas discoveries that can be brought into production quickly, every molecule of natural gas will find ready buyers in the East Coast.

Speaking of major discoveries or at least attempting to find them, 3D Energi (ASX:TDO) and its operating partner ConocoPhillips Australia have contracted anchor handling tug supply vessels for their upcoming Otway Exploration Drilling Program in 2025.

The vessels will support the Transocean Equinox semisubmersible drilling rig as it drills two firm wells – with 120 optional days for any potential follow-up wells – to test high priority drill targets in VIC/P79 and T/49P.

Drill locations for these wells have yet to be determined as they are subject to interpretation of 3D seismic results in the two permits.

While the exact targets to be drilled have yet to be decided on, what’s of especial importance is that ConocoPhillips is even going to the expense of securing a semisub, which charge just under US$500,000 a day as of June 2024, and the supporting vessels to carry out drilling.

Supermajors such as Conoco do not make such investment decisions on a whim, they only do so with plenty of research and making sure that they have a reasonable chance of making a sizeable discovery.

In this case, it is likely the combination of the ultra-high 88% success rate in the Otway Basin when drilling amplitude supported prospects on 3D seismic as well as potential prize of some 12 trillion cubic feet of prospective gas resources.

It is worth noting that this is no guarantee of success but it does mean that the boffins at Conoco have judged that the risk/reward calculations are weighted (strongly) in their favour and signed off on the investment.

Success will certainly be rewarding for everyone involved.

A big gas find will add a major asset to the supermajor’s books, secured a significant source of gas for Australia’s East Coast and completely transform TDO, which has a 20% stake in the two permits.