Exploration – particularly for gas – in the Perth Basin is ramping up again as the region shapes up into Australia’s next major petroleum province.

This story begins with the discovery of Australia’s largest onshore conventional gas field, the Waitsia field, in 2014, when there were hints there was more to the basin than small deposits of oil and unconventional gas.

However, it was the success of the West Erregulla-2 well drilled by Strike Energy (ASX:STX) and Warrego Energy (ASX:WGO) that really ignited interest that Waitsia is not a one-off.

But discoveries are only part of the tale.

Woodside Petroleum’s (ASX:WPL) decision to push back a final investment decision for the Browse and Scarborough gas projects could lead to a tightening of domestic gas supplies.

This is further exacerbated by Mitsui and Beach Energy (ASX:BPT) securing in-principle agreement from the Western Australia state government to use gas from its Waitsia project to fill available capacity at the North West Shelf.

While the agreement has been spruiked as essential for a Phase 2 development of the field, it will also remove more gas from the domestic market.

Gas opportunity

However, Talon Petroleum (ASX:TPD) managing director David Casey believes the delays and the Beach deal represent an opportunity for Perth Basin producers.

“You have got the supply-demand gap increasing and I feel confident that any new discoveries, be they additional to West Erregulla, with Waitsia or whatever Beach is doing, or if its Walyering-5, the market will be there and the gap will only get wider and wider if these delays continue,” he told Stockhead.

“With the delays to the LNG projects, I can’t see any of that gas coming south.”

He also expressed his belief that there is more than enough gas in the Perth Basin to supply both the North West Shelf and Western Australia’s domestic market.

Pilot Energy (ASX:PGY) managing director Brad Lingo also views the recent North West Shelf developments as being positive for the Perth Basin.

“It demonstrates in our view three key things. First, the technical quality and magnitude of the these new and expanding Perth Basin conventional gas resources,” he explained.

“Second, it demonstrates that a new commercial pathway for resources in the North Perth Basin has been established.

“Third, the combination of the first two points suggest that from a cost of production and cycle-time to development that gas resources out of these new large discoveries are the new ‘lowest’ cost source of gas either supplying into LNG or in the longer term as a key source of gas for the production of blue hydrogen.”

Growing exploration activity

Casey believes that the widening supply-demand gap has already led to a ramp up in exploration activity in the Perth Basin.

“Besides the Ensign 970 rig, I hear Beach are looking to bring the Easternwell’s Rig 106 back across and that Mineral Resources are planning to drill after us as well.

“I think you’re seeing increasing activity and it will continue through the next few years, because the widening supply demand gap is genuine.”

Lingo supports this view, saying that level of onshore and offshore activity in the North Perth Basin will continue to increase substantially not just because of the new access to the LNG export market but also the potential to supply gas as feedstock for the production of blue hydrogen.

Share prices for ASX small cap gas plays


Perth Basin plays

Norwest Energy (ASX:NWE) and its operating partner Mineral Resources (ASX:MIN) expect to spud (start drilling) the Lockyer Deep-1 well by June 2021.

Lockyer Deep is just 15km east of Waitsia and 15km north of West Erregulla.

It targets the same Permian Kingia and High Cliff targets that flowed 69 million standard cubic feet of gas per day during testing at West Erregulla-2.

Additional hydrocarbon potential exists within the shallower Wagina formation.

Pilot recently acquired Royal Energy, which has a 50 per cent interest in the operator of the Cliff Head oil field in the offshore Perth Basin and a 21.25 per cent effective interest in its operations.

This is addition to its two exploration permits over the Leschenault conventional gas prospect, a three-way dip feature that has two structural culminations, either of which is a potential drilling location for a vertical well to test the Permian Sue Sandstone and the Triassic Lesueur Sandstone targets.

However, Pilot is also looking to tap into future trends with its move to pursue the development of an offshore wind and onshore wind and solar project that could support a renewable hydrogen project.

“A clear demonstration of the Government of Western Australian recognition of this potential and the magnitude of the opportunity is the creation of the Oakajee Strategic Industrial Area and the recent call for expressions of interest in the creation of a renewable hydrogen precinct,” Lingo told Stockhead.

Strike Energy and Warrego Energy are currently drilling the first of three West Erregulla appraisal wells.

West Erregulla-3 is testing the continuation of the commercial gas accumulation made by the West Erregulla-2 well in the northern fault block.

It will be followed by West Erregulla-4 and West Erregulla-5, which will appraise the reservoir distribution in the central fault block.

All three wells will be flow tested if successful and completed as future producers.

Talon is waiting on the Ensign Rig 970 to complete drilling the West Erregulla wells before it moves on to drill its Walyering-5 appraisal well with Strike.

Strike and Talon are targeting an in-place best estimate prospective resource net to Talon of up to 38.7 billion cubic feet of gas and 0.98 million barrels of condensate.

Casey told Stockhead that Walyering already has established porosity and permeability capable of producing at commercial rates – albeit for a short period.

“We’ve got a model now that that explains the results of past wells and we can reconcile that.”

He added that Walyering gas was of very good quality with very low carbon dioxide content of less than 1 per cent.

“All things being equal that’s pipeline quality and we don’t really have to do any processing of any note with the exception of stripping out the condensate, which is a value add rather than a cost,” Casey explained.

“The condensate composition and ratios from the drilling in 1971 would probably indicate that we’re probably looking at about 25 barrels of condensate for every million standard cubic feet of gas, which is very good.”