The oil price is going up but getting a new exploration project over the line in Australia is proving difficult.

Spending on oil and gas exploration here in Australia dropped by more than quarter in the December quarter to $245 million, according to the government’s latest Resources and Energy Quarterly report.

The locally focused small cap oil sector is tiny, with only about 16 companies scratching out a living in this region.

Of those, about six are producing oil, or own an interest in a producing field in Australia.

Scroll down for a table of notable Australia-focused ASX small cap oil and gas stocks.

For the producers, life is sweet.

“All the oil producers have been actively reducing their cost structures, and many of us are producing at under $30 a barrel,” Triangle Energy managing director Rob Towner told Stockhead.

“And in the last six months oil has gone from $US40 to almost $US70.”

The price of WTI crude oil futures over the last year.

Mr Towner says he’s “feeling better now than I have done for a couple of years” as Triangle (ASX:TEG) has been making about $US60-62 a barrel for the last two months.

Triangle Energy and Buru Energy (ASX:BRU) have been the stand-out producers.

Buru reported last week that it has 5000 barrels of oil in storage tanks at the Ungani oil field and trucking arrangements to get it up to capacity 3000 barrels of oil a day.

Triangle is making free cash on each barrel is produces, which it will put into getting more oil out of existing fields.

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But notwithstanding that positive feeling, the higher oil price is not translating into more exploration, making it tough for exploration-focused companies.

And the benefits of being a non-operator owner of a producing field aren’t flowing into shares prices, as seen with Norwest Energy and Whitebark Energy which each own a piece of Triangle’s Xanadu licence.

The consistent view across the industry is that if companies have oil and near-term plans to drill or produce — and they’re in the right part of Australia — they can access finance and will be fine.

If they don’t have these things, perhaps it’s time to go into gas instead.

Notable Australia-focused ASX small cap oil and gas stocks:

ASX codeName12-month price changeExplorer or producerPrice Apr 11, 2018Price Apr 11, 2017Market Cap ($)
CVN CARNARVON PETROLEUM 0.4Oil and gas explorer14c1c144.14M
BUL BLUE ENERGY 1.6Oil and gas explorer13c5c138.59M
REY REY RESOURCES 1Oil and gas explorer22c11c48.87M
ICN ICON ENERGY LIMITED0Oil and gas explorer3c3c14.94M
TDO 3D OIL 0.25Oil and gas explorer5c4c10.69M
TAP TAP OIL -0.25Oil and gas explorer6c8c24.71M
EEG EMPIRE ENERGY GROUP 1Oil and gas explorer2c1c18.97M
OEX OILEX 0Oil producer, gas explorer0.5c0.5c9.37M
LKO LAKES OIL NL0Oil explorer0.2c0.2c82.87M
KEY KEY PETROLEUM 0Oil explorer1c1c16.22M
IPB IPB PETROLEUM -0.5Oil explorer1c2c1.60M
COE COOPER ENERGY -0.0303030303Oil and gas producer32c33c504.34M
BRU BURU ENERGY 0.7222222222Oil producer31c18c133.93M
TEG TRIANGLE ENERGY GLOBAL 0.5Oil producer9c6c17.67M
NWE NORWEST ENERGY NL0.25Oil producer0.3c0.4c10.15M
WBE WHITEBARK ENERGY 0Oil producer1c1c6.93M
BUY BOUNTY OIL & GAS NL0Oil producer1c1c5.72M

Exploration deficit

The lack of exploration is a problem.

Oil and gas exploration spending dropped 27 per cent in the December quarter to $245 million, according to the government’s latest Resources and Energy Quarterly report.

Crude oil production is expected to decline at an average annual rate of 4.7 per cent until 2022-23, when it will hit 109,000 barrels a day.

“Future investment is focused on brownfields expansion and backfilling declining production fields,” the report said.

It noted “a difficult operating environment” as a key reason for the exploration shortage.

Friction points

Moratoriums and bans on energy exploration and fracking are limiting the kind of exploration that can be done.

“The increase in the oil price has had some impact on activity but it’s still got to be balanced with the regulatory concerns and embargos and State government difficulties that outweigh exploration,” Bell Potter Securities analyst Peter Arden told Stockhead.

The NT fracking inquiry recommended lifting the moratorium in that State, but the practice is prohibited in Victoria and is the subject of a moratorium in Tasmania and Western Australia.

Fracking, or hydraulic fracturing, is a method where water mixed with lubricants is sent down a well to force open cracks and fissures holding oil or gas.

The bans are a major problem for the broader oil and gas industry, Mr Towner believes.

“There’s no question that the biggest contention point is this fracking ban. It just doesn’t affect unconventional, it also affects people on the conventional front,” he said.

For infrastructure and drilling rig companies to be financially viable, they need fracking to be part of the equation, says Mr Towner.

“They’re all related. It’s all about putting a hole in the ground,” he said.

It’s not all good news for Australian producers either.

While Triangle ships to BP’s Kwinana refiner, Buru has to truck theirs to the Port of Wyndham, where it gets sent to South East Asia refineries.