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 code Name 12-month price change Explorer or producer Price Apr 11, 2018 Price Apr 11, 2017 Market Cap ($)
CVN CARNARVON PETROLEUM 0.4 Oil and gas explorer 14c 1c 144.14M
BUL BLUE ENERGY 1.6 Oil and gas explorer 13c 5c 138.59M
REY REY RESOURCES 1 Oil and gas explorer 22c 11c 48.87M
ICN ICON ENERGY LIMITED 0 Oil and gas explorer 3c 3c 14.94M
TDO 3D OIL 0.25 Oil and gas explorer 5c 4c 10.69M
TAP TAP OIL -0.25 Oil and gas explorer 6c 8c 24.71M
EEG EMPIRE ENERGY GROUP 1 Oil and gas explorer 2c 1c 18.97M
OEX OILEX 0 Oil producer, gas explorer 0.5c 0.5c 9.37M
LKO LAKES OIL NL 0 Oil explorer 0.2c 0.2c 82.87M
KEY KEY PETROLEUM 0 Oil explorer 1c 1c 16.22M
IPB IPB PETROLEUM -0.5 Oil explorer 1c 2c 1.60M
COE COOPER ENERGY -0.0303030303 Oil and gas producer 32c 33c 504.34M
BRU BURU ENERGY 0.7222222222 Oil producer 31c 18c 133.93M
TEG TRIANGLE ENERGY GLOBAL 0.5 Oil producer 9c 6c 17.67M
NWE NORWEST ENERGY NL 0.25 Oil producer 0.3c 0.4c 10.15M
WBE WHITEBARK ENERGY 0 Oil producer 1c 1c 6.93M
BUY BOUNTY OIL & GAS NL 0 Oil producer 1c 1c 5.72M
WordPress Tables Plugin

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.