Hot new oil exploration play offshore Australia

Australia’s Quadrant Energy and Carnarvon Petroleum have discovered ‘one of the largest oil resources ever found on the North West Shelf’, according to Carnarvon’s Managing Director and CEO, Adrian Cook. Dorado is estimated to hold 283mn boe, including some 171mn barrels of oil on a 2C basis*. Quadrant is operator, holding an 80% interest, with Carnarvon Petroleum holding the remaining 20%.

Wood Mackenzie’s Australasia upstream Senior Analyst Daniel Toleman comments: ‘The Dorado-1 well, drilled [by the Ensco 107 rig - pictured] in the under-explored Bedout Basin off Western Australia, was expected to find 545bn cf of gas but resulted in something much more valuable – a large commercial oil find. It has been such a long time since Western Australia had a significant oil discovery that most people have given up looking for liquids. The last discovery over 50mn barrels was way back in 2003. And you have to look back to 1996 to find a 100-mn-barrel discovery. Given the wait, Dorado-1 has created a big exploration buzz around Perth.’

He continues: ‘An oil discovery is significant for block partners Quadrant and Carnarvon. Compared to gas, oil has a lower risk profile and does not require gas contracts or infrastructure. This means it is easier and faster to monetise. Although the true resource size will remain unknown until appraisal drilling occurs, a base case of 150mn barrels at Dorado is easily commercial.’

However, Toleman warns that many known unknowns remain. ‘Not only the size of the find, but what it actually consists of. It is still unclear whether the discovery is mainly light oil or whether the oil is so “light” that it is in fact a condensate, which is normally a natural liquid that “drops” out of wet gas production. The good news is that, either way, very light oil is profitable and often commands a pricing premium to Brent. The bad news is that if it is a condensate with a lot of associated gas, it will require additional capital expenditure for gas handling and likely re-injection/recycling.’

He concludes: ‘The Dorado oil find opens up a hot new exploration play in the region. We cannot underestimate how important the oil aspect is for the attractiveness of the play. A medium-sized gas play in this remote location would most likely be uneconomic – the isolation and the 75tn cf of undeveloped gas in neighbouring basins would see to that. But even a 50-mn-barrel oil discovery should break even at $49/b, well below today's oil price of $73/b, without requiring the complexity of new export infrastructure or commercial arrangements.’

‘The Dorado find has shown companies what the next big thing in Australia could be. We are anticipating exploration in the area to return with a vengeance. A key indicator will be the level of interest in nearby acreage releases W17-4 and W18-4 – the bidding on which is due to close in 4Q2018.’

*Contingent (C) resources are those estimated as potentially recoverable, but which are not currently considered as commercially recoverable. The probability for contingent resources to become economically recoverable is significantly lower than for proven, probable or possible reserves. 1C, 2C and 3C refer to the degree of estimation/certainty (1C – higher conversion probability, 3C – lower probability).

Photo: Spoke Corporate