--Chevron buys up to 60% interest in Beach Energy permits
--Chevron to pay beach up to US$349M in cash, production
costs
--Beach shares jump 9%
(Adds background on U.S., Australian shale gas industries,
company comments throughout; share price reaction in 15th
paragraph)
By Ross Kelly
SYDNEY--Chevron Corp. (CVX) said it will buy Australian shale
gas assets from Beach Energy Ltd. (BPT.AU) for up to US$349
million, placing a bold bet on the potential to replicate the U.S.
boom in unconventional gas output in the Outback.
Chevron is acquiring stakes in an area covering 810,000
acres--equivalent to three times the size of Hong Kong--that is
largely untested for shale gas but near pipelines connecting with
several multibillion dollar gas-export facilities being built by
rival energy companies on the eastern coast.
The deal for up to 60% of Beach's interests in two blocks in
central Australia's Cooper Basin cements Chevron's status as one of
the biggest investors in natural gas down under. It is already
leading development of the Gorgon and Wheatstone liquefied natural
gas, or LNG, projects in Western Australia state worth a combined
US$80 billion.
Global interest in shale gas is intensifying due to rapid growth
in production in the U.S. where the unconventional fuel now
accounts for more than a quarter of its natural gas needs. But
industry executives caution that output could be slow to take off
elsewhere due to factors ranging from different geology, a lack of
infrastructure and concerns over technology used to get the gas
flowing from dense shale rock formations.
Shale gas is likely to be more expensive to produce than
conventional gas and coal seam gas in Australia, given the shale
rocks have to be smashed open with sand, chemicals and water in a
process known as "fracking".
Beach has drilled several wells exploring for shale gas in
permits in the Cooper Basin, and has reported encouraging results.
Competitors are also investing in exploring the area--Santos Ltd.
(STO.AU) in August said shale gas from its Moomba-191 well flowed
at a commercially viable rate of 2.6 million standard cubic feet
per day.
Chevron, the second-biggest U.S. oil company behind ExxonMobil
Corp. (XOM), is buying up to 60% of Beach's interest in two blocks.
Beach wholly owns onw block and has a 60% stake in the other where
the remaining interest is held by small Australian explorer Icon
Energy Ltd. (ICN.AU).
"We believe that shale gas production from the Cooper Basin will
be required longer term to offset domestic supply shortfall and
possible supply to LNG trains, but there is still a considerable
amount of work required," says Stuart Baker, a Sydney-based analyst
at Morgan Stanley.
Beach has previously estimated that there could be more than 300
trillion cubic feet of gas beneath land it holds in central
Australia. That's roughly equivalent to ten times U.S. gas
consumption in 2011, and dwarfs the 40 trillion cubic feet
contained in Australia's largest conventional natural gas
field--Gorgon--offshore Western Australia state.
"We have an industry-leading queue of LNG projects under
development in Australia and this agreement provides an opportunity
to explore a new, prospective basin and potentially add to our
natural gas portfolio," Roy Krzywosinski, Chevron's Australian
head, said in a statement.
Beach said Chevron will make an upfront cash payment and agree
to fund its share of development costs to acquire 30% of its stakes
in the permits. Chevron has also agreed an option to lift its
holding up to 60% at a later date, depending on exploration
results.
By 0117 GMT in Sydney, Beach shares were up 9% and Icon was up
13%.
Write to Ross Kelly at ross.kelly@wsj.com
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