First came news that US-based Hess Corporation had seriously outbid all rivals in acquiring rights to a freshly released and well-located exploration tenement on the North West Shelf.
Second came breathless media reports that a “US giant” had returned to Australia.
For a few seconds, Slugcatcher had trouble connecting the two events – but then realised that because Hess is from the US and is an oil company, it is immediately presumed to be a giant.
In the interests of educating his colleagues in the popular penny press, Hess is actually smaller than Australia’s own Woodside Petroleum. Using the latest share prices on their respective stock exchanges, Hess is capitalised around $A19.3 billion and Woodside at $25.4 billion.
If Hess to some people is a giant, then what are we to call ExxonMobil with its market capitalisation of $542 billion?
Media exaggeration aside, it is worth looking at what Hess has done with its northwest bid, and wonder whether its return to Australia does mark the start of a duel for offshore acreage, and potentially, a new era in exploration and project development.
According to Slugcatcher’s readings, Hess won its tenement, WA-390-P, with a promise to spend around $500 million over the next three years. In total, it plans to drill 16 wells after gathering fresh seismic data.
The proposal is one of the biggest and most ambitious seen in Australian waters for at least 20 years and represents a significant vote of confidence by a foreign oil company in Australia as an investment destination – and in the continued rise of the importance of the liquefied natural gas industry, given that WA-390-P, which is located close to the gas fields that make up the Greater Gorgon project, is more likely to contain gas than oil.
To put Hess’ bid in perspective, the adjoining property to WA-390-P was acquired by the Gorgon consortium, led by Chevron, with a work bid of $45 million.
One interpretation of these events is that Hess has just paid 10 times what its neighbours are prepared to pay for a property in the same street.
Another interpretation is that Hess has just paid its membership fee to an exclusive club on Australia’s North West Shelf.
Slugcatcher reckons that in this case the latter is true, and that Hess is a very welcome addition to Australia’s west coast oil and gas game.
The fact that it is not really a giant makes it an especially welcome addition, bringing fresh capital and perhaps new ideas to an area which has been the private backyard of a handful of explorers.
Drilling will be the ultimate test of whether Hess has paid too much to join the club, or whether it has actually picked up a plum tenement.
But even if it all ends in a series of dry holes, Hess’s big bid flags a sea change in North West Shelf exploration, and in the level of interest in Australia as (a) a safe place to invest, (b) a place with attractive oil and gas prospectivity, and (c) a place with the potential to grow the LNG industry to feed energy-hungry customers in Asia.
It is also possible that Hess’ arrival signals a change in the size of oil companies operating in remote Australian waters where an LNG project seems to be the best future development option.
Until recently, medium-sized oil companies shied away from gas-rich tenements because LNG was a business left to the giants.
But when you think about it, it is in Australia’s interest that more companies like Hess come to Australia because of the way they add a competitive element to an industry sector dominated, until now, by a handful of genuine giants.
