The company has spun-off high risk, overseas-focused “little brother” Adelphi Energy; taken over junior explorer Voyager Energy; pegged a dominant position in the Canning Basin; joined an alliance to assess African and Asian opportunities; acquired major assets from Wandoo Petroleum; and is now moving to assess if it can establish a domestic liquefied natural gas business.
Until the Wandoo acquisitions, Arc was debt-free and the company’s finances remain very healthy.
Indeed, this morning Arc managing director Eric Streitberg told the Excellence in Upstream energy conference in Sydney that the Wandoo acquisitions – stakes in the BassGas and Cliff Head projects – would significantly improve Arc’s revenue, cash flow and earnings per share.
“These new assets greatly increased the scale of the company’s operations and give a significant diversification of reserves and production,”
“They increase exploration options and diversity, and position Arc for future growth.”
Arc acquired a 24% stake in Cliff Head, an offshore Perth Basin oil project, from Wandoo to take its total holding in the project to 30%.
It also bought 12.5% equity in BassGas, which comprises an onshore Victorian plant drawing gas from Tasmanian waters.
Even though Arc is bullish on the project and its Dongara gas plant could process any gas found in the area, some analysts are dubious about the exploration potential around Cliff Head, as is project partner Australian Worldwide Exploration.
But it is widely agreed that the BassGas project’s gas/condensate field is in an under-explored region with very good exploration and appraisal potential.
The company is not pausing to digest these acquisitions.
In July, Arc plans to drill two Canning Basin wells from the same site to test one large, deep prospect and appraise the shallower Stokes Bay discovery. This will be the start of a three-year, 20-well program.
“We’re coming close to the moment of truth in the Canning Basin,” Streitberg said.
“Either we’ll make a billion-barrel discovery or our bones will bleach in the sun, as what has happened to other explorers up there.”
While the deeper Valentine is a relatively high-risk prospect, it has potential for up to 1 trillion cubic feet of gas plus 200 million barrels of oil. A discovery of this size would be transforming Arc, let alone the juniors in the joint venture.
Arc claims that discovery of 300 billion cubic feet of gas would underwrite construction of a pipeline to link Canning gas into existing Dampier-Bunbury Natural Gas Pipeline and Goldfields gas pipeline networks, while 5MMbbl of oil would be viable, even if the product were trucked to Kwinana, south of Perth.
The company is already planning and surveying a potential pipeline route ahead of gaining approvals for such a link.
Arc now owns production facilities at the Blina oil field and could seek to use export facilities at Broome. A discovery of wet gas might initially be commercialised by a stripper operation, extracting the liquids and reinjecting gas until such time as a market is established locally or via a link pipeline.
But the company admits that Valentine is a long shot and an extensive, multi-well drilling program will probably be needed to crack the Canning.
However, the company believes strongly in the prospectivity of the Canning, which is the least-explored Paleozoic basin in the world, according to Arc.
“Virtually all other Paleozoic basins worldwide have major oil and gas fields,” Streitberg said.
“Our Canning Basin exploration program, although high risk, has the potential to find large oil and gas accumulations and we are seeking ways to monetise any discoveries as quickly and cheaply as possible,” Streitberg said.
One of the options it is considering to achieve this goal is a small-scale LNG plant.
Last week, Arc and Energy World Corporation signed a memorandum of understanding to develop an LNG business for Western Australian markets.
The alliance would initially investigate the feasibility of producing and shipping LNG from the Canning Basin to markets in the Pilbara and southwestern WA.
Streitberg said such a system had the potential to “dramatically reduce the time and cost” of getting the gas into the market.
“The numbers look compelling compared to going down the pipeline route,” he said.
“If we find gas, we want to be able to get it to the market quickly.”
Small-scale LNG technology has advanced enormously in recent years and Hong Kong-based EWC is currently building a two-train facility with a capacity of
1 million tonnes per annum in south Sulawesi, Indonesia.
Arc is also looking overseas – to Africa, Asia and the Middle East – for expansion opportunities.
In March, Arc and four other Australian oil and gas mid-caps and juniors (Baraka Petroleum, Beach Petroleum, Advanced Well Technologies and Arc spin-off Adelphi) finalised an alliance aimed at targeting overseas hydrocarbon projects initially focusing in Africa. The alliance parties will pool their resources in seeking, evaluating and acquiring high-value projects.
Arc has also entered into a memorandum of understanding with a Malaysian company in regard to evaluating assets through Africa and Central Asia.
The commercial details of the MoU are confidential but they allow for the mutual evaluation and application for areas offered to the Malaysian party.
Arc also has an MoU for “specific African and Islamic countries” with a “major South-East Asian company”, but it won’t give any more details than this on that particular arrangement.
In addition, Arc already has assets in Yemen inherited from Voyager Energy, and it has exposure to Timor Sea, US and other Yemeni prospects through its 32% holding in Adelphi Energy.
Meanwhile, the company is not neglecting its heartland, the Perth Basin, where it is currently drilling the Drakea-1 well, which is targeting 15MMbbl of oil.
“Arc’s Perth basin fields are low cost and deliver oil to the BP Kwinana refinery and gas directly to customers,” Streitberg said.
“Drilling success in the region is immediately rewarded, as discoveries can be brought online readily.”