Key recently closed off its transaction with Beach Energy for control of ATPs 783, 920 and 924 in the Queensland sector of the Cooper Basin, arguably its most significant transaction since its initial entry into Tanzania or the onshore UK.
While Tanzania and the UK are long gone with prior management, the company has focused on the Perth and Canning basins in Western Australia without much luck, however its entry into the company incubator that is the Cooper Basin could be transformational for the Perth-based company.
Key managing director Kane Marshall told Energy News that the company was working with the Queensland government to finalise a suitable work program that will be focused primarily on the gas potential.
The blocks come with significant drilling commitments, and Marshall said Key would need to make a case that the switch in focus from oil to gas could require a change in what a suitable level of commitments would be.
"There are also issues with some of the processing and the previous play types being targeted. Our approach would be different and the deficiencies in data would need to be resolved," he said.
Beach acquired significant 3D and 2D seismsic and drilled a single well, Maroochydoore-1, during the Drillsearch/Beach merger process, but left a lot undone in the permit.
Maroochydoore-1 had a gas kick in the Permian and a deeper, undrilled gas prospect remains, and together with numerous shows in wells around the blocks, Marshall said the blocks come with a lot of unexplored potential in the assets that Key, as a much smaller company, will attempt to assess.
"[As] we are obviously not a large operating company our cost structure is completely different to that of Beach and DrillSearch, and so our exploration costs are lower which impacts on the risk based economics and thus the ability to attract quality partners," Marshall explained.
"Having 3D already puts in a pretty good position but we also need to have a go at unravelling the migration and source story at Inland to high rank a number of oil plays in the northern margin of our acreage."
The focus will be on different play types that have largely been ignored such as Permian basin-centred gas, being tested by Real Energy Corporation and Santos, as well as stratigraphic and structural Permian gas plays near Marengo.
The proximity of Santos' Barolka gas pipeline is likely to be critical to target exploration, but there remains an oil story with the Inland oil field and numerous hydrocarbon recoveries nearby, and the Eromanga refinery to the south a possible export route for any liquids.
"The Queensland Cooper-Eromanga Basin discoveries are typically larger than South Australia but have a lower success rate so we need to do something different to what previous operators have done," he said.
"A large focus of that will be understanding reservoir quality and distribution given what occurred at Maroochydoore-1 and what you also see happen at the Hutton level in the northern part of the Cooper Eromanga."
He said the Obelix-1 well in ATP 794 (Bridgeport Energy 88%, Senex Energy 12%) was interesting in that regard, as it encountered oil or gas shows across multiple intervals while assessing the potential of the Hutton Sandstone and Poolowanna Formation.
Senex has walked away, and Bridgeport will sole risk further testing.
While Key has limited cash reserves, and almost half the costs of the planned Wye Knot-1 well to meet later this year, Marshall said the junior had adequate capital reserves to conduct its immediate operations, although as the work program firmed for 2019 it may look to farming out the blocks, and there has been some early interest given the east coast gas crisis.
Initially, Key is completing remapping of the three blocks and preliminary volumetric estimates, and that should be available around the start of the December quarter.
Marshall said Key had moved into the Cooper because it felt the need to be bold by picking up exploration acreage near discoveries in a downturn.
"If your timing is right, when the market turns you have quality prospects mapped near existing discoveries. Inland, Cook and Mount Horner are all classic examples," he said.
He lamented the lack of "true explorers" in Australia, particularly companies with positions across multiple basins, but he said the company's exploration push was matched with a commercial strategy that would support developing of drillable prospects, even in the current climate.
Key made a modest cash payment to Beach for the three permits on the less explored eastern margin of the basin, plus the promise to meet financial assurance guarantees to the state government of no more than $300,000 and a 1.5% wellhead royalty on any production.
Key shares last traded at 1.2c, their highest level since May 2015 when it was testing its last well, the shallow Dunnart-2 in the Perth Basin.