As the many companies in search of economically viable gas resources in Australia today know well, there are many factors pivotal to a truly successful project. All manner of companies, from super majors to one-man operations, are turning their attentions to seeking out gas which presents true potential for monetization.
Introducing MEO Australia
Since its 1998 ASX listing (then as Timor Sea Petroleum) MEO Australia (ASX:MEO), of Melbourne, Australia has had its sights set on developing gas-to-liquids (GTL) projects in the Timor Sea about 275 kilometres northwest of Darwin. In the 12 years that have ensued, the company has been committed to pursuing this goal, adding projects in Western Australia’s Carnarvon Basin to its repertoire. In its formative years, the company began with 100 per cent interest in the NT/P48 license in the Timor Sea. Within this, the Evans Shoal-1 project had been drilled by BHP Petroleum in the 1980’s, delivering what they interpreted to be an uneconomic gas discovery with around 18 per cent carbon dioxide. MEO farmed out an 85 per cent interest to Shell in exchange for a seismic program and a free carry on two exploration wells—Evans Shoal-2 and Wonnich-1. Evans Shoal-2 returned 300 metres gross gas column with an interpreted 28 per cent carbon dioxide content, identifying a large complex resource with a challenging carbon dioxide content. MEO elected to sell its 15 per cent interest in the field and focus its attention on a downstream project to process gas supplied from the Evans Shoal gas field under its new ownership. Doing so resulted in the Tassie Shoal Methanol Project (TSMP) which subsequently secured its environmental approvals in 2002. In 2004, the company also received approval for the Timor Sea LNG Project and, following its inability to secure a gas supply from the Evans Shoal resource, secured 100 per cent interest in NT/P68. Early on in 2007, MEO brought in Petrofac as a partner to drill two wells to earn a 10 per cent interest in NT/P68. Later on that same year, the company secured a 60 per cent interest in three contiguous exploration permits in the Carnarvon Basin.
The WA-360-P & WA-361-P licenses, Carnarvon Basin
In the Carnarvon Basin, MEO is busy with two exploration permits, WA-360-P (MEO 25 per cent) and WA-361-P (MEO 50 per cent). It is the WA-360-P license which is MEO’s core focus today, Jürgen Hendrich, Managing Director and CEO, says that this could be the company-maker. More specifically, the Artemis prospect within WA-360-P has received much recent attention.
“These contiguous permits lie immediately outboard of the North West Shelf Gas Project producing fields containing some 30 Tcf original gas reserves that feed the five existing LNG trains (16.3 Mtpa) on the Burrup Peninsula,” Hendrich tells IRJ.
“WA-360-P also lies immediately on trend with the Wheatstone (discovered in 2004 with FID expected in 2011) and Pluto (discovered in 2005 and in development) gas discoveries.”
Hendrich explains that these two gas discoveries occur under the ‘shelf-slope-break’, an area where the water depth changes rapidly from about 100 metres on the shelf to more than 1,000 metres beyond the shelf slope. As a result, dramatically changing seismic velocity can make seismic imaging difficult and any imaging received can differ greatly to the reality of the structural picture. Late in 2009, MEO acquired new 3D seismic data which allowed the company to identify the 12 Tcf Artemis prospect, followed up with additional 3D data in 2009 when the company worked to cover the entire prospect.
“In late 2009 MEO selected Petrobras as its preferred farminee and in early 2010 executed binding agreements whereby Petrobras would earn a 50 per cent interest in WA-360-P by paying 100 per cent of the Artemis well costs to a cap of US$41 million and paying MEO an initial cash consideration of US$39 million,” Hendrich says. “In the event of success, Petrobras would pay MEO an additional cash consideration of US$31.5M and pay 70 per cent of two additional wells, thereby covering MEO’s 20 per cent residual interest.”
Since this joint venture was struck, MEO has acquired an additional five per cent participating interest from Moby Oil & Gas for US$7 million. Hendrich says that the key draw for MEO at WA-360-P, apart from the 12 Tcf Artemis well, is its strategic location relative to existing and proposed LNG infrastructure, where the search for new gas resources to underpin further builds is of vital importance.
MEO’s second exploration license in the Carnarvon Basin, WA-361-P, is in the final year of its tenure and an application for renewal has been lodged with the DMP. Hendrich says that the company expects to renew the permit for a further five-year term, but will need to relinquish seven of the fifteen graticular blocks that make up this permit.
“The strengths of this permit include its proximity to WA-360-P together with additional prospectivity we have identified which requires additional technical work,” he says.
The Tassie Shoal projects, Timor Sea
The Tassie Shoal projects comprise of Environmental Approvals for two world scale (1.75 Mtpa) methanol plants collectively referred to as the Tassie Shoal Methanol Project (TSMP), and a three Mtpa LNG Project known as the Timor Sea LNG Project (TSLNGP), both of which, according to Hendrich, offer numerous unique benefits.
“The ability to locate the plants in the midst of the undeveloped gas fields affords considerable capital cost savings relating to pipelines that would otherwise be required to transport the gas to shore for processing,” Hendrich explains. “The capital cost reductions which result from being able to pre-fabricate the plants in Southeast Asia and transport them as completed single modules adds further to the savings relative to land-based plants.”
Other strengths include the project’s ability to deal with a wide variety of gas qualities via the flexibility to develop LNG and/or methanol plants and the Environmental Approvals already in place to allow MEO to forge ahead with development when gas supply is confirmed.
There is also the 100 per cent-owned NT/P68 exploration permit adjacent to Tassie Shoal. This permit contains two gas discoveries:
Blackwood, which contains more than 25 per cent carbon dioxide has appropriate quality for conversion to methanol
Heron is believed to contain resources of five Tcf (Best Estimate) of recoverable gas. The company plans for two proposed appraisal wells to confirm the gas composition and reservoir quality which, by data collected during drilling to date, looks to have liquids rich, low carbon dioxide gas and promising reservoir deliverability
“MEO is seeking a farminee to drill these two wells and currently has a data room open. It is likely to close just before Christmas,” Hendrich says. “The Heron resource is large enough to underpin the TSLNGP, however we do need low carbon dioxide gas. In the event that the gas has more than 20 per cent carbon dioxide, we would propose to manufacture methanol. If the gas has carbon dioxide in the low-mid teens, we could still make LNG but would need one companion methanol plant to dispose of the carbon dioxide economically.”
The company places great emphasis on its handling of carbon dioxide—something which Hendrich says “cannot be ignored.” In highlighting that any solution to dealing with carbon dioxide must be commercially viable, MEO’s particular approach to handling this becomes all the more important.
Solutions spurred by projects
MEO’s approach has been to develop purpose-fit solutions for the gas resource, rather than making a gas resource fit into a pre-existing solution, according to Hendrich. Conventional LNG development needs low carbon dioxide gas to keep the greenhouse gas emissions down and higher concentrations have presented significant challenges.
“The Greater Gorgon project is a substantial resource that works with a nine per cent feedstock gas supply, utilizing geo-sequestration to deal with 80 per cent of the reservoir carbon dioxide,” he exemplifies. “Although geo-sequestration is effective, it comes at great capital and operating cost expense and does not generate a revenue stream.”
MEO’s proposal involves looking at methanol’s potential for dealing with the carbon dioxide problem and simultaneously generating a viable revenue stream. The company plans to use feed gas with 25 per cent carbon dioxide in creating a commodity that has been viewed by the upstream energy industry as a low value ‘chemical’ product of little economic interest, until now.
“When faced with gas containing moderate carbon dioxide like Gorgon, methanol manufacture can become an enabler for LNG production by locking the excess carbon dioxide into the methanol molecule thereby avoiding the costs of geosequestration,” Hendrich explains. “We prefer to produce LNG, but are realistic enough to consider any alternative that generates higher economic returns for all stakeholders. To date, we have seen no better alternative proposals to deal with high carbon dioxide gas.”
This attitude to pioneering a new methanol-based approach to combating carbon dioxide levels is characteristic of MEO; the company has never been afraid to think outside the box. Its reasoning behind its proposals today is well supported by the extensive and thorough work it undertakes on its projects and Artemis-1 is a prime example.
“Our technical and operational preparation for this well has been extremely thorough. We have completed reservoir studies to choose the well location which would normally be done to locate development wells,” Hendrich says.
“We could not be better prepared to drill this well.”
News from Artemis-1 has dominated MEO’s news flow of late and indicates plenty of positive ASX releases to come.
Fitting into the LNG industry
As IRJ went to press, Shell’s semisubmersible drilling rig Songa Venus, made its seven-day tow to the Artemis-1 wellsite. It was expected to arrive at any moment and market focus continues to hone in on the project day-by-day. In addition to this activity, Hendrich says, MEO plans to focus on commercially realizing its Timor Sea projects; the Tassie Shoal Gas Processing projects and NT/P68 containing the Blackwood and Heron gas discoveries. In terms of industry outlook, Hendrich says, it is valuable to take a step back and take a broader view of the commercialization options.
“The huge Gorgon project with its unprecedented carbon dioxide geosequestration component; the proposed Prelude and Sunrise Floating LNG megaships; the 885 kilometre Ichthys to Darwin gas pipeline and the gathering of low pressure gas from thousands of square kilometres of coal seams all are examples of the apparent desire to build huge projects,” he says. “Bigger is not always better. MEO’s view is that just because a resource can economically support a huge project does not mean that it should. If an alternative exists which can save literally billions of dollars then it should be considered in the interests of shareholders and the ultimate owners of the resource—the Australian people.”
This is the role of MEO within the wider Australian LNG industry today. The company is well attuned to the levels it competes on and its strengths as a small, functional organization, aligned to a common goal of discovering and monetizing hydrocarbons. From incoming news on Artemis-1 to finding that partner for appraisal work at Tassie Shoal, MEO reacts quickly to bringing projects on, looking for solutions to fit projects beyond what has been done before or tends to be a go-to best fit, and has an experienced, conservative team in place to roll out development along the way.