Northern Territory heating up as North Americans join ASX oilies: Hess, PetroFrontier, Baraka Energy

The Northern Territory is emerging as the frontier oil and gas exploration hot spot in Australia as new oil finds and unconventional boom draws North American majors and explorers.

While oil and gas activity in Australia has grown in recent years, the Northern Territory's onshore basins have seemingly sailed under the radar with just a handful of juniors keeping the flame burning.

However, the strong interest in unconventional gas plays in the country and the entry of North American players has sparked interest in the state's resources and the promise of increased levels of exploration and development activity.

This can be seen by the speed at which the acreage have being snapped up with roughly 90% of the most prospective basins now under licence or application, compared to less than 10% a few years ago.

Background

Despite their size and potential prospectivity, the Amadeus, Beetaloo, onshore Bonaparte, Georgina and Pedirka basins have had minimal exploration carried out on them due in no small part to their remote location.

Most of the work was carried out on the Amadeus where the Mereenie oil field and Palm Valley gas field were discovered in 1963 and 1965 respectively and brought into production more than 20 years later in 1984 and 1987.

Work by the Northern Territory Geological Survey has estimated that up to 650 million barrels of oil equivalent unrisked recoverable hydrocarbons remain to be discovered in the Amadeus.

The Basin is also believed to have large unconventional gas resources in the Ordovician Larapinta Group.

Test wells were also drilled in the Georgina Basin, with most recent in 1991, that demonstrated oil shows and good quality source rocks. However, these were plugged and abandoned.

Nonetheless, the Georgina is now considered to be the most prospective undeveloped basin in the Northern Territory with a number of companies planning to start exploration work.

Other basins include the Pedirka, which is contiguous with the highly prolific Cooper Basin to the south, the Bonaparte Basin that contains a number of known oil and gas fields, and the Beetaloo Basin, which has attracted U.S. independent Hess Corporation (NYSE: HES).

Australian players

Central Petroleum (ASX: CTP) holds a large acreage position throughout the Northern Territory, focusing primarily on the Amadeus, Pedirka and Georgina basins.

The company has been exploring the region for more than a decade and has finally seen its efforts to prove up the petroleum prospectivity of Central Australia bear fruit with the Surprise-1 oil discovery in the Amadeus Basin that is set to enter production testing.

Central is also targeting unconventional coal and shale targets in both the Pedirka and Georgina basins.

Investors have jumped on board the CTP bandwagon this year, with shares in the company almost doubling to a high of A$0.105 on 12 April from A$0.053 at the beginning of the year.

Also in the Georgina Basin is Baraka Energy & Resources (ASX:BKP), which holds 25% stakes in 2 permits as well as a 75% interest in a 75 square kilometre area around the Elkedra-7 well which had encountered oil shows.

Baraka believes the use of modern horizontal drilling and multi stage fracture stimulation technology would unlock the hydrocarbon potential of the Arthur Creek shales and make the Southern Georgina, where its assets are located, a valuable exploration prospect.

Meanwhile, Beach Energy (ASX: BPT) had late last year signed a formal agreement to earn up to 90% stakes in two onshore Bonaparte Basin permits held by private company Territory Oil and Gas.

This involves the funding a 3 phase work program that includes an aeromagnetic/gravity survey and 2 deep wells.

Somerton Energy (ASX: SNE), which Beach owns 56.2% in, has since secured rights to take a 18% stake in the 2 permits.

Armour Energy, a 50% owned subsidiary of DGR Global (ASX: DGR) that is currently in the middle of a A$75 million initial public offering, holds a 126,000 square kilometre portfolio in the McArthur, South Nicholson and Georgina basins.

This funding will allow the company to embark on an aggressive drilling program of up to 9 vertical wells, 3 lateral wells and completion of 2 multi stage fracture stimulation programs in EP 171 and EP 176 in the McArthur over the next two years.

MBA Petroleum Consultants has assessed this area to contain a combined mean prospective resource of 18.8 trillion cubic feet (Tcf) of gas and 2 billion barrels of associated liquids within its unconventional and conventional plays.

Private company Falcon Oil & Gas is also poised to embark on a major drilling campaign in the Beetaloo Basin, where it holds more than 28,300 square kilometres in four licences it acquired in 2008.

While its exploration work has identified six active petroleum systems with shale oil and gas in addition to conventional potential, it is the entry of Hess under a US$60 million (A$57.7 million) farm-in to a 25,200 square kilometre area that is set to stoke the exploration fire.

North American investment

Hess, which has shale gas experience in the U.S. and the offshore WA-390-P permit off Western Australia where it has made a number of gas discoveries, is paying Falcon US$17.5 million for a 62.5% stake in the acreage and will also pay the cost of a US$40 million seismic acquisition program.

It can then elect to continue to the next phase of the work program that includes drilling five wells to explore and appraise the agreement area.

Hess is arguably the largest player to commit to exploration in the onshore Northern Territory and its presence could draw the attention of other major independents and supermajors into the area.

However, it is far from the only North American player in the area.

Canada's PetroFrontier (CVE: PFC) holds a massive 55,000 square kilometre acreage position in the southern Georgina Basin, including permits EP 127 and EP 128 that Baraka is participating in.

It started its exploration program in August 2011 with the drilling of 1 horizontal well and the start of another, though this was suspended due to the wet season in the Territory.

This second well is expected to be completed in the dry season of this year while a third well will be spudded in the current quarter.

The 3 wells will then be fracced and tested for economic flow rates from the Arthur Creek “Hot Shale” zone.

PetroFrontier is also expanding its acreage in the Basin, acquiring 2 exploration permit applications that are subject to negotiation of surface access agreements with the Aboriginal stakeholders.

Fellow Canadian Rodinia Oil (CVE:ROZ) has the right to earn up to 60% in about 22,260 square kilometres of Georgina Basin acreage.

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