Chevron announced on Friday that it will follow in the footsteps of ConocoPhillips and PetroChina in abandoning shale exploration in Australia’s Cooper Basin. Chevron operated in the area a joint venture with Australia’s Beach Energy and Icon Energy.
Chevron notified Beach Energy Ltd., its partner in the $US349 million central Australian shale project, that “the opportunity does not align strategically” with the U.S. explorer’s portfolio. According to a statement issued on Friday from Beach, Chevron’s spending on exploration is being high‐graded and significantly reduced in response to market conditions.
After ConocoPhillips and PetroChina exited Australian shales in October 2014, many analysts expected Chevron to follow suit when the first phase of work in the Nappamerri Trough in the Cooper Basin – already costing Chevron $US190 million – was completed in March. The move was motivated by the difficult financial climate caused by the low crude prices, as well as by disappointing results from the first phase of work.
“We had come to view the exit of Chevron from the JV [joint venture] as highly likely given the major’s program of exploration and development spending cuts and divestments,” JPMorgan analyst Benjamin Wilson told The Financial Review.
“In light of the current oil price environment it is difficult to draw a conclusion as to whether Chevron’s exit … is related to a view on the commercial prospects of the asset or whether it was a soft target for spending cuts.”
Chevron announced plans earlier this month to shed $15 billion in oil and natural gas assets by the end of 2017 and reduce spending on new projects for the next two years. Chairman and Chief Executive Officer John Watson is raising cash and curbing expenditures after the plunge in global oil prices dented profits and made some fields less attractive to drill.
“They are perhaps looking to increase their margins and get away from businesses that offer lower-end margins,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “They are getting knocked around a bit,” by oil prices.
Beach Energy announced that, along with its partner Icon Energy, it is currently reviewing Stage 1 data and outcomes to determine scope and objectives appropriate for future activities, although it said that over the next period it anticipates a ‘minimal spend’. It also said that it will pursue partnering opportunities for the Nappamerri Trough Natural Gas project.
Beach Managing Director, Rob Cole, said: “We are grateful to Chevron for their significant contribution to the Nappamerri Trough project. Beach considers that the Stage 1 program, designed as an exploration phase, achieved its primary technical objectives. We now better understand the geology through the delineation of target zones and identification of additional targets beyond the early REM shale play.
“We have also proved the ability to fracture stimulate, successfully flowed gas to surface and tested deliverability. We look forward to progressing the Nappamerri Trough project at a pace consistent with prevailing market conditions.”
Shares in Beach Energy, whose largest investor is Seven Group Holdings, dropped 5.6 per cent on Monday to $1.02. Shares in Icon Energy, Beach’s partner in the Queensland part of the Nappamerri Trough, fell almost 18 per cent.
The decision about the abandoning Australia’s Cooper basin came on the same day as Chevron’s announcement of its $4.7 billion exit from Caltex Australia’s share register.
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