The first significant discovery of natural gas in the Cooper Basin was in 1963. The Moomba 1 discovery in 1966 confirmed the region as a major petroleum province.

As a result of these discoveries, the SACB Producers (Santos – 67%, Beach Energy 20% and Origin Energy -13%) finalised Gas Sales Agreements with the South Australian Gas Company, the Electricity Trust of South Australia and the Australian Gas Light Company. Following the construction of pipelines from Moomba to Adelaide and Sydney, gas supplies commenced to South Australia in 1969 and to New South Wales in 1976.

Subsequently, more gas was discovered in the South West Queensland area of the Cooper Basin. In 1995 gas supplies from these fields commenced from the Ballera Gas Plant through new pipelines to Mt Isa minerals province and the South East Queensland gas markets.

The current infrastructure and reserves position of major supply hubs is shown below.

Drillsearch’s Gas History

To date gas supply from the Cooper Basin has been from gas fields owned by the SACB Producers or the SWQ Gas Unit (Operator – Santos). Drillsearch has made 10 “wet gas” discoveries within PEL106, the first being Nutmeg, drilled in 2004.

In 2006, as a historic first in the Cooper Basin, Smegsy -1 was connected to the SACB Gathering Network and production sold to the SACB Producers.  Smegsy-1 was completed into multiple gas pay zones and once the well began producing water from lower zones production was suspended and the well was shut in until the well could be worked over or recompleted. The Company is progressing plans to redevelop the Smegsy discovery pending completing a full evaluation of the field.

Recently in 2010, the Brownlow and Canunda wells were successfully production tested and the commercialisation of the Middleton and Brownlow discoveries in PEL106B (DLS 50%) progressed with a view to connecting into the SACB Gathering Network to sell gas and liquids to the SACB Producers.

In May 2011, following review of field development plans, GCA confirmed the reserves status of the four discoveries in the PEL106B region (Udacha, Middleton, Brownlow and Canunda) totalling raw gas recoverable of 196bcf (DLS share 116bcf).

Gas Market Developments

Recently there has been confirmed two significant landmarks with significant effect upon the future markets for Drillsearch’s gas resources:

1. At end of July 2011 it was confirmed that 3 separate LNG developments, initially comprising 5 LNG trains, had reach FID and would be progressing through construction; and
2. Santos would be selling 750PJ of Sales Gas ex Cooper Basin into their GLNG Project.

The impact upon the market opportunity for conventional gas resources in the Cooper Basin is marked – this signals not only the opening up of domestic markets in both SA and NSW but significant demand competition from export LNG also, where international pricing is oil price linked.  This signals the potential for price increases in the domestic market.

Drillsearch Gas Commercialisation Options

With the new demand for gas from export LNG and the changing dynamics of both the gas supply through the introduction of CBM and associated changes to pipeline infrastructure, the Cooper Basin is competitively well placed to supply domestic gas markets in New South Wales and South Australia as well as export LNG in Gladstone.

Development of the wet gas discoveries presents a number of challenges:

1. Scale – in building processing plant and associated transmission pipelines and compression, scale economies are important.  Unless there is sufficient certainty about a significant wet gas resource the only current option for development is through the use of the SACB Gathering Network and Moomba Processing Plant;
2. CO₂ – generally Cooper Basin gas has relatively high quantities of CO₂ which needs to be removed and stored or sequestered to produce pipeline specification sales gas.

Scale is an issue which Drillsearch will continue to address through further drilling.  In addition recent unconventional exploration activity highlighted the possibility of third party gas processing plants being built and potentially available for Drillsearch’s use.

CO₂ removal is an engineering issue which is currently the subject of much research – a number of different options exist.

In view of the past discovery rates, the assessed prospectivity of both PEL 106 and the application permit PELA 513, and the high level of liquids the commercial development of significant wet gas resources from Drillsearch’s permit areas in the Western Cooper represents a major opportunity and focus of our value creation strategy.