Australia: Unconventional series - The shale gas revolution comes to Australia


The world has a huge appetite for energy. In its publication BP Energy Outlook 2030, BP projects global primary energy consumption to increase by 39% over the 20 year period to 2030. The vast majority of this expanded demand will continue to be met from fossil fuels. As our understanding of unconventional resources improves, and further advances are made in applicable technology, unconventional resources are destined to contribute a far greater share of future energy supplies.

The emergence of the coal seam gas to LNG projects in Australia (please see our Coal Bed Methane Briefing) and the development of shale projects in the United States and Canada and oil sands in Canada, are the clearest examples of how unconventional resources can change the energy landscape.  Until recently, Canada and the United States were expected to develop dozens of LNG regasification projects to import gas for domestic needs. The high gas price resulting from these market conditions, combined with the development of key technologies – especially horizontal drilling and hydraulic fracturing – has enabled huge shale gas reserves to be unlocked across North America. These two countries have now secured their own substantial domestic supplies, driving domestic gas prices down and creating the opportunity to instead start exporting LNG.  

The ability to now realize the commercial potential of shale gas on a large scale has caught the attention of national and international oil companies. 

Transactions in just the past few months include:

  • March 2011 – Sasol agreed to acquire 50% of Talisman's Cypress A acreage in Canada for over CA$1 billion
  • June 2011 - Petronas agreed to a $1 billion deal to buy into Progress Energy Resources Corp's Canadian shale gas assets
  • June 2011 – Mitsui Corporation agreed to buy a 12.5% interest in SM Energy Company's Eagle Ford shale assets, and to reimburse certain sunk costs and to carry 90% of SM Energy's costs up to US$680 million
  • July 2011 – BHP Billiton agreed to acquire Petrohawk for US$12 billion, following its US$4.75 billion acquisition in February 2011 of shale assets from Chesapeake

The prospects for shale gas are being looked at in various other countries.  For example, Poland has substantial recoverable shale gas resources and is leading the industry development in Europe, with companies such as ExxonMobil, Chevron, Total and Talisman all participating.   

In the past few weeks, Australia has suddenly come under the microscope, and some of the world's biggest international oil companies are moving in.

Australian shale gas

According to a June 2011 report commissioned by the U.S. Energy Information Agency, Australia has 396 trillion cubic feet of technically recoverable shale gas resources1. This is equivalent to about 20 per cent of the combined equivalent resources of Canada, Mexico and the United States.  It also exceeds the estimated recoverable reserves of coal seam gas in Australia, which underpin three LNG projects that have taken final investment decisions over the past 8 months with an aggregate capacity of more than 25 million tonnes per annum, with additional projects proposed.

The report only assessed four main basins in Australia, and so potential for additional resources exists across the country.  Those assessed basins, ranked on a composite play success / prospective area success basis, are the Cooper Basin in South Australia and Queensland, the Maryborough Basin in Queensland, and the Perth Basin and Canning Basin in Western Australia.  However it is the Canning Basin that has the highest technically recoverable resource of 229 tcf.  This is a substantial resource by any standards. The following table compares the four assessed Australian basins to the technically recoverable resources in the leading Canadian basins and US shale gas plays2:

Technically recoverable shale gas resources  

*Resources for the Horn River, Deep and Perth Basins are aggregates of resources in multiple formations

Current players: recent transactions

Although the assessed resource suggests there is huge potential for the shale gas industry in Australia, activity is still very much in its infancy.  There have been very few exploration wells drilled, no appraisal programs conducted, and no commercial production.

The Australian industry has been led by domestic players. Companies such as Santos, Beach Energy, Drillsearch Energy, Senex and Icon Energy have been assessing shale potential in the Cooper Basin.  AWE and Norwest Energy have been exploring the Perth Basin, while Buru Energy and New Standard Energy are active in the Canning Basin.  Other basins have also seen activity, such as the Beetaloo Basin in the Northern Territory, the Eromanga Basin in Queensland, the Georgina Basin across the Northern Territory and Queensland, and the Amadeus Basin straddling the Northern Territory and Western Australia.

Despite only limited exploration, results have been promising.  In July 2011, Beach Energy drilled its first shale gas well in the Cooper Basin producing up to 2 million standard cubic feet per day (mmscf/d), a result which was significantly greater than the company's expectations3. In early August 2011, Exoma Energy announced positive well results from its exploration activities in the Eromanga Basin.

The past 12 months, and in particular the past few weeks, have seen significant international interest emerge:

  • June 2010: Mitsubishi committed to fund an AU$152.4 million exploration & development program, to earn a 50 per cent. interest in the majority of Buru's exploration permits in the Canning Basin, with the additional right to acquire an interest in Buru's production permits in exchange for an additional cash payment.
  • September 2010: Bharat PetroResources agreed to acquire half of Norwest Energy's interests in two permits in the Perth Basin, committing up to AU$15 million for exploration and drilling.
  • December 2010: CNOOC executed a farmin agreement to acquire a 50% participating interest in Exoma's coal seam gas and shale gas permits located in the central Queensland Galilee Basin by contributing $50 million towards exploration and appraisal expenditure during the farmin period, expiring on 31 August 2013.
  • April 2011: Hess agreed a participation and evaluation deal with Falcon Oil and Gas in respect of the Beetalo Basin, pursuant to which Hess may acquire up to a 62.5 per cent. stake in three shale exploration permits and was granted warrants exercisable for 10 million common shares in the company.
  • July 2011: ConocoPhillips entered into a non-binding heads of agreement and exclusive negotiation period with New Standard Energy to farm-in to a 75 per cent. share of the Goldwyer shale project in the Canning Basin, for US$109.5 million funding obligations and a payment in respect of sunk costs.
  • July 2011: BG, through its wholly owned subsidiary QGC, agreed to acquire a 60 per cent. interest in one of Drillsearch's tenements in the Cooper Basin plus an option for shares representing 9.9 per cent. of the company.  In consideration, BG is to reimburse a share of sunk costs and commit to a five year $130 million three stage exploration and pilot production appraisal program (funding $90m of the first $100m). The venture also includes marketing provisions to sell gas for liquefaction through QGC's Queensland Curtis LNG project.

These transactions pale in comparison to the multi-billion dollar deals in Canada and the United States that have been making the global headlines.  However, in many ways Australia is in a similar emerging position to where the North American shale industry was several years ago.  As the resource in Australia becomes better defined and clear routes to market identified, then the transaction values could increase significantly

Issues to consider

Shale operations are governed under the umbrella of laws and regulations that govern conventional onshore gas production.  Although largely similar, there are some differences in the regulatory framework applicable across the various States and Territories in Australia, and in the way they are applied. Some of the key legal and commercial issues that companies should consider when assessing the Australian shale gas industry include:

  • Hydraulic fracturing:  As with coal seam gas operations, there has been significant public debate over possible environmental risks associated with hydraulic fracturing (fracking), particularly on the potential contamination of aquifers by chemicals used in fracking fluids.  Irrespective of the degree of risk actually created by these activities, this remains a sensitive area.  In May 2011 the New South Wales government imposed a temporary moratorium on fracking activities in the State, and in July 2011 the ban was extended until the end of the year.  Investigation into the environment, economic and social impacts associated with fracking, and their management, should be expedited in order to provide certainty for all stakeholders.  For investors, the risk of a moratorium being introduced after investment has been sunk will be of significant concern.  
  • Water use and production:  The drilling and fracking process also requires a substantial supply of water - especially the slickwater fracturing process which appears more cost effective for high pressure formations - and so competition for water supplies may be an issue.  Some shale formations will produce water, in much the same way as occurs for coal seam gas wells. The substantial quantities of saline fracking waste water pumped back to the surface will typically contain a high level of total dissolved solids and contaminants and, together with any produced water volumes, will need to be treated and disposed of.  As re-fracking the shale is often required over time to maximise recovery, water management will be an ongoing and expensive operation.  These are emerging issues and the regulatory environment is constantly evolving.
  • Competing land use:  Development of shale resources gives rise to similar competing land use issues as have been encountered with coal seam gas developments.  The development and operation of shale projects requires a large number of wells, rigs and collection and transmission pipeline networks.  Projects will be competing for land, water and infrastructure with other resource development projects, agricultural uses and communities.   
  • Labour and equipment:  Successful development of shale gas assets requires specialized horizontal drilling and hydraulic fracturing techniques, and skilled personnel and specialized equipment to perform them.  As a relatively new industry to Australia, these are not in abundant supply, and there are many coal seam gas and tight gas projects competing for the same pool of supply.  Conventional petroleum projects and mining projects will also compete for skilled labour.  This could result in significantly higher drilling and production costs compared to equivalent activity in North America.
  • Markets:  Australia produces substantially more gas than is required for domestic use.  Shale gas will compete with conventional and other unconventional resources to meet the gradual increments in demand for gas and to displace existing feedstock.  New markets might be created by virtue of the proposed carbon pricing mechanism, which should act to promote cleaner fuels such as natural gas.  However, acting contrary to this is the risk of market collapse.  Unconventional plays are present across Asia, particularly in China, India and Indonesia.  As large quantities of coal seam gas, shale gas and tight gas become commercially recoverable in Australia and the region, this has the potential to reduce domestic and regional gas prices.  Achieving long term export market pricing for shale gas is sensitive to this regional supply picture (although this risk is common to the conventional LNG business).
  • Reserves certainty: Developers, and their lenders and offtakers, will need to get comfortable with the greater uncertainties surrounding reserves estimation for shale gas. The shale gas industry is relatively new and, as with coal seams, each shale formation is unique and can respond differently to artificial stimulation.  It might be misleading to rely on the short term performance history of shale wells in one formation to estimate recoverable reserves in another.  A multitude of wells will need to be drilled over the life of a shale gas project, and production rates will be affected by the well completion and cannot be predicted in advance with a great deal of certainty.  Additionally, traditional decline curve analysis requires constant well pressure, however performance to date indicates a quick drop in pressure and flow rates. This needs to be taken into account when structuring the project, including for reserves dedication to offtakers, reserves tails for financing, and allocating consequences in the event reserves are less than expected.

Australia certainly has sufficient recoverable reserves to underpin a successful shale gas industry.  However it won't be without its challenges.  It will need robust demand and strong gas prices to underpin the projects, and so will primarily need to look to export markets.  In January 2011, the National Energy Administration predicted that in 2011 alone, China's natural gas consumption will have a year on-year rise of 20 per cent.  The key question is whether continued strong demand in north Asia and emerging demand centers will be enough to absorb all of the unconventional gas reserves that are emerging in the region.  


1 World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, prepared by Advanced Resources International for the U.S. Energy Information Administration, April 2011
2 US shale play figures taken from Review of Emerging Resources: US Shale Gas and Shale Oil Plays, prepared by INTEK, Inc. for the U.S. Energy Information Administration, December 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.