Hess Lands with $500m WA Gas Play

An unprecedented bidding war is under way off WA's North-West coast as some of the world's biggest energy companies lock horns in a race for access to the State's untapped gas riches.

Amid predictions of a looming global LNG supply crunch, US energy giant Hess Corporation has agreed to spend a record $500 million on exploration over the next three years to secure its first permit in WA's North-West gas heartland, just a stone's throw from the giant Gorgon gas project.

The work program was a record bid for an Australian oil and gas permit, and marked Hess's return to Australian waters after a long absence.

Hess outbid the Gorgon partners - Chevron, Shell and ExxonMobil - for permit WA-390-P, which adjoins the southern boundary of the massive Jansz field that will supply the $15 billion Gorgon LNG project on Barrow Island.

Its bid easily eclipsed the previous record set by Shell early last year when it pledged to spend $127 million to win a permit in WA's Browse Basin.

Shell will drill 11 gas wells in the permit, which lies adjacent to the $US8 billion ($10.2 billion) Ichthys LNG project being developed by Japan's Inpex Holdings.

In comparison, Hess will spend $47 million next year gathering seismic data, before spending $121 million on four exploration wells in 2009. It has then committed to spend a staggering $331 million more in 2010 to complete 12 additional exploration wells in the permit 130km west of Barrow Island.

Once the program is complete, Hess will have spent more than $503 million in an attempt to replicate the success of the Gorgon partners.

The Gorgon fields remain one of the world's biggest untapped gas finds with total reserves estimated at more than 40 trillion cubic feet of gas. The Barrow Island project is slated to produce 10 million tonnes of LNG a year from 2011-12.

Despite losing out to Hess, the Gorgon partners yesterday secured the adjoining WA-392-P permit, which sits due west of the central Gorgon field, with a pledge to spend almost $45 million.

The Chevron-led consortium's aggressive exploration program in the area has already generated two new major gas finds near Jansz since mid-2006 at the Clio and Chandon fields. Chevron alone is spending $US180 million on its WA permits this year, where it will drill 11 wells and acquire more than 3000sqkm of seismic data.

Chevron exploration president John Watson said the big spending program reflected the importance of WA to Chevron's plans to build an "internationally competitive natural gas business to supply energy to both the country and other regions around the world".

With LNG forecasters predicting a global shortfall in LNG supplies by 2015 as demand for the fuel doubles, the North-West has come under increasing scrutiny from international energy majors seeking future gas supplies.

In October, US-based ConocoPhillips agreed to fund most of a $100 million program for a half share of two Browse Basin permits held by Karoon Gas. Two months earlier, French giant Total bought a 24 per cent stake in the Ichthys project, slated to come onstream in 2012 - two years before Woodside Petroleum's nearby $10 billion Browse LNG project.