Weekly Offshore Rig Review: Australia Watches the Gas Grow

This week Australian utilization of jackups, semis, and drillships is at 12 of 12 rigs. Demand in the region has been strong since late 2005, when it moved above 90% with 9 of 10 rigs contracted. Over the last year, utilization has been consistently close to 100%, which has drawn two more rigs into the region since late 2005. Looking forward, several more rigs are set to move into the waters offshore Australia so that there will be a net increase of 3 rigs (25%) by the end of this year.

The demand for jackups, semis, and drillships in Australia has served to drive up day rates in the region. Clearly, offshore rig demand has been strong in almost every region over the last two to three years, and day rates have risen markedly around the world. So, Australia is not the only world region where day rates have been on the rise.

However, the rise in Australian day rates has outstripped the worldwide average. In April 2006, Australian rig day rates averaged $130,681 versus the worldwide average of $114,039, a margin of $16,652 or 15%. For the month of April 2007, Australian rig rates have risen to $203,443 versus the current world average of $154,599, a difference of $48,844 or 32%. So, while Australian day rates have been higher than the worldwide average, they are now higher by a larger margin than in the past.

From a different perspective, Australian day rates climbed 56% ($72,762) while worldwide rates rose by 36% ($40,560). Clearly, the ongoing development of Australia's offshore oil and gas resources is demanding a great deal of exploratory and development work from the rig fleet, a trend that is set to increase throughout the coming year, and well into the future.

Offshore Exploration Boom
Earlier this month Ian Macfarlane, the Australian Minister for Industry, Tourism, and Resources, announced 12 new offshore petroleum exploration permits for exploration areas off Western Australia, Tasmania, and the Territory of Ashmore and Cartier Islands. A record 52 bids were submitted for 20 of the 22 areas on offer. More than $1 billion is expected to be invested in gas exploration over the next six years.

And just this week Macfarlane announced the release of 34 new offshore petroleum exploration areas located across six basins off the Northern Territory, Western Australia, Territory of Ashmore and Cartier Islands and Victoria coastlines. The release also includes six Designated Frontier Areas that are eligible for the frontier exploration tax incentive of 150% uplift for exploration expenditure.

Macfarlane said the take-up rate of acreage released each year has risen from about 50% in 2002 and 2003 to 90% in 2005, plus explorers have borrowed pre-competitive data from Geoscience Australia three times as much in 2006 as they did in 2004.

Never Enough
As Australia’s gas exploration and production has grown, so too have its exports. Australia's export capacity is growing to meet strong future demand from Asia and North America. LNG is seen as a clean energy fuel, which is driving its demand.

Gas from upcoming projects is expected to increase the country’s production to over 60 million tonnes per year. Coupled with construction on the North West Shelf’s fifth train as well as expansion of the Darwin LNG facility, Australia is posed to be one of the world’s top three exporters of LNG within the next 10 yrs.

Chevron Corp. sees the bright future of Australia’s LNG market. Earlier this week the company along with partners Shell and ExxonMobil reaffirmed its commitment to the Gorgon LNG project.

However, Chevron has not made a final decision. It is costly to work off Australia, which is why the Australian Petroleum Production and Exploration Association (APPEA) is calling on the government to provide even bigger tax incentives to encourage the discovery of new projects.

One of AAPEA’s key proposals is for tax changes in the form of a five-year capital depreciation period to get more large gas projects off the ground.

The association says new exploration is urgently needed because of declining production. Australia has several unexplored sedimentary basins with a great deal of potential for exploration.

In conclusion, with rig utilization at 100%, day rates climbing to all time highs, gas exploration on the rise, and low sovereign risk, Australia is quite attractive for global petroleum explorers.

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