Beach Petroleum Bullish on Shale Gas, Egypt

SYDNEY (Dow Jones), Nov. 26, 2009

Beach Petroleum Ltd. on Thursday made bullish comments on the potential of its untapped shale gas resource in central Australia and a maiden oil discovery in Egypt, sending shares in the company up 4.6%.

Most of Adelaide-based Beach's acreage is in Australia's Cooper Basin, which, although long plundered for its oil resource, contains unconventional forms of gas like shale gas, tight gas and coal seam gas.

These are forms of gas trapped in rock formations that make the gas harder to extract than natural gas bound in conventional reservoir rock.

Shale gas, however, is known as the most predominant form of Cooper Basin unconventional gas, and other Australian companies like Santos Ltd. (STO.AU) have been talking up its potential. Santos, however, said current gas prices are too low to make Cooper Basin shale gas commercially viable and that Santos considers it to be a long-dated development option.

Beach Chairman Bob Kennedy told shareholders Thursday at the group's annual general meeting that "the Cooper Basin shale gas story is emerging as one of the most exciting and innovative energy opportunities of the decade".

Beach even went as far as to compare the resource to Queensland state's coal seam gas endowment, which has attracted a A$20 billion-plus investment boom in the past year.

"In Australia, the recent corporate activity surrounding coal seam gas is similar to the transactions being conducted in the U.S. shale gas sector," Beach said in a statement.

"In 2008, $US35 billion was spent on corporate deals aimed at shoring up unconventional gas resource acreage."

Beach's shares added four Australian cents on Thursday to close at 90.5 cents after rising as high as 93 cents.

Santos Chief Executive David Knox in June told a conference in Darwin that Australian shale gas is currently too expensive to produce economically.

"Right now at A$3.50 to A$4.00 (per gigajoule) you can't do shale gas, it's too expensive," Knox said at the time.

"At A$5.00 to A$6.00 yes, it's clearly into play."

Santos last month said it got an average price of A$4.03 a gigajoule for its gas in the three months to Sept. 30.

Knox also said, in June: "Now what we need is encouragement on gas prices and I think that shale gas in the Cooper is likely to be the next big thing in the Cooper area, and very, very big indeed."

So far in November, Beach's shares have jumped about 20%. The rally's been assisted by it signing an agreement with U.S.-based synthetic fuels company Rentech to explore the feasibility of it utilizing Beach's Cooper Basin gas to make liquid fuels.

And earlier this week, Beach said it could start producing oil in Egypt in the first half of 2010 after it experienced promising flow rates from a well in a 20%-owned block in the Gulf of Suez.

The well, operated by BP PLC, which also has a 20% stake in the surrounding block, is likely to produce 1,500-2,000 barrels of oil per day, Beach said.

"We are confident that we can keep finding another one or two million barrels each year in the Cooper Basin: Egypt is where we hope to find 10 or 20 million barrels at a time," Kennedy told Beach shareholders Thursday.

Also on Thursday, Beach set itself the ambitious target of at least doubling last year's annual production of 9.6 million barrel of oil equivalent in the "next two to five years".

Beach loosened its 2009 financial year production forecast to between 8 million-10 million BOE from its most previous guidance of "about 9 million BOE".

The company plans to pay a partially franked dividend annually for the foreseeable future, Kennedy said.  

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