Exxon in Aussie Coal-Seam-Gas Pact


ExxonMobil Corporation (XOM) through its affiliate − Esso Ventures Pty Ltd. − has inked an agreement with Ignite Energy Resources Ltd. for coal-seam-gas exploration in Victoria, Australia. The financial aspects of the transaction were not disclosed.

Per the deal, ExxonMobil will purchase an initial 10% stake in Ignite's exploration license, EL 4416, in the Gippsland Basin of southeast Victoria. The parties are entitled to explore as well as develop methane gas reserves naturally available on the surface of the Gippsland Basin. The license − spanning approximately 3,800 square kilometers − is estimated to hold approximately 16 billion metric tons of brown coal.

Ignite will act as the operator in the initial phase of the venture, under which the group will work together over the next 12–18 months. They will assess the natural gas potential in the deeper coal seams of the license and its commercial viability.

Coal-seam-gas is largely methane gas trapped in the molecular structure of coal seams as against conventional natural gas, which is stored in the gaps between rock formations. As a result, coal seams are able to contain several times more gas than found in traditional gas reservoirs.

Although the ExxonMobil-Ignite patch up in Gippsland is small relative to other big investments in other parts of Australia, its proximity to the existing midstream infrastructure such as pipelines and gas processing facilities, is an added advantage. Again, ExxonMobil’s expertise from over 50 years of conventional oil and gas drilling in the Bass Strait will likely help it to formulate geological data for the region’s potential for coal-seam-gas output. The Bass Strait is a stretch of water between Victoria and the island state of Tasmania. Around two-thirds of the Gippsland Basin is located in the shallow waters of the Bass Strait, with the balance extending onshore in southeast Victoria.

Many major energy companies have expended dollars on coal-seam-gas deals in Australia. Queensland, the country’s northeastern state was approached by companies like Royal Dutch Shell Plc (RDS.A), ConocoPhillips (COP) and BG Group PLC back in 2008 with offers of more than A$20 billion (U.S.$19.5 billion). These offers were backed by Australia's secure political structure, transparent regulatory system as well as its nearness to fast-growing energy markets in Asia that make it more attractive to investors.

Importantly, exploration in the Gippsland Basin will involve nominal or no fracking and hence might draw less disagreement in Victoria compared with anywhere else in the country. This is mainly because of the dearth of resource wealth that Victoria faces – unlike the resource-affluent Western Australia and Queensland – and few new conventional-gas finds in the state’s traditional Bass Strait supply hub.

The U.S. energy behemoth, ExxonMobil, is one of the leading energy investors in Australia. It owns a refinery in Victoria and many large conventional oil and gas fields. ExxonMobil enjoys a 25% share in the country's largest gas supply − the $43 billion Gorgon gas project.

We maintain our Neutral recommendation on ExxonMobil for the long term. The company holds a Zacks #3 Rank, which is equivalent to a Hold rating for a period of one to three months.

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