The coronavirus pandemic has already taken way too many hostages in the world of oil and gas – countless are the projects put on hold indeterminately or delayed into 2021/2022 in the hope that things will get better by that point. The Dorado field, Australia’s largest oil discovery in the last 25 years, is an illustrative case of where the current market sentiment stands. This would be all the more pertinent to Australia as boosting production of light crudes might finally bring its crude imports to a halt, considering that the heavy sweet grades it so eagerly exports to Singapore and to Chinese refiners rarely make their way to the domestic refineries. Dorado and all the assumed oil bounties in the Roebuck Basin could change all that, once the current period of tentativeness passes.
Australia’s crude production has fallen quite spectacularly in the 21st century – after reaching its all-time peak of 806kbpd at the turn of millennia in 2000, its output was declining steadily up until 2019. The root cause of such a decrease lay in the depletion of heritage oil and gas fields in the Bass Strait – the strait separating the Australian mainland from Tasmania. It was there where Australia’s first offshore well was spudded in 1965 and subsequently where its first discovery was made (the Barracouta gas field from the same wildcat) – the Bass Strait has provided Australia with more than 4 billion barrels of oil and more than 8 trillion cubic feet of gas over the 50+ years of its exploitation. Replacing mature depleted fields in Australia’s southern waters has been a paramount task of its energy authorities and seemingly its northern offshore waters wield oil-rich spots, too.
Graph 1. Australia’s Crude Production in 1965-2020 (‘000 barrels per day).
Source: BP Statistical Survey 2020.
The gradual reorientation of oil production from Australia’s south to its north has been already underway, explaining why the 2019 average crude production contradicted the general declining trend (at 490kbpd). Heavy low-sulfur, such as Vincent, Pyrenees or Van Gogh, underwent all adjustments required to be fully prepared for the implementation of IMO 2020 and relevant producers were extremely well rewarded for such clairvoyance (e.g. the Vincent field was suspended in May 2018 for more than a years’ set of expansion works) with surging differential during most of this year. All the COVID-induced travails of the Asian crude oil market have nevertheless compelled Australian oil producers to cut down output rates, with Australian authorities expecting an average rate of 371kbpd in the current 2020/2021 fiscal year.
Hopes for an eventual rebound from the pandemic’s fallout notwithstanding, Australia’s downstream segment will be weaker off next year than it was previously as BP will be moving to wind down refining at its 145kbpd Kwinana Refinery in Western Australia. Although Australia’s other refineries will inevitably supplant some of the missing volumes by means of increased output, Kwinana’s expected closure in April 2021 will render Australia more dependent on product imports in the short-to-mid-term perspective. The most recent report issued by Australia’s Office of the Chief Economist assumes that oil products will surge to 844kbpd in the 2021/2022 fiscal year, marking a tangible increase from the 640kbpd average of the 2019/2020 fiscal year. It is against this background that the final investment decision on the much-anticipated Dorado field is delayed into 2021.
Dorado was discovered in July 2018 when the Dorado-1 wildcat was spudded to a total depth of 4044m and found a net oil pay of almost 80 meters. The following appraisal wells, Dorado-2 and Dorado-3, confirmed the presence of high-quality reservoirs and the prospective asset’s extension from the Caley Formation into Baxter and Milne sandstones. Dorado crude would be very light, approximately 50 degrees API density, coming from a formation whose oil saturation is around 82-83%. Considering how clean Dorado’s sands are, its recovery factor also promises to be quite formidable and should be hovering somewhere around 60-70%. Whilst the current resource estimate stands at 0.5 BBbls, there is further upside potential should the stakeholders decide to appraise even more thoroughly the reservoirs below the Caley formation.
Initially, the Dorado FID was expected for 2020, then postponed into 2021, only to be further pushed back to the first half of 2022 by the field’s operator Santos. This means that first production from Phase 1 will be around 2025 and peak production of 100kbpd will be moved further down the line. Concurrently, the quest to tender an FPSO (either for rent or for a full-blown acquisition) has been ongoing with several parties remaining in the game. Considering the capital intensity of Dorado – some $2 billion in total – the field’s stakeholders have decided to cut down capital expenses now and to bounce back once conditions improve. Should this strategy work, Santos and Carnarvon have the option to launch Phase 2 of Dorado, which would already include gas production.
The Roebuck Basin which heretofore comprises 4 discoveries (three of them were made in the past 5 years) remains underdeveloped. For a long time, exploration drilling was put on the back burner as the first-ever well to be spudded in Roebuck, Phoenix-1 in 1980, was found to be sub-commercial. However, sub-crop traps where the relevant reservoirs are found in a three-way truncation akin to that of the Dorado field present a genuine opportunity for Australian oilmen. Dorado has also changed the previous perception of the Roebuck Basin as a predominantly gas-bearing region, making many realize that Dorado bears a resemblance to Australia’s legacy Gippsland fields. Thus, any further exploration wells in the Roebuck Basin in general and along the Dorado-Apus canyon system might lead to another Dorado-like discovery, further boosting the allure of Australia’s northern shelf.
By Viktor Katona for Oilprice.com
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