Tuesday 2nd June
Top industry talent at APPEA 2009

One of the major attractions of the APPEA Conference is the breadth and high quality of the papers presented in its concurrent sessions.

At the Darwin conference, even by APPEA standards, the 1,600 delegates have been presented with some hard decisions to make about time allocation.
Among the wealth of offerings in 2009:

  • Jenny Bauer, Origin Energy, presenting the annual PESA industry review, in which she highlighted the "coming of age" of the coal seam gas sector, reported for the first time in the review. While there was a substantial fall in conventional onshore exploration along with a modest increase in offshore activity, she noted, the CSG sector continued its rapid growth. Reserve additions of almost 9,000 PJ were made in eastern Australia in the sector, primarily in the Surat and Bowen basins.
  • Wal Muir, MBA Saros, presenting the PESA production and development highlights, noted that, in addition to the major fillip provided by CSG output in Queensland, with the Surat/Bowen passing the Cooper Basin as a producing area, the pipeline of committed and planned LNG developments in the north-west continued to grow. It appeared that there may be a softening in project costs, he commented, although the trends were still not clear at the end of 2008.
  • Adrian Slayter, Senergy, in the Smart drilling, smart fields session talked of the "revolution reshaping the industry" and the likelihood that intelligent field completions will become standard practice in years to come. However, he noted, the upstream petroleum industry drills 80,000 wells a year around the world at present - and only 600, or o.1 percent of the well stock, have been constructed with intelligent technology over the past 10 years.
  • Andrew Antony, Santos, speaking in the Health, safety and operations session, described how his company has introduced a new management discipline called process safety over the past five years. This has been achieved through formalizing existing practices, particularly around reliability and maintenance strategy, as well as benchmarking against industry leaders to introduce such aspects as process safety awareness, design and operating philosophies.
  • Jon Stanford, Deloitte Economics, told the Greenhouse and carbon capture and storage session that the current policy responses to the climate change issue would bring about a revolution in how electricity is generated in Australia. Even the "modest" target of a five percent cut in emissions below 2000 levels by 2020 represented a "formidable task," he said. In terms of a cut in power generation emissions from business-as-usual projections, it represented a cut of well over 30 percent. Natural gas and CSG, he said, was widely regarded as being well placed to provide power station fuel between now and 2030, but the industry would need to address important questions regarding the future wholesale cost, emissions and availability.
  • John Torkington, Chevron Australia, told the Greenhouse session that two major barriers remain to commercial scale deployment of carbon storage: existing capture technologies are very expensive and the general community remains to be convinced that underground storage is permanent. It is likely, he added, that the natural gas industry would continue to be world leaders in commercial scale deployment of greenhouse gas storage. Over time, e forecast, the sector would be able to build community confidence in the technology.
  • Sue Slater, RLMS, painted a glowing picture of coal seam gas potential to a session devoted to the sector. Should all of the proposed LNG projects based on CSG be developed, she said, output would be approximately 40 million tones a year. This would require raw CSG production to increase to approximately 2,600 PJ a year, quadrupling present gas consumption in eastern Australia. The proved and probable CSG reserves in eastern Australia at the end of 2008, she added, were 17,011 PJ, with the Bowen and Surat basins holding 16,120 PJ. While 2P reserves for New South Wales at te year end were only 892 PJ, this was expected to increase substantially over 2009. She predicted that the 2P reserves of CSG in eastern Australia would pass the 20,000 PJ mark during 2009 and noted that companies with interests in the Bowen, Clarence-Morton, Galilee, Gloucester, Gunnedah, Queensland Coastal, Surat and Sydney basins claimed more than 200,000 PJ was in place.
  • Kevin Smout, KPMG, said the global credit crisis had placed companies reliant on debt and equity funding and those operating in new or start-up ventures under increased pressure and scrutiny, but well-positioned petroleum businesses were in a position to take advantage of a range of opportunities, particularly in alternate energy sectors. A future focus for the oil and gas industry, he added, would need to be strongly on disciplined and robust financial-risk management systems to maintain companies' liquidity and financial risks in the new environment.
  • Bill Grierson, Specialised Broking Associates, warned the Legal and commercial session that the international insurance market was "sitting up and taking notice" about risks in the Australian petroleum sector. In addition to normal attritional losses expected by insurers, he said, recent high profile claims, such as the Varanus Island fire, likely to be one of the largest energy losses for 2008, had caught the attention of underwriters. "There is now a serious rethinking of the energy insurance sector's positions" with respect to its Australian business, he said. "An issue for the Australian energy sector is that the same global underwriters who take on the petroleum business are also key players in the mining arena, and the markets are therefore closely linked." Fifty-six percent of international mining and resource sector claims in the first half of 2008 had occurred in Australia.
 
Seven significant challenges

Conference delegates heard of seven significant challenges identified by the international upstream petroleum industry when Mr Michiel Soeting, Global Chairman, Energy and Natural Resources, KPMG outlined the key challenges of the business environment.

The top four issues for global industry executives, said Mr Soeting, were commodity pricing (identified by 63 percent of those polled b the international management consulting company), cost reductions (51 percent), access to capital (48 percent) and regulatory concerns (44 percent).

Also high on the executives' minds, said Mr Soeting, were management of risks (25 percent), exploration issues (14 percent) and the ability to hire qualified staff (13 percent).
Mr Soeting told delegates that 60 percent of the oil and gas companies around the world were now engaged in cost reduction acivities, but energy companies were achieving only 50 percent of the cost savings they had opted to pursue.

"Why do cost savings projects fail?" he asked - listing four key reasons: lack of a sense of urgency, lack of transparency of information, management procedures that meant responsibility for achieving savings were unclear and too narrow, plus a reliance on cost avoidance rather than cost efficiency.

He added that 57 percent of the companies interviewed were aiming to achieve cost savings of at least six to 10 percent.

Mr Soeting advised delegates that, from KPMG's perspective, there were four key ways of successfully addressing the costs challenge:

  • Take a leadership role in cost optimization
  • Get greater transparency of the company cost base
  • Build an organizational culture that took costs seriously
  • Embed cost optimization in to day-to-day business activities.

 
 
Massive benefits from early development

"The lotus-easting years for the global gas industry are now beginning," Mr Jon Stanford, a Deloitte Economics partner, told the APPEA Conference concurrent session on greenhouse and carbon capture and storage.

The possibility existed that the Copenhagen COP conference in December could agree on a target for global abatement that would require Australia to achieve a "massive change" in emissions by 2020 from "business as usual."

Here and overseas, he said, this prospect was "highly promising" for the gas sector but successful pursuit of the market benefits required an understanding that the window of opportunity might stretch only from now until about 2030 because natural gas was also a relatively high-emitting fue.

Mr Stanford said that there was a significant need in Australia for greater co-operation between government, upstream petroleum sector developers and other stakeholders to ensure that full advantage was taken of the need to monetize the substantial gas resources as soon as possible.

It was very hard to get greenfields LNG developments to development in Australia because of the relatively high capex costs. The added burden of emissions trading costs would not help. Getting greement within joint ventures to ush developments ahead also seemed to be a problem and he suggested government needed to be more pro-active in facilitating projects.