Chapter 2: History of petroleum exploration and development - PIRSA

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Petroleum geology of South Australia. Vol. 4: Cooper Basin.Signatories to the South Australian Unitisation Agreement on 21December 1976. (Courtesy of the Advertiser; photo 42746)Petroleum, Reef Oil, Santos, Total Exploration Australiaand Vamgas—formalised their dealings as the Cooper BasinProducers Unit (the Producers) in 1975. In this theGovernment and the Producers agreed to a complexprocedure for producing and supplying (but not marketing)gas more efficiently. Delhi and Santos continued their jointoperatorship, the former for exploration and the latter fordevelopment.The complicated Unitisation Agreement pooled (orunitised) the respective interests in the oil and gas reserves,with the development costs for the production, processingand delivery of the oil and gas to the Adelaide and Sydneymarkets being shared on the basis of each companies’ netreserve ownership. Henceforth, as a group, the Producerscould negotiate with PASA while maintaining theirindividual commercial independence and identity. Theagreement also redressed the duplication of facilities: it wasfar more efficient to build one central processing unit whichprovided gas at a cheaper cost for the Producers and to thecustomers. Taking about five years to complete, theunitisation process was reputed to be the first suchlarge-scale agreement concluded in the world: more than120 principal documents were signed (PESA Journal, 1990).The legislative framework to facilitate the newarrangement, the Cooper Basin (Ratification) Act andIndenture, was passed by Parliament in November 1975 butthe actual agreements were not signed until 21 December1976, three days after the gas supply to AGL began. The Actprovided Trade Practices Act 1974 (Cwlth) exemption for anumber of agreements including the Producers UnitisationAgreement, an Interim Gas Sales Agreement (a new gassales contract with PASA expiring in 1987) and the FutureSales Requirement Agreement (another conditionalagreement for gas reserves to be supplied to South Australiabetween 1988 and 2006). In addition, the State Governmentagreed that AGL’s entitlement to Schedule B quantitieswould take precedence to PASA’s contract, whilepetrochemical fuel and feedstock would have precedenceahead of AGL’s Schedule A and future contractualquantities for PASA. Supply to PASA after 1987 was madesubject to the proving of reserves in addition to thosesufficient to fulfil Schedule A. As well, the Act providedrights to buried pipelines in the Cooper Basin without theneed for licences, a special form of PPL with sub-licences infavour of all Producers, royalty limitation provisions, a grantof freehold land at Moomba and certain exemptions fromstamp duty and other imposts.As part of the indenture under the Act, the Producerssecured an agreement from the Government to maintain theStrzelecki Track from Lyndhurst to Moomba at no cost tothe Producers. This followed the 1974 and 1975 floodswhich had highlighted problems with the condition of thetrack. Flooding in December 1975 had again isolatedMoomba and closed its airstrip. At the same time, a gasblow-out threatened Big Lake 9: this was averted with thehelp of Royal Australian Air Force helicopters which flew inbarytes from Leigh Creek (Donovan and Donovan, 1996).South Australian Oil and Gas CorporationCommercialisation dominated activities relating to theCooper Basin in the 1970s, particularly as exploration andproduction were so severely affected by political factors, butwith the arrangements in place there was a reluctance bysome Producers to explore beyond the licence requirements.This was understandable at times: oil and gas explorationand development has always been an expensive business andthe cost of drilling in the Cooper Basin was about $300 000per well and rising in the mid 1970s (South AustralianGovernment, 1976). Although companies had investedcapital, time and effort to develop the oil and gas potential, attimes their degree of commitment was questioned as theState faced the prospect of its gas supplying AGL until 2006while contracts only provided supply to South Australia to1987. The time horizon that the Producers and the StateGovernment had differed because from a commercialviewpoint the companies did not want to put money intoexploration when they could not expect a return until after1987.The Government’s focus was on ensuring supplies of gasfor South Australia beyond 1987. As a result of theProducers’ intransigence, the Government arranged anindependent exploration program through the SouthAustralian Petroleum Exploration Group (SAPEG) whichwas formed in the Mines Department in 1976 and funded bya levy on gas consumers (Devine [1977]; Young, 1986). TheProducers maintained some limited exploration work butSAPEG funded the exploration and drilling of wells underthe sole risk provisions of the various joint operatingagreements. As operator Delhi carried out the drilling,testing and seismic surveys under SAPEG’s instructions: itsFlooding in the Cooper Basin, 1976. (Photo T011895)28
Petroleum geology of South Australia. Vol. 4: Cooper Basin.first well, Munkarie 1 discovered what ultimately turned outto be 2832 x 10 6 m 3 (100 bcf) of gas. SAPEG then tried newconcepts in drilling Coochilara and Kirby. The latter was adeep well into tight reservoirs hoping to find permeablestreaks. Both were plugged and abandoned, Kirby 1 aftersub-commercial gas flows.SAPEG’s future was uncertain: it was initially expectedto operate for one year when the concept would be reviewed.Yet again, changing circumstances opened a window ofopportunity. The Federal Liberal Government under M.Fraser had determined to sell its holding in the Cooper Basinwhich the PMA had acquired from Delhi under Connor’s‘buy back the farm’ policy. The State Minister of Mines andEnergy (1975–79), H.R. Hudson, indicated to the FederalMinister of National Resources that he would prefer to seethe PMA’s interest sold to South Australia. On a trip to theUnited Kingdom and Europe in 1976 Hudson hadinvestigated government instrumentalities, particularly theirenergy policies. Based on his observations overseas,Hudson initiated the idea of creating a company to acquirethe holding, which was possible because its location withinPELs 5 and 6 required the Minister’s assent to any transfer.A limited liability company, the South Australian Oil andGas Corporation (SAOG), was incorporated in September1977 after SAPEG was hived off from the re-namedDepartment of Mines and Energy.SAPEG’s arrangements with the Producers for exploringin PELs 5 and 6 were transferred to SAOG which then joinedthe Producers Unit. The State Government was now asignificant shareholder in the hydrocarbon reserves of theCooper Basin. SAOG was a government instrumentality setup to look after the interests of the people of South Australia,yet it was expected to operate as a commercial entity. Therewas a view that the entity would only last a few years,probably until a decision about future reserves had beenmade. Few anticipated that the company would grow into anindependent explorer/producer in its own right and theGovernment was ambivalent about the matter. SAOGeventually outgrew its function as an arm of governmentcontrolling development in the Cooper Basin and itgradually adopted a more commercial orientation. But therewas little immediate monetary gain for the Governmentbecause SAOG sought to establish its credibility as anexplorer, and as a member of the Producers Unit, byre-investing in exploration and its own future growth.Successive State Governments accepted this, although from1980 steps towards privatising SAOG were taken.COOPER BASIN LIQUIDS PROJECTIn the 1980s two milestones occurred in SouthAustralia’s petroleum resources sector. The first was thedemise of Delhi on the local scene. In January 1979 Santosacquired the sole responsibility for the development andproduction of the Cooper Basin gas and condensate fields.Meanwhile, Delhi became the exploration operator in PELs5 and 6 and held the development and production role for theEromanga oil fields. During 1981 CSR purchased Delhi’sAustralian petroleum interests which, in turn, were acquiredby Esso Exploration and Production Australia Inc. The newowner attempted to maintain operatorship of the explorationoperations but Santos and its subsidiary companies Vamgasand Alliance Oil (with the help of SAOG) voted againstFractionation plant at night, Port Bonython, July 1984.43378)(PhotoEsso. Santos became the operator for all exploration anddevelopment in PELs 5 and 6. The Delhi office in Adelaideclosed in January 1988. The second notable event followedfrom the Cooper Basin being proved to contain Australia’slargest known onshore oil reserves. This ultimatelyfacilitated the $1.5 billion Cooper Basin Liquids Projectwhich saw an expansion of facilities in the region.The oil discoveries made during the late 1970s, togetherwith the large amounts of condensate which could beextracted from the supply of dry gas to Sydney andAdelaide, made a project to develop and market CooperBasin gas liquids and oil feasible. This took the place of thepreviously proposed petrochemical plant. In early 1980Santos (on behalf of the Producers) announced the decisionto proceed with a liquids project. In 1981 the StateGovernment passed the Stony Point (Liquids Project)Ratification Act to assist the project, involving the grantingof a special pipeline licence for the 659 km Moomba – PortBonython liquids pipeline and exemption from varioustaxes. The first stage of the project, the construction of afractionation plant to split the petroleum into ethane,propane, butane, naphtha (condensate) and crude oil atStony Point on Spencer Gulf (now Port Bonython), began in1981. In February 1983 the first shipment of condensatereceived through the Moomba – Port Bonython pipeline wasshipped to the Geelong oil refinery in Victoria; in March1983 the first shipment of Cooper Basin crude oil was sentfrom Port Bonython; and in June 1984 LPG productionbegan, with the first loading for export to Japan coinciding29
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Chapter 2: History of petroleum exploration and development - PIRSA

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