Oil and gas stocks on the ASX The Ultimate Guide

This may come as a bit of a surprise since Australian government bodies have been warning of a critical gas supply shortage, particularly due to the declining reserves in Victorias Bass Strait after more than 40 years of operation.

Today, oil and gas have a multitude of uses, from the basic necessities of every day modern life such as cooking appliances, heating and fuel for cars, to running businesses, transportation, manufacturing and other industrial purposes.

However, there appears to be no shortage of LNG the issue is with keeping it on Australian shores.

In April, theNorthern Territorys fracking moratorium was liftedunder the condition that all 135 recommendations of a recent scientific inquiry would be implemented in full.

This projection is backed by data from the Department of Industry, Innovation and Science forecasting LNG export earnings will reach A$35 billion between 2018 and 2019 as a result of increases in export levels, particularly due to rising demand from India.

So, in June last year, the federal government implemented the Australian Domestic Gas Security Mechanism to limit LNG exports.

It forecast renewable energy sources as largely displacing coal and making up about 40% of all energy generation in the world.

Lattice is a conventional upstream oil and gas business with operating interests in offshore projects in Victoria, Tasmania and New Zealand, as well as non-operating holdings in the onshore Cooper Basin in central Australia.

Santos is a pioneer company, having made many first discoveries including the first natural gas find in the Cooper Basin in 1963 and first oil in 1970. It also made the first discovery in the Carnarvon Basin in 1984.

There tends to be a lot of overlap with oil and gas, in terms of the different types and where the resources are found, so well start off with a little science lesson explaining what is what.

In addition to gold and base metal interests in Australia, ADX Energy wholly-owns and operates three oil and gas blocks located offshore between Tunisia and Italy. It also has a 50% stake in the Parta oil and gas exploration block, onshore Romania.

The company also owns a pipeline company that is proposing to construct and operate a 62.5km gas pipeline to link gas supply to its Bear Head terminal in Canada.

The government plans to sell about 5% of the company, hoping to raise US$100 billion in what is likely to be the worlds largest ever IPO valuing the company at US$2 trillion. However, Saudi Arabias energy minister has now hinted in a Bloomberg interview that theIPO would be delayed until 2019.

Saudi Arabia and other OPEC member countries are next due to meet in Vienna this June to discuss a potentially longer extension of supply cuts.

At the end of April, Woodside announced it had locked in a deal with Perdaman Group to supply gas from its Scarborough field to the latters proposed US $3.3 billion Burrup Peninsula coal-to-urea plant in the Pilbara region of WA. Under an inked memorandum of understanding (MoU), Woodside has agreed to supply 125 terajoules (TJ) per day of gas from the early 2020s for up to 25 years.

LNG Limiteds portfolio now includes LNG export terminals in Nova Scotia, Canada and Louisiana, US with a combined aggregate production design capacity of 20Mtpa, with expansion options.

However, the company said it was considering an exploration program for the newly acquired Perth Basin exploration assets, which are highly prospective for oil and gas.

According to the Australian Energy Resources Assessment (AERA) report, a national assessment of the countrys energy resources, Australia holds only about 0.2% of the worlds oil reserves and imports the majority of its crude oil and refined petroleum products.

In addition, Cooper currently has a major development underway at the offshore Sole gas field in the Gippsland Basin. The project comprises a A$355 million subsea development linking to the Orbost gas processing plant onshore Victoria, which will also undergo a A$250 million upgrade before being reopened. At the end of March, the project was 40% complete.

Upcoming activities include the reopening of the Icewine 2 well and subsequent flow testing, expected in April or May, and the return of results from two three-dimensional seismic surveys, recently completed at Icewine and the companys Yukon Gold oil project (also located onshore Alaska).

Listed below are the small cap oil and gas players on the ASX.

In 1908, Henry Fords mass-produced and affordable Model T car was released to the American market and gasoline consumption soared over the twentieth century as car ownership became the standard and not just a luxury item for the wealthy.

Senex was awarded the Project Atlas acreage by the Queensland Government in September last year. This project involves the delivery of CSG to be sold to the domestic market, with first gas targeted for 2019.

Tasmania also has a moratorium in place on fracking until March 2020, although shale oil and gas exploration is still permitted. Fracking is so far permitted in other states, so long as it adheres to strict rules to minimise environmental impact.

In addition, Beach has an active exploration drilling program running across its Cooper Basin projects and is progressing a stage two development plan for its Waitsia gas project in WA with joint venture partner AWE Limited, which has recently been compulsorily acquired by Japanese conglomerate Mitsui.

The company also operates the Pluto LNG project, where a recently approved truck loading facility is expected to start up in the second half of 2018. This facility will extend existing infrastructure from the onshore WA processing facility to provide LNG for local distribution.

Cooper is developing this project with the aim of supplying 24PJ of gas per year to utility and industrial gas customers from 2019. According to the company, a further 63PJ remains available for further contracts.

Most of the countrys known remaining oil resources are condensate and LPG associated with giant offshore gas fields in the Browse, Carnarvon and Bonaparte basins, although resources have also been found in the Perth, Canning, Amadeus, Cooper/Eromanga, Bowen/Surat, Otway, Bass and Gippsland basins.

Most conventional gas resources can be found off the north-west margin in the Bonaparte, Browse and Carnarvon basins off Western Australia and the Northern Territory, although it has also been found in 11 other basins, both on and offshore.

Crude oil can also be classified as sweet or sour depending on its sulphur content, with sweet oil containing lower levels of sulphur and being a higher quality and more valuable product.

Listed below are the major oil and gas stocks on the ASX.

The second LNG train at the Wheatstone project is expecting to start producing LNG during the current June quarter. Once both trains and the domestic gas facility are fully operational, Wheatstone will contribute more than 13MMboe of annual production.

So, while there has been a recent social and environmental push away from fossil fuels and towards renewable energy sources, with the recent lithium battery boom being one example, oil and gas will continue to have a large grip on the energy demand of the future.

In early April, 88 Energy announced it was gearing up for a pivotal year, despite the tragic news that Burgundy chief executive officer Paul Basinski had passed away.

Founded almost 90 years ago, Oil Search is one of Papua New Guineas largest companies and operates all of the nations producing oilfields.

When thinking about oil, one image that springs to mind is a lowly Texan hillbilly poking a hole in the ground and being sprayed with that tarry black gold, instantly striking him rich.

The companys current focus is its wholly-owned Santos Basin project, where the Kangaroo and Bilby light oil discoveries were made in 2013, followed by the Echidna light oil discovery in 2015.

These new rules include having environmental management plans signed off by the environmental minister, new requirements prior to exploration and production, and increased criminal penalties for environmental harm.

The offshore blocks include the Dougga and Lambouka gas discoveries, which contain mean recoverable contingent gas resources of 194 billion cubic feet (Bcf) and 42MMbbls of associated condensate and LPGs, and mean recoverable gas resources of 309 Bcf, respectively.

According to a report byenergy research group Wood Mackenzie, 2018 will see Australia take the top spot from Qatar as the world leader in LNG production.

Conventional gas accumulates in a subsurface reservoir that can be readily produced, and fields can be dry (almost pure methane) or wet (associated with wet gas components such as ethane, butanes and condensate). Conventional gas can also be found with oil in oilfields.

The Barossa development will extend the operating life of Darwin LNG for more than 20 years, as production from the Bayu-Undan fields are expected to cease in the 2020s.

In March last year, Victoria became the first state in Australia to permanently ban onshore unconventional gas exploration and development, including fracking and coal seam gas (CSG). WA is looking to follow suit, having imposed a 12-month moratorium on the extraction method in September.

88 Energy is also preparing for the launch of a planned farm-out of its conventional interests at the Icewine project, with the formal process expected to commence in mid-2018 and the aim to complete the process before planned drilling operations begin in 2019.

Woodside has also commenced studies on a pipeline to link Pluto to the North West Shelf projects Karratha gas plant in northern WA.

Despite this, the commodity has been predicted to overtake coal as the countrys second largest exported resource from an earnings perspective.

Funnily enough, there is a lot more to oil production these days, but for as long as we need petroleum and gas as energy resources, there are still fortunes to be made.

Crude oil can be classified as light, medium or heavy according to its American Petroleum Institute (API) gravity, which measures a petroleum liquids density compared to water.

Brent crude, one of the global benchmarks for the oil price, is currently sitting at around US$70/bbl but is expected to average US$60/bbl in 2018, according to the median estimate of 27analysts surveyed by Bloombergin December.

Origin is responsible for developing the projects CSG fields in the Surat and Bowen basins as well as the main transmission pipeline that transports the gas to an LNG processing facility on Curtis Island near Gladstone, Queensland.

In April, Karoon submitted final discovery evaluation reports and declarations of commerciality relating to the Echidna and Kangaroo light oil accumulations to Brazils oil and gas regulator.

Then theres liquified natural gas (LNG), which is created by cooling natural gas to -160 degrees Celsius to form a clear, colourless liquid that is 600 times smaller than natural gas and therefore easier to store and transport in specially designed tankers.

The Australian Competition & Consumer Commission (ACCC)released a reportin September last year that predicted a supply shortfall in the east coast domestic gas market of up to 55 petajoules (PJ) in 2018.

In Saudi Arabia, officials are wanting oil prices to be closer to US$80/bbl in order tofloat national oil company Saudi Aramcos initial public offeringon an international stock exchange as well as its domestic exchange, the Tadawul.

In March, the company finalised a deal with AIM-listed oil and gas investment company Reabold Resources to invest US$2 million in the Parta appraisal

Sino currently has two central gathering stations (CGS) in production, Sanjiaobei and Linxing West, and plans to commission and ramp-up production at a third CGS (Linxing North) by the third quarter of 2018.  Bringing the third CGS online will increase the total installed nameplate capacity to 42MMcfd.

In an effort to move to a simpler and leaner operating model, Origin closed on the A$1.58 billion sale of its subsidiary Lattice Energy to onshore explorer Beach Energy at the end of January.

According to the Organization of Petroleum Exporting Countries (OPEC), the largest contribution to future energy demand is expected to come from natural gas, with demand projected to rise by nearly 34 million barrels of oil equivalent per day to reach a level of 93MMboed by 2040.

Onshore oil and gas explorer and producer Senex Energy has oil and gas assets in SAs Cooper Basin as well as gas assets in Queenslands Surat Basin.

Natural gas is a combustible mixture of hydrocarbon gases.

Last year, the company carried out a horizontal drilling program on its acreage with two wells commencing production in November.

Unconventional gas occurs in more difficult to extract deposits, such as coal seams or in shales, low quality reservoirs (tight gas) or as gas hydrates. As a result, they tend to be more expensive expeditions requiring specialist technology.

One environmental concern is the huge quantity of water that is required, which must also be transported to the fracking site.

Oil Searchs 2018 work program also includes the drilling of three appraisal wells in Papua New Guinea. The first, Kimu-2 in the Forelands region, is due to spud shortly.

Last month, the company closed on the sale of its wholly-owned subsidiary Gladstone LNG Pty Ltd, which owns the site of the proposed Fishermans Landing LNG project at the Port of Gladstone in Queensland. The company was proposing to develop a 3.5Mtpa LNG plant at the site before scrapping the idea about a year ago.

In late April, Origin announced it would be rebranding to Good Energy with a new, refreshed logo. The company said the new brand campaign would highlight its commitment to making energy smarter, easier, more sustainable and more affordable to customers.

The mining giant also has an extensive petroleum portfolio, with operations including exploration, development and production activities both off and onshore Australia, the US and Gulf of Mexico, Trinidad and Tobago, Algeria and the UK.

Australias largest independent oil and gas company, Woodside holds an extensive portfolio of assets in established, emerging and frontier plays in Australia, the Asia-Pacific region, the Atlantic margins and sub-Sahara Africa. It also operates a fleet of floating production storage and offloading (FPSO) facilities.

The partners are aiming to prove up around 3.6 billion barrels of oil from the liquids-rich HRZ unconventional resource play within the project.

ADX plans to drill and test a well on the Dougga Sud prospect in the second half of 2018 and has already engaged Noble Drilling Services drillship GlobeTrotter II to provide the drilling services.

In addition, oil and gas supermajor Shell is in the process of starting up its Prelude floating LNG project, located off the coast of Broome in WA.

Its 2018 work program also includes the drilling of up to 50 wells across its projects. In April, the company reported that the program was underway with seven rigs mobilised for drilling.

In April, Santos said Harbour had commenced due diligence as part of an engagement process but there was no certainty that the proposal would result in an offer that is accepted by Santos board to present to shareholders.

Oil is made up of a range of liquid hydrocarbons, including conventional crude oil, condensate and liquefied petroleum gas (LPG), and unconventional shale oil.

Queenslands Bowen and Surat basins are the countrys main producers of CSG, but reserves have also been proven in NSW and exploration has been undertaken across WA and SA.

Focused on the North Slope of Alaska, oil explorer 88 Energy operates the large, onshore Icewine project in joint venture with Houston-based Burgundy Xploration.

According to Mineral Resources, further efforts to recommence output from the well during the December quarter were unsuccessful and the company is now considering its options for this operation.

According to ancient records, asphalt (a heavy, sulphur-rich oil) was used in the construction of the walls and towers of Babylon four thousand years ago, and oil wells were drilled using bamboo poles in China over 1600 years ago, with the oil burned to evaporate brine and produce salt.

Formerly named Maverick Drilling & Exploration, Freedom Oil & Gas changed its name in late 2016 as well as its focus, establishing a large position in the liquids-rich region of the Eagle Ford shale in Texas, US.

Medium grade oil (with an API gravity between 22.3 and 31.1 degrees) is consumed in diesel fuel, jet fuel and kerosene, while heavy crude oil (with an API gravity below 22.3 degrees) can go in lower value products like residual fuel oil used to power large ships.

In October, the major east coast producers reached agreement with the government, by way of the Australian East Coast Domestic Gas Supply Commitment, to guarantee sufficient natural gas supply to domestic customers to meet the forecasted supply shortfall in 2018 and 2019.

Nearly half of the worlds total oil reserves are in the Middle East, with Saudi Arabia being one of the globes top three oil producers, alongside Russia and the United States. Venezuela and Canada also hold a large share of oil reserves, with Canadas mostly oil sands.

Over the past decade, the oil price has soared and plummeted amid various economic crises, natural disasters and political movements around the globe.

With Australia surging forward in world energy production, its timely to look at some of the oil and gas stocks poised to benefit on the ASX.

The commodity reached an all-time high of US$145.31/bbl in July 2008, before plunging down to below US$35/bbl during the Global Financial Crisis later that year.

Also in April, Santos announced it had entered the front end engineering and design (FEED) phase for the development of the Barossa field offshore northern Australia to backfill the Darwin LNG project.

The documents submission marks the end of the companys exploratory phase and upon approval, the development and production phase of the project can commence.

In addition, Australia is expected to become the worlds largest CSG producer, accounting for almost half of international production from 2020 onward.

Australian gas major Santos has been operating for more than 60 years with producing assets in SAs Cooper Basin, as well as being partnered up in WAs Carnarvon Basin, the Darwin LNG project in the NT, and the Gladstone CSG-LNG project in Queensland. It is also a foundation partner in the PNG LNG project in Papua New Guinea.

Gas major Cooper Energy was originally focused on Central Australias Cooper Basin but has now expanded its portfolio of assets into the Otway (on and offshore) and offshore Gippsland basins of Victoria.

Material gas production from Western Surat is anticipated this year and Senex already has a 20-year gas sales deal in place with Gladstone LNG for up to 50PJ per day from the project.

Its big developments in Australia are currently the Wheatstone, Scarborough and Browse LNG projects offshore WA.

This gas is generally extracted via hydraulic fracture stimulation or fracking, which has caused a bit of a stir around the world due to environmental concerns. The process involves drilling into the ground before a high-pressure water mixture is injected into the rock to fracture it apart, allowing the gas to be released.

In February, the company also acquired a 25.5% stake in the Pikka Unit and adjacent exploration acreage plus a 37.5% stake in the Horseshoe Block in the North Slope region of Alaska, US. It assumed operatorship in March and recruitment is now underway to build a subsurface, drilling and operational team based in Anchorage, in preparation for a drilling program to start in early 2019.

In Queensland, the company is focused on progressing its Western Surat gas project and Project Atlas.

The companys assets have been estimated to contain 54.1MMboe in total proved and probable reserves and it produces about 7PJ of gas per annum, mainly from its operated Casino Henry gas project in the Otway Basin. It also produces around 300,000bbls of oil per annum from low cost operations in the Cooper Basin.

The company is a leading LNG operator, producing about 7% of the total global LNG supply.

The company is the upstream operator of the A$24.7 billion Australia Pacific LNG project, which started production in late 2015 and now supplies nearly 30% of domestic east coast gas demand, in addition to exporting LNG to Asia.

In addition, the company holds exploration assets in Australia, Papua New Guinea, Bangladesh and Malaysia, as well as oil assets in NSW, WA and Asia, although these are run separately as a standalone business.

In Queensland, commercial production of CSG has grown rapidly in the last two decades, mainly driven by the state governments decision for gas resources to make up at least 13% of all power supplied to the state electricity grid by 2005. The requirement was increased to 15% by 2010 and needs to be at 18% by 2020.

Offshore oil and gas explorer Karoon Gas Australia has working interests in the Browse and Carnarvon basins off WA and in the Ceduna Basin in the Great Australian Bight. It also operates six blocks in Brazils Santos Basin and holds a stake in a block off the coast of Peru.

In 1886, German engineer Karl Benz began the first commercial production of gasoline-fuelled motor vehicles with an internal combustion engine.

The oil price is predominantly driven by three factors: current supply, future supply and of course, demand.

This was the first time that Russia was willing to cooperate with OPEC as the country needs oil to sit at leastabove US$53/bbl for its federal budget to breakeven, according to Russian investment bank Renaissance Capital.

Other factors working to balance the market out and drive the price in an upward trend include escalatingtension in the Middle East threatening security supply, and the growth of middle class populations in undeveloped nations.

South Australia adopted a 10-year fracking moratorium in late 2016, but only in the south-east of the state in a region with a large agricultural and cattle grazing sector.

Queensland currently hosts three major projects involving the conversion of CSG into LNG for exporting: the Gladstone LNG, Australia Pacific LNG and Queensland Curtis LNG projects.

This type of oil often contains high concentrations of sulphur and other metals like nickel and vanadium. Bitumen is an example of an extra heavy and dense oil with an API gravity of less than 10 degrees.

In the 19thcentury, crude oil was refined to make kerosene as the standard fuel for lamps. However, it was the invention of the modern internal combustion engine later in the century that drove oils rise in popularity.

In itsWorld Energy Outlook released in November 2017, the International Energy Agency predicted four major shifts in the global energy system over the next 20 years.

In addition, gas spot prices in some states have more than doubled since 2016, with the ACCC claiming that small businesses and low-income households are being particularly affected.

However, oil and gas would be the first and second most used fuels in the global mix, with natural gas consumption projected to rise 45% by 2040.

The company also has a large exploration and appraisal portfolio and has a 29% stake in the ExxonMobil-operated PNG LNG project.

This has at least satisfied Russia and despite OPECs restrictions, the country boosted its oil production to a 30-year-high of 10.97MMbpd in March, according to Russian Energy Ministry data.

Between 2010 and 2014, it hovered between US$80/bbl and US$110/bbl, although the price dropped again due to low demand, the impact of the controversial fracking revolution, decisions made by OPEC and other world events.

The US$40 billion Inpex-operated Ichthys project, which involves piping gas from offshore WA fields to a Darwin plant, is due to complete commissioning in the next few months.

According to environmentalists, another is the potential for chemicals used in the water mixture to escape and contaminate nearby groundwater. However, the industry has disputed these claims, saying any pollution incidents were the results of bad practice.

Australia-based BHP Billiton is considered the worlds biggest mining company, based on a market capitalisation of A$100.3 billion.

Prelude is the worlds largest floating natural gas facility ever built and is expected to produce 3.6 million tonnes of LNG and 1.3Mt of condensate per year when in operation.

Australian mining major Mineral Resources is primarily focused on iron ore, manganese and lithium.

Unconventional gas developer Sino Gas & Energy Holdings holds a portfolio of assets in the Ordos Basin in north Chinas Shanxi province.

In March 2018, LNG Limited reported it had extended the financial close of a binding LNG offtake agreement relating to its Magnolia terminal in Louisiana. The original deal, inked in mid-2015 with Meridian LNG Holdings Corporation, included firm capacity rights at Magnolia for up to 2Mtpa for an initial 20-year term with an option to extend by a further five years.

However, some other OPEC countries have much higher breakeven prices for their budgets and hence strongly pushed for the output cuts to stay in place.

In February, Freedom kicked off a drilling program comprising a further four wells in the acreage. Following this, the company is planning a more continuous field development program.

Australia is more reliant on gas, with it being the countrys third largest energy resource after coal and uranium.

Although, in December last year it acquired the Red Gully gas processing facility and petroleum exploration tenure from Empire Oil & Gas (ASX: EGO) after the latter company went into voluntary administration in September.

Perth-based LNG developer Liquefied Natural Gas is involved in bringing mid-scale projects to the international energy market.

In late November 2017, OPEC and non-OPEC countries led by Russia reached the decision to extend production cuts until the end of 2018 in order to nudge the price back up and rebalance the market.

One of Australias leading energy retailers, Origin Energy also holds interests in gas exploration and production projects in Queenslands Bowen and Surat basins, WAs Browse Basin and NTs Beetaloo Basin.

Adelaide-based Beach Energy is Australias largest onshore oil producer with a core focus on exploring and developing its 69,000sq km-plus acreage in the Cooper Basin.

Vertical and horizontal drill pathways of conventional versus unconventional gas extraction. Hydraulic fracking is usually carried out in stages along the horizontal borehole.

The first pilot for Western Surat was delivered in late 2016 with unprocessed gas sold to Gladstone LNG. In 2017, Senex invested A$50 million to a drilling and construction program in the south-eastern portion of the permits which contributed to a 65% boost in proven Surat Basin gas reserves.

In the Cooper Basin, Senex runs low cost oil producing assets in joint ventures, mainly with Santos and Beach Energy.

The North West Shelf Venture in northern WA first began shipping LNG cargoes in 1989. Since then, other LNG developments have started in WA (Pluto, Gorgon and now Wheatstone) and in Darwin, NT.

Its recent acquisition of Lattice Energy from Origin Energy was a transformative transaction for Beach, with the company reporting a 150% boost in production to 6.6MMboe and an 89% rise in sales revenue to A$393 million for the March 2018 quarter.

The company is currently being targeted by US energy player Harbour Energy with the latter proposing a $13.5 billion takeover offer.

In total, the company holds interests in more than 450 exploration and production tenements in Australia and New Zealand, including the offshore Burnside gas discovery in the Browse Basin off WA.

Light crude oil is measured as having an API gravity higher than 31.1 degrees, with oils between 40 and 45 degrees generally holding the highest value. This is the oil grade for LPG and gasoline.

The Red Gully facility only has one producing well, which was shut down last year for a reserve assessment and all attempts at bringing it back into production failed.

In addition, Forbes reported global oil-fuelled car sales were expected to reach 91 million in 2018, versus 73 million in 2010.

The companies also agreed to sell natural gas produced in excess of contract volumes to the domestic market before selling globally and committed to making gas available to electricity generators during peak periods.

In addition, its wholly-owned subsidiary LNG Technology Pty Ltd has designed and patented the optimised single mixed refrigerant (OSMR) process, which combines several existing technologies into one integrated liquefaction system, resulting in a plant operating at a low cost with a more efficient design that generates lower emissions and improved project economics.

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