reg nelson beach energy- resources & energy symposium 2012

Resource and Energy Symposium – 22 May 2012

Beach Energy Limited

Resource and Energy Symposium

Broken Hill

Reg Nelson – Managing Director

22 May 2012


Compliance statements

Disclaimer

• This presentation contains forward looking statements that are subject to risk factors associated with oil, gas, geothermal and related businesses. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a variety of variables and changes in underlying assumptions which could cause actual results or trends to differ materially, including, but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, legislative, fiscal and regulatory developments, economic and financial market conditions in various countries and regions, political risks, project delays or advancements, approvals and cost estimates.

• All references to dollars, cents or $ in this presentation are to Australian currency, unless otherwise stated. References to “Beach” may be references to Beach Energy Limited or its applicable subsidiaries.

• Unless otherwise noted, all references to reserves and resources figures are as at 30 June 2011 and represent Beach’s share.

Competent Persons Statement

• This presentation contains information on Beach’s Reserves and Resources which have been compiled by Mr Neil Gibbins, who is a full time employee of Beach, is qualified in accordance with ASX listing rule 5.11 and has consented to the inclusion of this information in the form and context in which it appears.


Introduction


South Australia & Broken Hill – A strong resources link

• Broken Hill was an early and important part of South Australia’s resources and energy sector

• South Australia is in the midst of a resurgence in exploration activity, driven by:

– The Lead-Zinc initiatives of the late 1980’s

– The ‘Business Plan’/ aeromag flown over SA and financed by the state government

– And further initiatives since, resulting in…..

• Major capital investment programs, such as:

– Olympic Dam

– Prominent Hill

– Cooper Basin conventional and unconventional drilling programs

The unsung heroes of the resources and energy industries are the trailblazing

pioneers

Photo courtesy of DMITRE


A new mining boom with critical energy needs

• SA now at a critical energy point:

– Alinta to shut down Playford brown coal power station

– The distortionary effects of too much wind power

What are the alternatives?

• ‘Greener’ fuels such as wind, solar and geothermal are expensive and not as ‘green’ as many think

• There is an increasing reliance on imports for diesel and jet fuel

……and growing demand for explosives and fertilisers

Dwindling coal supply and demand with ‘greener’ fuel challenges make

GAS the future energy source

Source: Core Energy Group 2011

~ 40% increase to 2025


The benefits of natural gas

• High hydrogen, hence cleaner burning than coal

• Reduced water demand

• Able to provide flexibility to cover base and peak loads

• Potential to underpin the development of a new and scalable petrochemical industry (explosives, fertilisers etc)

• Possibility of building a new era for high purity diesel and jet fuel via gas to liquids

• ….but, Eastern Australia is short gas

Significant increase in demand for gas expected from 2015 due to

LNG export and east coast demand Source: Core Energy Group 2011

Uncontracted demand


Can Australia replicate the North American shale boom?


EIA – United States Gas Production Projection

In 2000, EIA projected conventional gas production would

dominate future supply

EIA is now projecting shale and tight gas will represent 70%

of US supply by 2035

Source: US Energy Information Administration, AEO2012 Early Release Overview, 23 January 2012

2012 US Natural Gas Production 1990-2035

2000 US Natural Gas Production 1990-2020

Sources: History: Advanced Resources International, Inc. (ARI). Projections: Energy Information Administration, AEO2000, DOE/EIA-0383 (2000)

(Washington, DC, December 1999), reference case


Gas options for Eastern Australia – a critical time

~ 80% of East Coast 2P reserves are owned by parties developing LNG projects or with LNG aspirations

Australian East Coast 2P Reserves*

Non-LNG ~ 9k PJ

East Coast 2P Reserves held by LNG proponents

~ 40k PJ

* Adapted from Energy Quest, February 2012


The Shale Gas Option – but what to look for?

• In 2007 Beach, understanding the success of US shale gas developments, reviewed Australian basins for opportunities

• Beach identified technical key contributors to success – Shale thickness

– Organic content

– Mineralogy

– Maturity

– Over-pressure

– Ability to take high equity position

– Proximity to infrastructure/market access


The Shale Gas Option – key technical attributes

Parameters for gas in place

• Shale thickness

• Lateral continuity

•Organic content

•Maturity

Parameters for deliverability

•Overpressure (drive)

•Mineralogy (brittleness)

•Maturity (hydrocarbons)

GIP = A * h * ρ * GCt

Gas in place

Drainage

area

Reservoir

thickness

Bulk

density

Total gas

content

Q = k * A * ΔP

μ Volumetric

flow rate

Permeability

Cross-

sectional area

Pressure

Gradient

Viscosity of

flowing fluid


Primary focus: Cooper Basin - Nappamerri Trough

• Primary focus was to find the best shale acreage in Australia

• All regions in Australia were considered

• Key factors considered in identifying the primary target:

– Rock quality, i.e. organic content, brittleness

– The right environment, i.e. thick, overpressured, thermally mature

– Ability to take high equity position

– Proximity to infrastructure/market access

The Nappamerri Trough Permian section under-explored off-structure


Nappamerri Trough- geological setting

• The deepest and largest of the northeast-southwest trending troughs in the Cooper Basin

• Thick Permian section of coals, siltstones, sandstones and shales

• Roseneath Shale, Epsilon Formation and Murteree Shale (REM) were the initial focus for shale gas

Sh

ale

ga

s ta

rge

t

Basin

centred

gas

target


Over-pressure

• Over-pressure created by hydrocarbon generation

• The pressure gradient in the Nappamerri Trough is ~0.72 psi/ft

• Over-pressure necessary for gas drive

• Preservation of pore throats during compaction enhancing permeability

0 2000 4000 6000 8000 10000

Pressure (psi)

0

1000

2000

3000

4000

De

pth

(m

)

Top Overpressure

REM

Depths

ΔP ~3,000psi


Maturity for deliverability

• With increasing maturity expect enhanced dewatering and dehydration of clays

• Loss of capillary water enhancing permeability

• Fluid viscosity is a function of maturity

• Methane is less viscous than wet gas and all things being equal, methane will flow better

• High level of maturity enables abundant gas generation creating over-pressure

Source: Tucker.M, Sedimentary Petrology, 1998


Fluid viscosity is important for higher flow rates

• Dry gas will flow better than gas with high liquids content in thick homogeneous shales

• If liquids are present, interbedded (mixed) lithologies (e.g., sandstones) are better

• Beach’s focus for liquids-rich plays are in basins with these potential attributes (e.g., Bakken – North Dakota, Otway Basin (SA and Victoria) and Bonaparte (NT))


Cooper Basin versus successful US plays

Parameter

Cooper Basin PEL 218 Permian REM

(Beach 100%) Barnett (Texas) Haynesville (Louisiana)

TVD (ft) 9,500 - 11,500 5,400 - 9,500 10,500 - 14,000

Thickness (ft) 550 - 800 100 - 500 60-350

BHT (degF) 390 - 410 150 280-380

TOC (%) 2-4 4-8 2-5

Pressure Gradient (psi/ft) 0.72 0.52 0.85-0.93

Maturity (Ro %) 2-4 0.6-1.6 1-1.2

Quartz, % (brittle) 30-40 40-60 25-52

Calcite % (brittle) 0 5-30 13-44

Siderite % (brittle) 5-10 0 0

Swelling clays (%) - 1-5 -

Similar properties to successful major US shale plays

Source: McKeon. M, Halliburton Presentation, Horizontal Fracturing in Shale Plays


PEL 218 ~1,600 km2

• Beach 100%* (Permian)

• 2 Tcf of contingent resource booked in the Permian

ATP 855P ~1,670 km2

• Beach 60% (operator), Icon Energy 40%

• First dedicated shale well in 2012

SACB JV ~7,100 km2 (Moomba, etc)

• Beach 20.21%, Santos 66.6% (operator), Origin Energy 13.19%

• 0.7 Tcf (net) of unconventional contingent resource booked to date

• Shale well recently fracture stimulated

• 3 Nappamerri Trough unconventional wells proposed

A summary of Beach’s commanding Cooper position

Multiple targets to be addressed by operated and non-operated

drilling programs * Beach currently holds 99.99%, in the process of acquiring 100%


Shale and beyond - program highlights to date

• Results from Encounter-1 and Holdfast-1 exceeded expectations due to:

– Gas saturated target zone potentially over one kilometre

– ~2 MMscfd initial flow rate from Holdfast-1

– Booking 2 Tcf contingent resource

– 480 metres of core recovered assisting technical analysis

– Gas flows up to 750,000 scfd from one frac stage in the Patchawarra from Encounter-1

• Moonta-1 vertical well completed with mud logs indicating gas saturation throughout Permian section

• Streaky-1 vertical exploration well has spudded

300+ Tcf of gas in place estimated for PEL 218


What is shale and basin centred gas?

Thick and consistent gas saturation across a basin

Source: Amended from Schenk and Pollastro, 2002


• Good working relationship with pastoral owners and other stakeholders

• Co-operative not competitive land use

• Semi-desert country

• Relatively flat topography

• Well established oil and gas infrastructure

• Raw and sales gas pipelines cross PEL 218 and ATP 855P

• Multiple commercialisation options

Advantages of Beach’s Cooper Basin acreage

Good relationships and well established infrastructure


2012 proposed Cooper unconventional drilling program


Summary

• Decisive and aggressive exploration

• Confirmed shale gas and basin centred gas objectives

• Unique shales

• Substantial multi-level resource play

• Fast paced and comprehensive forward exploration program


An opportunity for Australia


Sovereign risk now a real issue for Australia

• Need to remove uncertainties and disincentives, i.e. the carbon tax and PRRT

• First five years are critical for a nascent industry

• Technical advances through Beach’s unconventional program will aid ‘Greener’ power, such as geothermal

• Unconventional gas and oil has the ability to power mining production, supply the domestic power market and LNG export market

• Enhanced gas production is critical for explosives manufacture and fertiliser production

Downstream producers should be pushing government for removal of upstream tax impediments to free up gas production


Beach Energy Limited – Head office 25 Conyngham Street Glenside SA 5065 Tel: +61 8 8338 2833 Fax: +61 8 8338 2336 Website: www.beachenergy.com.au

Chris Jamieson Investor Relations Manager Tel: +61 8 8338 2833 Mob: +61 8 (0)487 173 244 Email: [email protected]

Contact information

reg nelson beach energy- resources & energy symposium 2012

Business

energy quest

beach energy limitedresource

energy symposium reg

core energy group

critical energy point

energy sector south

future energy source

gas options