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BHP has its eye on Aussie shale

The world’s largest resources company, BHP Billiton (ASX: BHP) is set to join a host of local and international oil companies, digging for shale oil and gas in Australia.

According to The Australian, petroleum chief Mike Yeager said that the big miner was looking to broaden its footprint, after spending around US$20 billion buying up US shale operations in 2011.

Mr Yeager has recently suggested the Canning Basin in Western Australia had good prospects. At the same time though, he emphasised the problems Australia faces with a lack of infrastructure and distance compared to the US market, which has extensive pipelines and an established drilling and servicing sector.

Last week, US giant Chevron announced plans to spend around $340 million to gain a stake in Beach Energy’s (ASX: BPT) Cooper Basin tenements. ConocoPhillips, Statoil, Total, BG Group and Hess have all previously moved into Australia’s shale industry, mostly through farm-in agreements, where they agree to provide funding for drilling and exploration, for a part share of the project.

Buru Energy (ASX: BRU) has extensive landholdings in the Canning basin, and has already had some wins, with its Ungani 2 well producing 700 barrels of oil a day in a production test. Key Petroleum (ASX: KEY), and New Standard Energy (ASX: NSE), both junior explorers on the ASX, are also drilling in the Canning basin.

Australia’s shale oil and gas industry is still in its infancy compared to the US and other regions. With the entry of several oil giants, exploration and drilling is likely to hot up, and it’s one of the ‘hot’ sectors of the market.

Foolish takeaway

For every successful oil and gas explorer, there are probably at least another ten that never make it. An investment in this sector on an unknown and unproven junior explorer is a bit like buying a lottery ticket. If the company is successful, the share price will rocket, but investors have more chance of being disappointed.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in BHP.

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