Why you should bank on the Cooper Basin

The Cooper Basin — the huge area of central Australia intersecting South Australia and Queensland — has for years flown under the radar with investors, mostly due to its perception as a speculative region dominated by small, risky explorers with large capital requirements.

However the Cooper Basin is quickly moving into the next phase of its lifecycle as a valuable source of proven oil and gas production. Well established companies, helped by supporting infrastructure, are tapping into the area which could become an essential supply point for looming gas shortages on Australia’s east coast.

There are a number of operators with big investments in the region, many of whom have overlapping interests as a result of joint venture agreements. These arrangements reduce financial risk and help companies leverage the expertise of others.

Among the biggest operators in the region are the three participants of the Cooper Basin Oil and Gas Development: Beach Energy (ASX: BPT), Santos (ASX: STO) and Origin Energy (ASX: ORG). All three companies reported increases in oil production in 2012. Beach Energy in particular saw production from the Cooper Basin contribute to record revenues up 25% to $619 million.

However some of the smaller operators are also reporting solid oil and gas discoveries worthy of production. Senex Energy (ASX: SXY) last month announced significant upgrades in reserves as well as increased production guidance that will double net production year on year.

The existing infrastructure in place in the region lowers risk and cost for smaller companies reducing the time required to commercialise finds. Production developments in the area are set to coincide with approaching shortages in natural gas supply on Australia’s east coast as supply contracts end and future production for a lot of suppliers designated to be exported to overseas buyers.

Beach Energy Managing Director Reg Nelson noted in the company’s 2012 annual report, “We believe that by 2015, the dynamics of supply and demand will be optimum for Beach… with existing market penetration and large volumes of gas able to be developed on commercially attractive terms.”

Foolish takeaway

The Cooper Basin could be set to benefit hugely from expected demand for domestic gas in the coming years. With existing infrastructure in place and well established operators starting to see big increases in annual production, it could be the site of Australia’s next energy boom.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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