Petroleum sector in 2022 - Opportunity to tap into the market

Electricity & gas prices

The Australian Energy Market Operator (AEMO) quarterly energy dynamic report [1] outlined how wholesale spot prices in the National Energy Market (NEM) and eastern Australian gas market rose to unprecedented levels in Q2 2022.

In the latest report for Q3, 2022, NEM spot prices averaged $216 megawatt-hour (MWh) across all NEM regions, which was the second highest priced quarter on record after Q2, 2022 of $264 MWh, and over three times the average price of $85 MWh in Q3, 2021 [2].

The NEM increase in spot prices was reflected in the increases in spot prices for the gas markets. The east coast gas price market averaged $26 per gigajoule (GJ) over the quarter which was an increase of 142% from last year’s average quarter price of $10.74 GJ [3].

Price caps

The increase and volatility of spot prices in electricity and gas markets triggered the autonomic application of administered price caps, which started in the Victorian Declared Wholesale Gas Market in late May 2022, and price caps followed in the NEM in mid-June[4].

Samantha McColloch, the Chief Executive of the Australian Petroleum Production & Exploration Association (APPEA) indicates (amongst other points) that ‘governments need to recognise that the energy systems as a whole is under pressure’[5] furthermore ‘we need new investment in gas supply, not intervention, if we are to get the best outcome for Australia’[6].

More gas

With demand for gas accelerating, we query if small and mid-tier oil and gas participants will become more significant in Australia as they seek to unlock non-core opportunities from larger industry players focused on their larger core assets. Arguably, mid-tier petroleum producers may pay close attention to investment opportunities in well-established oil basins like the Cooper Basin and the Otway Basin in South Australia, as record gas prices make the region’s smaller tenements more attractive.

Mario Pegoli from DMAW Lawyers states 'we have recently experienced a producer enter the market with Bass Oil becoming Australia’s newest onshore producer following its acquisition of tenement interests from Beach Energy and Cooper Energy earlier this month'. Bass now holds high equity stakes in eight tenements spanning 2,259km2 in the core of the Cooper Basin[7].

Mario, who worked on the transaction, said that while smaller tenements tended to be overlooked by the major producers, current market conditions could encourage a new wave of mid-tier investment in a region like South Australia. Small and mid-tier industry participants could seek to unlock the potential opportunity of these tenements.

DMAW Lawyers' Peter Kupniewski said that South Australia is well placed as a mining jurisdiction with a well understood regulatory regime coupled with a jurisdiction that is world ranked by the Fraser Institute. The Fraser Institute survey of mining companies ranked South Australia as the 10th most attractive jurisdiction in the world to invest[8].

Daniel Jenkinson from DMAW Lawyers said that with a well understood and appreciated regulatory regime and positive industry characteristics, DMAW Lawyers as a firm are upskilling our people to ensure South Australian employee capability can be used to assist in transactions for Australian assets which are strategically located and may potentially become more attractive if heightened demand levels remain.

If you are an oil and gas participant and would like to take advantage of DMAW Lawyers extensive experience in the oil and gas sector please call Peter Kupniewski (pkupniewski@dmawlawyers.com.au), Mario Pegoli (mpegoli@dmawlawyers.com.au) or Daniel Jenkinson (djenkinson@dmawlawyers.com.au) on (08) 8210 2222.

Author: Mario Pegoli, corporate adviser and associate in our corporate practice

This article provides general commentary only. It is not legal advice. Before acting on the basis of any material contained in this article, seek professional advice.

[1] Australian Energy Market Operator (AEMO), Quarterly Energy Dynamics Q2 2022 (July 2022) accessed on 14 November 2022.

[2] Australian Energy Market Operator (AEMO), Quarterly Energy Dynamics Q3 2022 (October 2022) accessed on 14 November 2022.

[3] Ibid.

[4] Australian Energy Market Operator (AEMO), Quarterly Energy Dynamics Q2 2022 (July 2022) accessed on 14 November 2022.

[5] Australian Petroleum Production & Exploration Association (APPEA), Op-ed: APPEA Chief Executive Samantha McCulloch on why price cap hype casts an investment cloud over gas, (7 November 2022), accessed on 14 November 2022.

[6] Ibid.

[7] Bass Oil Limited, Bass Successfully Completes Cooper Basin Transactions (2 August 2022), accessed on 14 November 2022.

[8] Fraser Institute, Fraser Institute Annual Survey of Mining Companies 2021 (2021), accessed on 14 November 2022.