Aussie firm finds future in Timor sea

Aussie firm finds future in Timor sea

SYDNEY (Reuter): Australian oil and gas producer and explorer Petroz NL has found its future in the oil-rich waters of the Timor Gap, once the site of a lengthy border dispute between Australia and Indonesia.

Success has also led to speculation that the junior explorer and producer may go the way of other small Australian oil and gas companies in recent years and succumb to a hostile bid.

A 14.948 percent interest in exploration permit ZOCA 91-12 in the Timor Gap Zone of Cooperation between the Australia an Indonesia has given Petroz a stake in two large projects.

One, the Bayu-Undan field discovered in January 1995, is estimated to contain 3.4 trillion cubic feet of gas and about 400 million barrels of liquid hydrocarbons, making it easily the biggest find in the area.

Petroz's antecedents stretch back to the late 1960s and oil and gas discoveries by Offshore NL in the Surat Basin in southern Queensland.

Renamed Petroz in the mid-1980s, the company was resuscitated by majority owner Australian Gas Light Co (AGL) in the late 1980s, and eventually refloated in late 1993 when AGL exited the upstream oil and gas business.

Cash flow from the declining Surat Basin reserves has funded the company's exploration activities in the Timor Sea, the Bass Strait off the coast of Victoria and the Carnarvon Basin offshore Western Australia.

However, it is the Timor Sea where success has flowed. The Elang and Kakatua oil fields in ZOCA 91-12, about 520 km north-west of Darwin, were discovered in 1994 and given the green light for development by the Australian-Indonesian Timor Gap Joint Authority in February this year.

Petroz raised A$41 million (US$32 million) in new capital last August to fund both its A$18 million share of the proposed A$120 million project as well as continued exploration.

Production is expected to begin in mid-1998 with an estimated 30 million barrels of oil believed to be recoverable. Petroz estimates the project will provide an annual cash flow of about A$20 million for three or more years, depending on the discovery of any additional oil reserves.

The cash will come in handy as the company looks to Bayu- Undan, a project which has helped push its share price from about 60 cents at the start of 1996 to around A$1.15 now.

The huge field straddles two permits, the ZOCA 91-12 "Undan" permit and ZOCA 91-13, which is held by the "Bayu" consortium led by Phillips Petroleum Co.

The Broken Hill Pty Co Ltd, which holds 42.42 percent of ZOCA 91-12, has been selected as unit operator and will initially develop a A$1.5 billion liquids project, producing condensate and LPG.

A A$1.0-A$1.5 billion LNG plant is under discussion, with Phillips favoring an onshore plant in Darwin and BHP championing on offshore plant.

Petroz should eventually hold about 10 percent of the project and believes it will can meet its share of development costs, although another capital raising may be needed.

Liquids production is expected to begin in mid-2001 and Petroz says the project should boost cash flow to about A$60 million, stretching out for 20 years.

Analysts have rated Petroz a buy in recent months on Bayu- Undan, saying the field gives it substantial equity in both an oil project and a potentially large LNG development.

"Relative to their size and market capitalization, they have pretty big reserves," said Macquarie Equities oil and gas analyst Peter Best.

The company has also been the subject of takeover speculation, given its small size and holdings, and the popularity of small Australian explorers.

Discovery Petroleum and Command Petroleum both fell last year to mid-size U.K. companies.

One potential deterrent for any predator may be ongoing litigation claiming Petroz withheld vital information when it bought out the interests of its junior partner in the Elang field, a claim it denies.

Petroz, meanwhile, has decided to broaden its exploration focus and look for opportunities outside Australia, concentrating particularly on Indonesia and the U.K.

"It is essential if we are to sustain the sorts of levels of growth we have had from our Timor Sea permits into the future that we have to broaden our horizons," managing director Rod Brown told a briefing this week.