WHY TIGHT GAS?

Warrego has recognised that several key characteristics of the tight gas sector present an attractive investment opportunity. Compared to conventional gas projects, tight gas is perceived to be difficult to exploit, expensive to develop, and takes longer to pay back. It is also clear that outside North America, tight gas projects are not as well understood by the operating or financing communities.

Accordingly, many players in the conventional E&P sector avoid involvement in tight gas, preferring to pursue a shrinking pool of conventional opportunities.

As a result, Warrego has discovered that in the tight gas sector:

  • Resource plays are available at lower cost of entry
  • There is less competition for assets
  • Technical and technological capability may provide leverage into opportunities
  • Techniques and technologies can and will be developed to exploit tight gas in a more economic and efficient manner

It is also clear that the major international operating companies are slowly being pushed into the unconventional resource sector. Warrego's medium term strategy is to acquire a portfolio of tight gas projects on a global basis, ahead of the arrival of the IOCs. The company will build a meaningful presence on the ground, as well as highly skilled in country teams, and the technical and technological wherewithal to maximise the development and potential of each project.

WHY WESTERN AUSTRALIA?

Warrego believes Western Australia is an attractive region in which to make its first investment because:

  • There are substantial reserves of unconventional gas located onshore and relatively close to infrastructure and thus to market
  • There is a well established, vibrant, oil and gas service sector serving the region out of Perth
  • It is geopolitically and fiscally stable
  • Demand for gas is set to outpace supply in the short to middle term and prices are forecast to rise

Until now, Western Australia's significant reserves of unconventional gas have remained largely unexploited because:

  • 'Easy' or conventional gas was readily available, easily exploited and sufficient to meet/exceed demand
  • Suitable techniques and technologies were not available to meet the technical challenges of tight gas
  • A low gas price environment meant that many projects could not be made economic
  • The fiscal regime was not conducive to tight gas developments

Looking ahead from 2009, however, the landscape is different:

  • Conventional gas is mature and may have peaked
  • A gap between forecast demand and available supply has opened up between 2014 and, at least, 2020
  • Warrego has access to innovative drilling and production methods that will overcome the technical challenges
  • Long term low value gas supply contracts have come to an end, and demand is beginning to outpace supply
  • The Government is addressing the fiscal regime with the intent of promoting tight gas in WA

WHAT IS NATIVE TITLE?

Essentially, native title is a recognition of a legal interest in land, vested in the traditional owners of the land. It derives from the traditional laws and customs of indigenous communities in certain circumstances. The Native Title Act 1993 established that aboriginal communities' country and culture be recognised and protected. Demonstrating native title with respect to a particular area is a complex and time consuming legal process.