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Announcement of SA shale oil discovery met with caution by industry

News of the discovery of a potential 233 billion barrel shale oil deposit in South Australia took mainstream media by storm this week, however industry insiders say the reservoir may not be as bountiful as first reported.

On 23 January, Australia’s Linc Energy, announced that two independent reports conducted by DeGoyler and MacNaughton (D&M) and Gustavson, had confirmed the ‘significant resource potential’ of a 16 million contiguous acre area surrounding Coober Pedy in the Arckaringa Basin of South Australia.

While Gustavson estimated the potential haul at 233 billion barrels of oil equivalent, D&M’s less-reported estimate came in at less than half of that, at 103 billion barrels. Added to this, both estimates were classified as ‘unrisked prospective resources’, one of the lowest classifications, meaning the commercial and extraction viability of the deposit is largely uncertain at this early stage.

However, according to Linc Energy CEO, Peter Bond, even if the deposit yields just three or four billion barrels the find would still be significant.

Speaking to The Age newspaper, Bond said, ‘‘It’s a multi-billion barrel opportunity, and that’s a good news story… three, four, five billion barrel resources are virtually unheard of these days, so even stressing this number down to the minimum number the experts stress it down to, it’s still a big story.’’

In their media announcement, Linc acknowledges their lack of experience in developing shale oil projects on this size, and the dearth of expertise in this area across the country. The announcement states, “Linc Energy has appointed Barclays Bank to advise on strategic options, including the introduction of an experienced shale operator to joint venture the development of this emerging world-class shale player.”

The future of global oil prices will also play an important part in the viability of the project. With countries around the world increasingly turning to renewable energy, the 20 year outlook for oil prices is uncertain. By the time the project is up and running the cost of extraction may be more than the product is worth on the world market.

Linc paid $104 million for exploration rights of the 16 million acre area in question in 2009 and owns 100% of exploration permits. It is estimated the company, along with their proposed joint venture partner would spend up to $300 million getting the project to operational stage.

If the Gustavson estimate of 233 barrels proves accurate, Australia would become one of the world’s biggest shale oil producers, second only to Saudia Arabia, and far outstripping Canada and the Americas. It would also transform Australia from an oil importer to an oil exporter and see the country become self-sufficient in this important resource.

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