Drop in the ocean: exploration off pace | Business | The Australian

OIL and gas exploration in Australia had failed to keep pace with rising oil prices and local exploration companies were undervalued compared with their international rivals, a peak industry conference heard yesterday.
Simon Whitaker, a partner in the Perth-based energy advisory practice RISC, told the Australian Petroleum Production and Exploration Association conference there had been 33 company floats in the Australian energy industry in the past five years, raising $400 million.

But most were very small - in the realm of around $12 million - and they did not help fill the mid-cap gap.

"Exploration expenditure increased in 2005, but activity as measured by the number of exploration wells drilled and seismic data acquired was down on long-term averages with the increased spending due to higher costs," Mr Whitaker said.

"Corporate activity in terms of takeovers has been and continues to be low due to the small number of ASX-listed companies with significant upstream assets," he said.

Mr Whitaker said the average value of Australian deals involving reserve-based assets in the past three years was around $4 a barrel - roughly equivalent to global trends outside North America of about $US3 a barrel.

But global values had now increased to about $US8 a barrel, which Mr Whitaker said suggested Australian assets were undervalued. While takeovers were difficult to justify at current share prices, mergers were seen as an effective way for junior and mid-sized players to obtain critical mass.

LNG deals would continue as major developments in the near term - large in value but small in number.

Mr Whitaker told the conference the present climate suggested there would be more mergers in Australia than acquisitions, but he said international companies were taking up equity positions in known areas.

He cited as examples companies such as Talisman of Canada in the Timor Sea, and Mitsui - through its share of the Enfield development on the North West Shelf.