Shane Westlake – CEO, Finder Exploration, Australia
The newly appointed CEO of Finder Exploration, Shane Westlake, evaluates the continued vitality of Australia’s exploration frontier, particularly within the North West Shelf, while elaborating on a few of the unique play concepts that the company is currently pursuing such as domestic gas. He also validates the significance of Finder’s underlying components, opportunity, technology, and people, and exclaims how these three pillars best position the exploration company to drive value for its stakeholders.
What would you consider the most defining qualities of the company’s current operating strategies?
We’re now in a position where we’ve drilled five wells, four of which were successful. We’re assessing the results of our latest well Roc-1 and spudding another well in February 2016 called Hyde-1 in permit WA-418-P. We’re in a bit of a fluid situation, as our pipeline is currently packed with multiple developments that could sway our direction depending on their individual results. So, it’s hard to determine a concrete set of actions when underpinned by so many contingencies.
That being said, however, we do have an overarching strategy. In our offshore portfolio, we’ve drilled several wells and had multiple successes. We plan on building on that momentum with further appraisals to elevate our portfolio to the next level. With Australian gas opportunities, we’re a little bit different than the big LNG players, we let them do their business, and there’s no real point in us trying to push into that segment unless there’s opportunistic acreage available. We explore more for domestic gas opportunities, such as our Roc-1 discovery.
In the offshore game, we’re also looking at the liquid fringing zones. The big gas plays are well known, but we’re trying to extend the well, and lesser, known liquid plays around the NWS. Although global perception is that the NWS Australia is a gas province, we see liquid hydrocarbon exploration as immature with a likely chance of finding additional commercial reserves.
With onshore exploration, we have a slightly different model. Our success in picking up a lot of good offshore acreage was followed by an increase in the number of acreage bids and increasingly aggressive bidding levels from the rest of the industry. Therefore, we switched focus and picked up a permit in the onshore Canning Basin exploring for an unconventional resource play. We’re applying the same Finder model by challenging the paradigms of historic perceptions and targeting high-impact exploration potential that can attract large-scale investment.
We’re always focused on driving growth, but only in an appropriate and sustainable manner that preserves the core competencies that have enabled us to get this far.
A large portion of the company’s success is hinged on “de-risking prospective acreage” and the farming out development to partners. From Finder’s point of view, what exactly does it mean to “de-risk” an opportunity and how does the company do it better than its peers?
The biggest focus is to add value to the permit typically through geophysics but more recently through drilling onshore to address the critical risks. We make sure all risks are assessed from a regional geology standpoint and we probably have one of the best, if not the best, seismic database in the North West Shelf for risk assessment. Geoscience Australia has been instrumental in making the data accessible, but we go to great lengths to condition the data and insert our own interpretations. We focus on acquiring the best quality and most comprehensive set of data and leveraging our technology to proceed in the most cost-efficient manner possible.
With 16 permits now spread across the North West Shelf, which areas of the company’s portfolio demonstrate the most favorable prospects for monetization?
Our Bedout assets are the most prospective at the moment because we just drilled our second discovery within the permits and are still analyzing the results. But overall it’s been somewhat of a rollercoaster ride in this Sub-basin. We drilled the Phoenix South-1 well approximately 18 months ago and that came in as an oil discovery after an initial expectation of gas. Our second discovery, the Roc-1 structure had water wet sands at the same reservoir level as Phoenix South-1 but after drilling further, we made a significant wet gas discovery.
We’ve only tagged the flank of the Roc-1 structure so far. The next step is appraisal—figuring out exactly how much gas we’re dealing with and possibly funneling it through the domestic gas market. It’s very close to the shores of Broome—making it a relatively cheap development.
The potential resource of up to 1.4 tcf of gas in place has reinforced the Triassic source rock potential in the Bedout Sub-basin, where Finder and its joint venture partners, Quadrant Energy, Carnarvon Petroleum, and JX Nippon have an acreage holding of ~22,000 km2.
That’s probably our closest to being commercial, and we’re trying to see how we can move those assets forward.
Given that the NWS is the first major location of gas production in Australia, would you say the exploration potential for high-impact discoveries remains strong?
When I first came to Australia, perception was that exploration on the North West Shelf was mature. After working exploration in the UK and Norwegian North Sea basin and comparing the vast differences in well density, I just didn’t agree. To me, Australia’s basins are still underexplored.
Now some areas like the Carnarvon Basin or Vulcan Sub-basin have been much more explored than others, but the level of activity still doesn’t compare to places like the North Sea or the US. There is, however, the factor of commerciality that comes into play when evaluating new prospects and Australia does have its economic challenges. If the amount of gas doesn’t reach a certain economic threshold, then a well isn’t drilled and that leaves a number of undrilled prospects and leads remaining on the NWS. But even on the liquid side, there have only been a few play concepts that have been really tested, with very few explorers chasing new ones.
With the Bedout Sub-basin, we’ve been chasing a lower Triassic source rock, which has not been the focus of exploration in the last twenty years. This has opened people’s minds to new possibilities that could very well lead to a whole new stream of high-impact discoveries.
Another rather unique play concept we’re targeting in Carnarvon is deep water gas through intra-Mungaroo Formation plays, which have been tested recently, but is still immature in its exploration knowledge. Technology advances have opened up this play and the ability to acquire longer offset 3D seismic data, improvements in processing of data, and utilization of AVO interpretation techniques allows you to explore this deep play.
On the liquids side, through new acquisition and reprocessing of existing 3D seismic data, we’re challenging paradigms on where the liquid play concepts originate and extend. We like to explore in areas where there’s low density or poorly imaged 3D seismic coverage because that is an area where we can add significant value to exploration.
With a decrease in commodity prices, have you also noticed a decreased appetite from prospective partners in commercializing new discoveries?
The appetite hasn’t necessarily decreased, more so, these companies’ abilities to actually execute the deals. For example, during the early onset of decreasing oil prices, we went to the farm-out market after our Phoenix South oil discovery. It garnered a lot of interest, but nothing more, as many of these companies had essentially shut their books—ceasing any further investments. And now with the Roc-1 discovery, we’re seeing a similar trend; the play concepts and exploration strategies are sound, but there’s just minimal deal flow happening given the current environment.
What is the synergistic value of partnering with companies like Fugro?
We partnered with Fugro when they had seismic vessels and were looking for good projects to acquire multi-client seismic data. We offered the ability to not only acquire that data in and around our permits, but also effectively market the data on behalf of Fugro by actively working the data, establishing farm-out agreements, and promoting acreage.
The multi-client model suits a small company because you can negotiate lower costs up front, which makes it commercially viable. This allows you to get a larger amount of data, whereas on proprietary survey budgets you may only be able to get a small postage stamp sized survey, making it more difficult to explore effectively.
Fugro has since sold their seismic vessels at the onset of the downturn. But we are working with other companies such as Schlumberger, Weatherford, Aztech Well Construction, DDH1, and RPS for all types of services including environmental, offshore, seismic, processing, and drilling. As a small company, we’ve leveraged various strategic partnerships to build our business. There’s no point in us hiring in-house experts from every field. It’s simply not economical, so we identify subject matter experts from outside organizations then build our business models with them to carry forward our activities.
Opportunity, technology, and people. According to Jan Ostby when we last met him in 2010, these are the three core components that comprise Finder’s business. Do you believe these still hold true today?
These components are the same. We’ve made it clear with our staff that people are our number one asset. It’s the people in this company that have gotten us to where we are now, and it’s the people that will help carry us through this tough time in the industry. The challenge for us then is finding a model to effectively circumvent market volatility, which we’ve done multiple times before. And, from a flexibility standpoint, our privately held status has been instrumental in allowing us to maneuver the market, while building up our long-term capabilities. As such, we will continue to seek new opportunities and leveraging technical strength with our partners to generate value for our stakeholders.
So, the mentality has remained unchanged. What I would like, however, is to think about new areas in which we can apply the Finder approach. We have an inherent hunger and thirst for exploration. Adopting a more countercyclical mindset, down cycles are in some respects, the best periods to do more of that work and seek more opportunities. This doesn’t necessarily have to be accomplished through drilling more wells. Conducting regional studies, picking up acreage in other basins or countries, and proceeding with low-cost exploration are also effective when properly timed with the market.
Though, we realize that financing poses as a salient challenge for many of our prospective partners. As such, we’ll have to continually address the adaptability of our commercial models moving forward.
Can you describe how you first got involved with Finder Exploration and elaborate on the experiences that have ultimately shaped your strategic priorities and objectives as the newly appointed CEO?
I originally came to Australia over 10 years ago with seismic company PGS Reservoir to help set up their Australian operations. After a couple years, I got to the point in my career where I wanted take a step forward and undertake more of a challenge. At the same time, Jan Ostby, founder and director of Finder Exploration, was in the midst of setting up the company. After picking up some exploration blocks around the world, he was looking for someone to generate prospects. I saw this as a great opportunity for me to apply my skillsets, add value, and make a material difference in how and where a company progresses.
In the first few years, coming from a sporadic placement of assets, we consolidated our positions into Australia and centered them around one of our permits, AC/P 36. We managed to establish a farm-out deal with Murphy and PTTEP, effectively bringing them both into Australia with this one transaction. Consequently, we also firmly established our business model: acquiring and interpreting a wealth of data to gain the regional technical understanding and challenging existing ideas and paradigms to garner new results.
From that one permit, we’ve now expanded to 15 permits in the North West Shelf (NWS), 1 permit onshore Western Australia, and also recently acquired acreage in Canada as well. Our rapid growth has been driven by two core components: data and people. Fortunately, when I entered the company, Jan had already employed an expert geologist named Dariusz Jablonski as Exploration Manager, which was the ideal complement to my geophysics background from an exploration perspective. And coming from the seismic industry, Jan himself was a huge proponent of gathering masses of data and processing it to yield new conclusions—basically emulating what large exploration companies do, but with a much smaller budget. That technical dynamic was what really carried us forward from the very start, molding our reputation and leading to regular deal flow.
Especially in the wake of a downturn, how have you structured Finder Exploration to best deliver value to its stakeholders—whether that’s in terms of private investors, partners, or staff?
We have a solid track record of getting deals through, despite challenging market conditions. Even during the global financial crisis, we managed to conduct a fair amount of transactions. We primarily focus on exploration, and getting it done effectively and cost-efficiently.
If anyone is in a position to exploit the market in this low pricing environment, it’s Finder. We have a proficient management team, with proven experience drilling onshore, with a growing offshore portfolio. Considering that exploration is very much a high-risk investment, it’s hard to boast an absolute comparative advantage over others in the market. But, Finder Exploration has built a longstanding reputation around de-risking opportunities, and we will ensure that the odds are always moving in our favor.
Looking forward, where would you like to have taken the company in the next three to five years?
Continuing our current model we would like to have secured a few more deals and drilled a couple more wells on our existing geological play concepts and prospects. We understand the risks when drilling exploration wells and need to be involved in enough wells to spread our chances of commercial discoveries.
More specifically, we also want to continue expanding our onshore portfolio. Our Canning Basin work program has two more wells to drill and we’d really like to prove up that resource play for Western Australia, as it could materially impact the local community. It would be a great achievement if Finder’s work over the next two years opens up new business development and makes a material, positive difference to the local communities in the Canning area.