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Interview

with Julie Beeby, Chief Executive Officer, WestSide Corporation

25.03.2011 / Energyboardroom

You were appointed as CEO of WestSide in July 2010 and started work at the end of August. What was the mission given to you when you arrived?

I commenced two months after WestSide purchased the Meridian SeamGas operation so clearly, integration and optimisation of this acquisition was an important first step in my mission. This acquisition brought two significant new investors into WestSide – New Hope Corporation and Energy Infrastructure Trust. This saw two new directors join the board and it was important to ensure I understood the vision for the company from all Directors prior to accepting the position. The intention of every board member was clear: growing the company and developing WestSide into a leading gas producer, as well as an exploration company. The mission was to increase reserves by exploration and appraisal and then to develop paths for commercialisation of those reserves so that production hubs could be developed in a similar model to Meridian SeamGas.. We aim to grow and participate in substantial gas supply contracts, potentially with the export LNG market. Since I started I have worked with the board to hone the vision and develop strategies to achieve our aims and set our priorities.

Andrew Faulkner was telling us that he is just coming up to his first hundred days as CEO of Arrow Energy, which you must be as well. Looking back at those first hundred days, do you feel as though you have achieved everything that you set out to do in that period?

Yes, and probably more. Coming into this position I was not quite sure of where we would be after a hundred days. One of the most important tasks was to make sure that I worked with the board to develop a common vision for the future of the company, and I am pleased with the way the board and management developed an aggressive program to grow WestSide’s operations. Communicating that message to the staff is also an important part of achieving the strategy. WestSide has gone through significant organisational growth. A year ago we only had about 10 employees and now we have nearly 50; at least half of whom have joined the company since June 2010. I was encouraged by how positively the whole organisation has taken on the growth challenge of the next year.

I now have our joint venture partners aligned with our strategy as well. WestSide has a 50/50 joint venture with Queensland Gas Company in two exploration tenements in the Bowen Basin, which we are progressively exploring, but our immediate priority is development of our Meridian SeamGas operations in the southern Bowen Basin with our joint venture partner Mitsui Exploration and Production Australia, who have signed off on our budget and strategy for 2011.

WestSide was undergoing a huge transition when I started so to have got it to the point within one hundred days where everybody is aligned, and we have the necessary resources, plans and approvals in place, I believe is quite an achievement. Now we can fire the gun and get going.

Traditionally WestSide has been an exploration company, but now you are moving into the production side of the business. Obviously you have had to build competencies and your team in order to move towards this successfully. How has that move been?

This is part of the reason why I was recruited. WestSide has a fabulous chairman in Angus Karoll, a real entrepreneur who was the acting CEO as well. He did a terrific deal which enabled a small company like this to go into production by buying Australia’s first producing coal seam gas operation. I have immense respect for what he has done. But he realised that once you move your company to the production level, the style of the company needs to change to accommodate a new way of working. Angus’s entrepreneurial flair will endure within the company as he remains involved with the company in the business development arena.

The change required on moving to production starts right at the top. Exploration companies tend to have very small teams: WestSide used to have around 10 people. In operating companies, other skills need to be brought in. If you want to be a presence in the market for a long time, you need to develop internal expertise. You have to keep the operating history in-house. That is, what WestSide is doing now and why the company has grown so much. I am pleased to have attracted some talented young engineers, because they can build the company and grow with it. This is how we are developing the managers we will need for the future.

The company culture is incredibly important to develop and this is where we come to the issue of skills retention. I need my people to want to stay with WestSide because they enjoy working here and get satisfaction and training through their jobs. Some of the younger engineers are getting a much broader experience in this company than they would do working for a larger company. We challenge our staff, we encourage them and train them, and I think they are really enjoying that.

It’s hard to become the next Santos or Woodside overnight, and partnerships can help a small company along the way to that. WestSide has great partnerships with Mitsui and QGC. Could you tell us a little about these?

Mitsui has been a significant supporter of WestSide by first supporting our acquisition of Anglo Coal’s share of the Meridian SeamGas operation and more recently exercising their option to farm in to two of our exploration blocks in the Galilee Basin to earn a 49% interest in each. Like us, they see the Galilee as being the long-term future of coal seam gas. However, there is a lot of exploration to do out there yet.

The Galilee Basin is an exciting prospect for coal seam gas. I particularly like the area that WestSide has in the northwest Galilee Basin. The area hasn’t been explored, so we don’t know what’s there. Our geologists are keen to make new discoveries.

Although the tenements are a long way from the coast, Mount Isa is only 300km away. At the moment, Mount Isa is being supplied by a 1200km pipeline from the Cooper basin. There are some large mineral developments in the Mount Isa region, but the problem is that there is very little energy available and you cannot mine without energy.

If we identify significant gas reserves, we are in an excellent location. Mitsui Exploration and Production are used to the concept of exploration and the risk that needs to be taken. We are all looking forward to starting drilling there in 2011.

When these LNG terminals come on-stream, ramp up gas is going to play a key role and WestSide’s proximity to Gladstone with its assets is going to be very advantageous. How do you see the potential of the LNG industry here in the next few years impacting WestSide?

This is part of WestSide’s strategy for the immediate future and this is why for 2011 the company is concentrating much of its efforts on Meridian. We think there is a window of opportunity to supply gas to some of these LNG projects, particularly because they may not want to be totally tied to one basin. Some of the companies will find as they progress, that it could take two or three years to ramp up their gas and if they have got a plant sitting there, they are going to want to know they can get gas. WestSide is already a producer: The Meridian field has 15 years of production history, so we can demonstrate our capability as a reliable producer.

WestSide’s plan over the next twelve months is two-pronged. One is to prove up more 2P reserves, at least doubling the reserves that we currently have by next year and then potentially doing that again for the following year. But we also want to ramp up our production. We currently have two contracts totalling 25 terrajoules a day. So we can ramp up production by drilling more wells and sell that gas immediately into the market. I want to do that to demonstrate we can increase production in an economically viable manner. We want to prove that we understand the economics and demonstrate our reliability to drill a well, get the gas out and do it time and time again.

We are drilling a series of new production wells and onto our third one now. We will then be taking a break for a couple of months before proceeding with more production wells. Showing reliability of supply and our ability to ramp up in a consistent manner is very important.

We would like to be seen as a significant player with the ability to enter into a large long-term contract. In terms of the scale of an LNG project, we could supply around 10-to-15% of one train. That will be our goal. WestSide does not necessarily have the goal to invest in an LNG project – the big players are out there and that is taken care of – but we would like to see our gas utilised in one of these projects.

Mitsui can also play a role in achieving this goal through the marketing and sale of LNG. They are already a significant player in the LNG market globally and share our goal to see Meridian SeamGas supplying an LNG train.

I cannot see another junior player out there which has the advantages WestSide has in terms of positioning. We are currently selling about 11 terrajoules a day, but we have compressor and dehydration capacity for up to about 30 terrajoules a day. On top of this, we have two pipelines connected us to the Queensland Gas Pipeline, which gives us a total capacity of about 60 terrajoules a day. We can ramp up at low capital cost because we do not need to install that capacity. We have a great story to tell the buyer, and a good opportunity to participate.

WestSide has experience in international operations as well. I know that the company has experience in Indonesia. Is internationalisation something that you will consider in the coming years, or will Queensland remain the focus for the company?

Australia is the main focus of the company for the moment; it is concentrating on Meridian and on its Queensland assets. Indonesia has not progressed as quickly as we might have hoped and has become more complex over the last 12 months, so we are still working out how best to generate value from our Indonesian assets. It is certainly not a key focus.

I will not say that the board would not consider other global expansions out of hand, but at the moment we would like to prove what we can do at Meridian, and do it again at other sites in Queensland to really build up confidence in WestSide’s ability as a quality coal seam gas operator and partner. If we can demonstrate this and we have done it more than once, it puts us in a prime position to be a serious joint venture partner going into any overseas operations.

In terms of growth here in Australia, we will continue evaluating mergers or acquisitions that have synergies with the assets we already own. This could either be because of location or the skills and the technology that we use. These opportunities are certainly out there: WestSide is not rushing to consolidate, but there is still potential to do that, especially in Queensland at this stage.

How would you assess the operating environment today in Queensland compared to other potential regions like New South Wales?

There are a number of reasons why the coal seam gas industry grew more quickly in Queensland than in New South Wales. We were lucky in Queensland that there were some forward thinking CEOs, who had a vision and went with it, developing companies such as Arrow Energy and Queensland Gas Company.

New South Wales is a bigger state in terms of industry and was therefore a little less focused on CSG than Queensland. Queensland also gives companies more opportunity to develop these types of operations. It is easier for smaller players to access new tenements in Queensland than it is in New South Wales, in the same way that WestSide did with its Galilee tenements. All that was required was to submit what we believed to be an appropriate exploration programme for those tenements. We’ve had to commit to that programme, and it is not small. However, we didn’t have to put money on the line up front as in some other States. For a small player that can be extremely hard and it is then very hard to compete against the big companies.

In January 2005 the Queensland Government introduced a policy which set a mandatory target for gas-fired generation in the state at 13 per cent – a target which was increased to 15 per cent in 2010. That mandatory target will remain at 15 per cent for 2011 with the facility to increase the target to 18 per cent by 2020. I think that policy provided significant support for investment in the State’s CSG industry.

Companies often complain about over-regulation by government, but I think Queensland has been very encouraging toward exploration companies. Even just recently they have announced yet another programme where they will give funding for drilling in new exploration areas or in the development of new techniques. WestSide has applied for one of these grants. It is not a lot of money but to small companies it certainly makes a difference.

In terms of environmental approvals for exploration I think the government’s expectations are realistic. It gets a lot harder once you want to produce, but we all know with exploration you normally drill a well, get your information, plug it back up, rehabilitate it and walk away, and I think the requirements from Queensland regarding exploration are very encouraging.

WestSide is a very good example of a company that is poised on the brink of something much bigger and has the potential to do very well for itself in the years to come. Looking ahead – with producing reserves in excellent locations, a great management team, a new CEO, and a new board – if we were to come back and see you in ten years, what would you like to have achieved?

Over the past ten years I have watched CSG companies like QGC and Arrow grow from small exploration companies to now be on the cusp of going into development of major LNG projects. In ten years’ time I would like to see WestSide producing from all our assets in Queensland, and perhaps beyond, and be part of, not just the export LNG story, but the growth and development of Queensland.

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