The Next Hottest Shale Play Is Down Under

By Aaron Levitt | Updated September 02, 2014 AAA

The various prolific shale rock formations such as the Bakken and Marcellus have been monumental in transforming North America’s energy sector. Investors in E&P firm like Range Resources (NYSE:RRC) have profited handsomely over the last few years as the shale boom has taken hold on our shores.

And that boom is continuing. Although, not where most investors are looking.

Sure the Bakken and its kind will continue to pay benefits for portfolios, the hottest shale plays could be found in a “Land Down Under.” For investors, Australia could be one of the most exciting opportunities for the energy industry and shale story is just getting started.

Big Resource Potential

Australia is already known for its large quantity of traditional natural gas and coal-bed methane reserves. However, it’s unconventional and shale resources could be the brightest star in the next decade or so. According to several studies and reports, the Land Down Under will be the next best place for energy companies to devote to fracking.

First, a new U.S. Department of Energy study found that Australia has an estimated 437 trillion cubic feet of recoverable shale gas reserves and nearly 17.5 billion barrels worth of recoverable shale oil. That’s nearly ten times existing identified natural gas reserves in the nation and put’s Australia firmly in 7th place in terms of the world’s ranking of shale gas reserves. 

Those massive reserves put the nation in a prime spot when it comes to being a world class destination for energy firms and could spark Australia's next wave of energy growth after the country's booming coal seam gas industry.

Another reason for the nation’s upcoming success in shale. Australia- unlike nation’s like China or South Africa, who have bigger shale reserves- rich energy history provides plenty of already existing infrastructure for E&P companies to work with. Like fields in the U.S., many of Australia’s potential shale regions are older legacy field that could be given life with the use of horizontal drilling and fracking.

Tapping into the existing midstream and gathering systems in these fields- such as the Cooper Basin makes it easier for energy firms to recoup costs. Add in all of the new liquefied natural gas (LNG) export facilities currently being built in the nation and you have a recipe for success. 

In fact, analysts at Lux Research have proclaimed that Australia will be the "the next big energy market” when it comes to shale based on its reserves, infrastructure and resource-friendly government. 

Fracking Australia’s Potential

With the nation’s huge reserves and positives, investors serious about shale should give Australia a real look. While funds like the iShares MSCI Australia (NYSE:EWA) and IQ Australia Small Cap ETF (NASDAQ:KROO) are often used as proxies for the nation, both are very low in terms of their concentration in energy stocks. That means, playing Australia’s shale potential means some individual stock picking. Here’s some good picks.  

An interesting one could be small-cap Magnum Hunter Resources (NYSE:MHR). The firm is one of the rising stars in the Marcellus and Utica shales. However, the firm is setting its sights on Australia’s bounty. MHR recently purchased enough equity in New Standard Energy (OTCBB:NWSTF) to become its largest shareholder. That deal will bring MHR’s fracking technology to the firm’s Australian company’s planned Cooper Basin exploration program. News of the deal managed to send MHR shares 4.5% higher. That could be a drop in the bucket when Magnum begins actually production energy there. 

Also partnering with New Standard has been U.S. energy giant ConocoPhillips (NYSE:COP). Aside from exploring nation's Canning Basin for shale gas, Conoco has continued to add new acreage in Australia’s Northern Territory. That acreage should help feed its new LNG exporting facility. Followings its lead has been BHP Billiton (NYSE:BHP) and France’s Total (NYSE:TOT). 

Finally, much of the shale gas story in Australia is about exporting to energy hungry Asia. U.S. integrated giant Chevron (NYSE:CVX) is the project head of two massive LNG projects costing over $80 billion. Both the Gorgon LNG and Wheatstone LNG plants will be some of the largest ever constructed and turn Australia’s coast into the world’s leading LNG region. It’ll also mean some pretty hefty cash flows and revenue for CVX once it’s fully constructed and running. 

The Bottom Line

The future of shale gas could be located in the “land down under.” Featuring vast unconventional reserves, a stable government and already in place midstream infrastructure, analyst’s peg Australia as the next big thing in shale gas. For investors, the time to get into the nation’s shale gas plays is now. The previous picks- along with BG Group (OTCBB:BRGYY) –could be big winners from the pending shale gas boom.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

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