Potential $6 Billion Oil Deposit in SW Vic

The Hamilton Spectator – September 22, 2015 

SOUTH-WEST Victoria is potentially sitting on a $6 billion oil and gas deposit with a production capacity of 100,000 barrels per day, according to Melbourne-based industrial engineering and mining company Mecrus Resources.

Mecrus has told Victorian Parliament’s inquiry into a potential onshore unconventional gas inquiry, via a written submission, that there is a ‘shale oil’ and natural gas deposit between Casterton and the South Australian border.

The company believes the commercial prospects for this deposit are “beyond doubt” after it “invested significant money to date in detailed exploration and investigation” and commissioned an independent study.

Representatives from Mecrus are due to give testimony to a Gas inquiry hearing in Hamilton’s Performing Arts Centre on Wednesday.

“The oil shale is quite deep and it is significantly separated from any utilised groundwater aquifers,” Mecrus managing director Barry Richards wrote in the submission.

“The identified resources in our primary target area are also extremely thick and of world class in nature”.

The primary target area is comprised of two mineral exploration licence areas held by Mecrus with a combined size of about 1500 square kilometres.

The two tenements, EL5298 and EL5297, incorporate land from around Ardno, Strathdownie and Wilkin to the south, to around Lake Mundi and Tullich in the north.

The eastern border of the two adjacent tenements begins about 10 kms west of Casterton and is hemmed in by the variety of state nature reserves and Crown land between Casterton and the SA border.

The exploration licence areas EL5298 and EL5297 in south-west Victoria, held by Mecrus Resources and believed by the company to contain 'world class' shale oil deposits
The exploration licence areas EL5298 and EL5297 in south-west Victoria, held by Mecrus Resources and believed by the company to contain ‘world class’ shale oil deposits

“If the progression to the next stage from exploration to mining is successful, then it would be expected that many support companies would establish offices and service centres to support the development,” Mecrus’s submission stated.

Mecrus did not state how deep underground the oil deposit is meant to be, but other oil and gas companies have been exploring about four kilometres beneath the surface near Penola, SA.

The ‘Mecrus Group of Companies’ includes a variety of businesses focussed on groundwater management and desalination.

But its resources department is current focussed on mineral and petroleum exploration and not production.

The largest single project that Mecrus has worked on, according to public reports, is a $135 million contract to supply four giant coal-handling machines at the Abbot Point Coal Terminal in North Queensland.

Some of the company’s flagship contracts, listed as ‘case studies’ on its website, were worth between $2m and $10m.

The revelations in Mecrus’s submission could further agitate anti-gas activists and locals farmers who have joined their cause.

Landowners from south-west Victoria joined a protest rally in Melbourne on Sunday that called for the entire state to be declared “gasfield free” due to concerns that an onshore unconventional gas industry would damage agriculture.

Mecrus has also stated that, if an oil drilling project goes ahead, south-west Victoria could also be used for ‘carbon sequestration’ to held Australia meet its international emissions reduction targets by pumping greenhouse gas underground.

The Mecrus submission said the deposit as been “independently assessed” to likely contain 360 million barrels of oil as well as pockets of natural gas.

The deposit is believed to have a lifespan of 40 years and could produce more than $600 million in royalties for the Victorian Government during that time.

Given that oil royalty rates in Victoria are usually about 10 per cent of net production value, the economic value of the deposit could be as high as $6 billion.

If the project ever goes ahead it could, at peak production, create a yearly economic output larger than Iluka Resource’s Hamilton mineral sands separation plant or the Portland Aluminium Smelter,

Mecrus Resources notes that the “financial expenditure for such projects is extremely large” but says that it would bring “massive flow on effects for local communities”.

“If the progression to the next stage from exploration to mining is successful, then it would be expected that many support companies would establish offices and service centres to support the development,” Mecrus’s submission stated.

“This also will have a positive impact on the employment of local citizens through support functions to a new industry.”

The company says its exploration results indicate “there is a significant Oil Shale reserve and associated hydrocarbons contained within these Oil Shales” in the Otway Basin.

Mecrus has submitted ‘commercial in confidence’ documents to the parliamentary gas inquiry, including work and operation plans, an environmental management plan and groundwater contingency plan.

The managing director offered to give MPs a confidential briefing on request and stated in its submission that the aboveground impact from oil drilling in its exploration licence areas would be about one hectare in total.

Mecrus will probably have to use the controversial hydraulic fracturing, AKA ‘fracking’, technique to improve yields from any oil and gas deposits found in south-west Victoria.

Fracking involves pumping a mixture of water, sand and chemical underground to break up rock layers; the technology has been a major source of opposition to unconventional gas from farmers.

Mecrus has also proposed to fill the remaining underground void with carbon dioxide to cash in on the search for ‘carbon capture and storage’ facilities.

Brown coal power stations are a major contributor to Australia’s high per-capita carbon emissions.

A recent advertising campaign by the Mineral Council of Australia, promoting coal as “amazing”, has talked up the possibility of carbon capture to improve the economic and environmental virtues of the fossil fuel.

There is only one functional carbon capture operation in the world, located in Canada, but there are plans to use the technology to store emission from coal power stations in Victoria’s Latrobe Valley.

Mecrus has successfully completed a number of large construction and maintenance projects since the company was formed in 1999, but it has never started or delivered a mine or oil production site.

Mecrus established its mining and resource division in 2009 and was awarded its first exploration licence in 2010.

The collapse of oil and gas prices over the past 12 months has proven to be a challenge for Australia’s petroleum exploration and production companies.

South Australia’s Beach Energy, which holds a number of onshore gas exploration licences in south-west Victoria, was forced to slash capital expenditure after oil prices dropped and its share price plummeted.

Mecrus is a privately owned company with a much lower profile than its publicly traded competitors and it does not have to publish its annual reports.

The Victorian Parliamentary submission by Mecrus represents a rare insight into the company, as its latest press release was issued in August 2011 and its last four-page newsletter came out in late 2013.

Backing up what the company told Victorian MPs in 2011, the July 2015 submission states that “we do not believe there is any commercially viable Coal Seam Gas reserve” in the Otway basin.

The company wants any future oil activity to be governed under Victoria’s Mineral Resources Sustainable Development Act, rather than the Petroleum Act.

This could see oil and gas projects go ahead in Mecrus’s south-west Victorian exploration licence areas even if the Victorian Government decided to extend its current moratorium into onshore gas exploration and fracking.

Mecrus argued that treating south-west Victorian oil extraction under mining legislation would “strengthen regulatory safeguards and prevent delays to development of the industry”.

Mecrus also urged MPs to take note of a report published by the US Environmental Protection Agency that downplayed the potential effects of hydraulic fracturing for oil on drinking water resources.