The PEP-11 gas project, a long-time fixture of speculative offshore exploration in the Sydney Basin, has been dealt another bureaucratic blow. The latest announcement from BPH Energy (ASX: BPH), which holds an 85% stake in the permit via its subsidiary Asset Energy, reveals that the federal government is poised to reject the joint venture’s applications to extend the exploration permit. The news, disclosed on September 18, 2024, indicates that Industry and Science Minister Ed Husic has reviewed the proposals lodged in early 2020 and 2021 and, at least preliminarily, formed the view that they should be declined.
This is a significant, if somewhat unsurprising, hurdle for the project that has faced years of regulatory and environmental scrutiny. The permit area in question, located off the coast of Newcastle, is one of the most prospective natural gas regions near the NSW coastline. Its importance is underscored by the fact that the area is located just 50km from the densely populated Sydney-Wollongong-Newcastle corridor, home to five million people.
What’s in PEP-11?
The Sydney Basin, where PEP-11 sits, has long been recognised as a potential source of substantial natural gas reserves. The permit, covering a vast swathe of seabed, is estimated to hold multi-trillion cubic feet of natural gas. Advent, through its exploration efforts, has identified several promising gas leads within the basin, including the Baleen prospect—a target that could yield considerable results. Substantial seismic work has been done in recent years to pinpoint potential drilling sites, with Baleen showing the highest potential for success based on gas migration indicators and geochemical data.
A key report from 2010 provided crucial support for Baleen’s viability, highlighting its higher success probability compared to other local prospects. It noted that over 79% of wildcat wells drilled after geochemical surveys of this nature turned into commercial discoveries. With that in mind, the importance of PEP-11 to the broader gas supply on Australia’s east coast cannot be overstated.
The Growing Demand for Gas
Natural gas has become a contentious issue in Australia, with supply shortages and skyrocketing prices creating headaches for businesses and consumers alike. Earlier this year, the Australian Competition and Consumer Commission (ACCC) warned that gas supplies in the eastern and south-eastern states might only meet demand until 2023. Reserves from traditional sources like Bass Strait are dwindling, and the volatile onshore gas industry in New South Wales remains a political hot potato.
Given this backdrop, PEP-11 has never been more critical—or more controversial. Despite the gas crisis gripping the east coast, the project has consistently faced resistance from environmental groups and political figures. Its proximity to major population centres, including Sydney’s Northern Beaches, has made it a high-profile battleground for activists.
The Long Road to Drilling
Advent Energy and its partner, Bounty Oil & Gas (ASX: BUY), have long sought to begin drilling in the region, particularly targeting the Baleen prospect, a site roughly 30km off the Newcastle coast. A focused seismic campaign conducted in 2018 around Baleen identified a 6000-acre seismic amplitude anomaly, suggesting strong potential for gas. Despite this promising data, regulatory roadblocks and delays have stymied progress.
The current state of affairs leaves the joint venture in a precarious position. With the minister’s decision leaning towards a refusal of the applications, the PEP-11 project could be pushed further into uncertainty. However, BPH Energy remains resolute, forwarding the matter to its lawyers for further review. Executive Director David Breeze has assured stakeholders that the company will update the market as developments unfold.
What Next for PEP-11?
This isn’t the first time PEP-11 has faced the prospect of rejection. The project’s turbulent history includes a range of legal and regulatory tussles, and the latest setback may not be the final word. For now, it’s a waiting game for BPH and its investors as the company navigates the legal landscape to keep its gas dream alive.
The east coast gas crunch isn’t going away anytime soon, and if the PEP-11 project is ultimately given the green light, it could offer significant relief to both supply and pricing pressures. Yet, the decision sits in the hands of policymakers who must weigh economic benefits against environmental concerns.
While the market awaits further updates, one thing is clear: PEP-11 remains one of the most talked-about—and politically sensitive—gas plays in Australia today.
