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Bloomberg: Shell, Nexus Start Drilling in Australia, Seeking Gas (Update2)

By Angela Macdonald-Smith

Aug. 8 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company, and Nexus Energy Ltd. started drilling the first well in a program off northwest Australia to seek reserves suitable for liquefied natural gas production.

Drilling started at the Fossetmaker-1 well in the Browse Basin on Aug. 6, part of a $55 million deal agreed in October for the partners to appraise the Echuca Shoals gas field, Melbourne-based Nexus said today in a statement. A second well at the site is planned for mid-2008 while an exploration well in a separate permit will be drilled early next year, it said.

Echuca Shoals, which Nexus estimates may hold 2.2 trillion cubic feet of gas and 135 million barrels of condensates, lies to the south of gas fields owned by Inpex Holdings Inc. that the Japanese company proposes to use for a A$10 billion ($8.6 billion) LNG project. Shell is increasing exploration in Australia, targeting large-scale discoveries that may supply an LNG venture.

The three wells are part of a program of as many as nine off northern and southeastern Australia in which Nexus will participate by the end of next year. The program “has the potential to reshape our company,” Nexus Managing Director Ian Tchacos said in the statement to the Australian Stock Exchange.

Nexus shares jumped 14.5 cents, or 9.1 percent, to A$1.745 on the exchange, outpacing the gain of 1.9 percent in the exchange’s benchmark index.

Shell is funding the first $30 million of costs for Fossetmaker-1, Nexus said. The company, based in The Hague, also secured a drilling rig for the exploration well planned in the AC/P41 permit in the first quarter next year, which lies close to Nexus’s Crux gas and condensates field, the Australian company said. Shell has an agreement to take gas from Crux.

LNG is natural gas chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by tanker to destinations not connected by pipeline. Global demand for LNG may more than triple by the end of next decade, estimates Edinburgh-based Wood Mackenzie Consultants Ltd.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at [email protected] .

Last Updated: August 8, 2007 02:25 EDT

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