Australia's unconventional oil and gas industry is way behind the US, according to Woodside Petroleum chief executive Peter Coleman, who says American specialists "eat our lunch".
In an exclusive interview, Mr Coleman confirmed Woodside considered taking stakes in the massive coal seam gas-to-liquefied natural gas projects under way on Australia's east coast but decided not to invest, saying: "Would you?"
A year ago, Mr Coleman, who succeeded Don Voelte in mid-2011, told investors unconventional oil and gas was "a very large resource and we can't ignore that resource".
But since then, Woodside has focused on conventional growth prospects in areas such as Israel and Burma and stayed on the sidelines of the $60 billion CSG-LNG boom, as proponents of the three projects under construction have looked to sell down equity stakes, including BG Group's Queensland Curtis LNG, Santos' Gladstone LNG and Origin Energy's Australia Pacific LNG.
Mr Coleman confirmed Woodside, flush with cash from its new Pluto LNG project on the Burrup Peninsula, had considered investing in CSG, saying: "Of course we look. That's our job, to know what everybody's doing. [We] run a ruler over every project ... to know what we're competing with in the marketplace. We've formed a view, I think time will just play it out."
In 2011, Mr Voelte, then Woodside CEO, told a business forum that he wanted his six-year tenure to be remembered for his decision to stay out of CSG.
"Come back and check four or five years from now - I think one of the greatest things I will have achieved is not taking my company into coalbed methane," he said.
Asked about the comment, Mr Coleman said: "Don showed wonderful insight."
Costs had blown out on all three big CSG-LNG projects, he said.
"Last time we were talking about this was 12 months ago and I said 'be careful' and look what's happened, every one of them has now come out ... it's unfortunate," he said.
But Mr Coleman, a former long-time ExxonMobil executive, said Woodside would consider a joint venture with a specialist unconventional operator where it could add value, perhaps in marketing, LNG manufacture or CNG distribution. The big oil companies had recognised they needed to bring in outside expertise on unconventional, he said, citing Exxon's purchase of XTO Energy, BHP's Petrohawk acquisition and Shell's buyout of Arrow Energy in Queensland.
"The big operators know what their capabilities are and where the step-outs are," Mr Coleman said. "We recognise we're not an operator of unconventional resources ... Some of the analysts are starting to understand that culturally there's a big difference between the big heavy end of the house, where we operate, and an operator that works in unconventional."
Extraction of unconventional oil and gas from tight sands, coal seams and shales relied on drilling a large number of smaller and cheaper wells - almost like a manufacturing process, he said.
"Lean systems are used extensively by the very best of the unconventional operators because it's all about cost," he said. "It's all about bang it out and getting those costs down as quickly as you can - real-time learning systems, feeding that back in and really driving your cost base down. Because you do the same thing literally hundreds, maybe thousands of times."
Mr Coleman said the specialist upstream operators in unconventional typically had a fairly simple business model.
"They do one thing and they do it extremely well and they do it time and time again," he said. "I don't see companies in Australia as having anywhere near the competency at this point as US-based companies in that sort of process. There are some who border on it but I used to live and work in the US - these guys eat our lunch."
Mr Coleman would not say whether Woodside, which has a presence in Houston, was negotiating with a possible partner in unconventional.