In a significant development for Australia’s energy sector, ConocoPhillips has announced a natural gas discovery in the Otway Basin, located offshore Victoria in southeastern Australia. This marks the company’s first exploration success in the region and the basin’s first find since 2021.
The discovery comes amid growing concerns over potential gas shortages on Australia’s east coast in the late 2020s, positioning it as a timely boost for domestic energy supply.
Details of the Announcement
ConocoPhillips initiated drilling on the Essington-1 exploration well on November 1, 2025, as part of a multi-well campaign in the VIC/P79 permit, approximately 55 kilometers off the coast of Port Campbell.
Wireline logs confirmed the presence of gas columns across two targets in the Waarre reservoirs, indicating gas-charged formations at different depths.
Operations at Essington-1 are ongoing, with the well expected to be plugged and abandoned in the coming weeks before the rig moves to the second well, Charlemont-1, in December.
The project is a joint venture, with ConocoPhillips as the operator holding a majority interest (around 51-80%, based on partner shares), alongside partners 3D Energi (20%) and Korea National Oil Corporation.
The overall drilling campaign, valued at over $100 million, includes plans for up to six wells across two permits, with options for four more.
This is ConocoPhillips’ maiden exploration effort in the Otway Basin, which the company joined in 2019, and it represents the first major offshore exploration program in eastern Australia in over six years.
The primary goal is to identify a commercial-sized gas resource to bolster supply for Australia’s east coast market, helping to mitigate forecasted shortages and stabilize prices.
Gas Volume and Commercial PotentialPre-drilling estimates for the two initial wells (Essington-1 and Charlemont-1) targeted a combined mean prospective resource of 355 billion cubic feet (Bcf) of natural gas, with 71 Bcf net to 3D Energi.
However, post-discovery, specific volume estimates for the reserves at Essington-1 have not yet been disclosed, as the find is still in the early evaluation stage.
Commercial viability remains undetermined, and further appraisal work, including the upcoming Charlemont-1 well, will be crucial to quantify the resource and assess development options.
Analysts describe the discovery as “promising,” but emphasize that it’s too early for firm numbers.
Relation to LNG Exports
This discovery is primarily aimed at supporting Australia’s domestic gas needs rather than direct LNG exports.
ConocoPhillips operates the Australia Pacific LNG (APLNG) facility in Queensland, a major export hub producing nearly a third of eastern Australia’s natural gas consumption, in partnership with Origin Energy and CNOOC.
However, due to looming domestic shortages, Australian regulations under the Domestic Gas Security Mechanism could mandate prioritizing local supply over exports.
APLNG has faced threats of export controls in the past if domestic demands aren’t met.
While the Otway gas could theoretically feed into broader operations, its location in Victoria suggests a focus on east coast domestic markets, with no current plans announced for LNG export integration.
Q3 2025 Earnings and Forward StatementsConocoPhillips released its Q3 2025 earnings on November 6, 2025, just days after spudding the Essington-1 well (mentioned in the earnings call as part of efforts to secure more domestic gas in Australia).
The company reported earnings of $1.7 billion, or $1.38 per share, with adjusted EPS at $1.61—down from the prior year but reflecting strong operational performance.
Production hit 2.4 million barrels of oil equivalent per day (MMBOED), exceeding the high end of guidance.
Cash provided by operating activities was robust, supporting shareholder returns of $2.2 billion in Q3 alone, including $1.3 billion in share repurchases and $1 billion in dividends (45% of year-to-date CFO).
The company hiked its quarterly ordinary dividend by 8% (to approximately $0.84 per share) and raised full-year 2025 production guidance to 2.375 MMBOED.
Operating costs for 2025 were lowered to $10.6 billion from a prior midpoint of $10.8 billion.
Looking ahead, preliminary 2026 guidance includes capital expenditures of about $12 billion (down $5 billion from 2025’s midpoint) and operating costs of $10.2 billion (a $400 million reduction from 2025).
Underlying production is expected to be flat to up 2%, with a company-wide oil mix of 53%.
ConocoPhillips anticipates $1 billion in combined CapEx and OpEx reductions by 2026, driven by synergies from the Marathon Oil integration (75% realized) and efficiency gains.
Free cash flow is projected to inflect positively, reaching $7 billion by 2029 from major projects like Willow in Alaska, with dividend breakeven dropping to the low $30s per barrel WTI by decade’s end.
Exploration spending remains $200–$300 million annually, with a focus on high-impact areas like Alaska and the Otway Basin.
Australian operations were highlighted in the context of legacy assets and the Otway exploration, underscoring the company’s commitment to bolstering gas supply in the region.
What This Could Mean for Investors
The Otway discovery, while early-stage, adds a layer of optimism to ConocoPhillips’ portfolio, potentially expanding reserves and supporting long-term production growth in a key market.
Coming post-Q3 earnings, it could serve as a positive catalyst, reinforcing the company’s exploration strategy amid a backdrop of cost discipline and shareholder-friendly policies.
If commercialized, the gas could help mitigate East Coast shortages, benefiting Conoco’s APLNG operations by easing export restrictions and stabilizing regional prices.
For investors, this aligns with Conoco’s forward guidance emphasizing efficiency and returns: the 8% dividend hike and $1 billion cost savings signal strong cash flow generation, even in volatile markets.
The stock, currently undervalued based on recent analyses, may see upside from this discovery, especially if follow-up wells confirm larger resources.
However, risks include commercial uncertainty and regulatory pressures favoring domestic supply over exports. Overall, it’s a bullish development for a company already delivering top-quartile dividend growth and production outperformance.
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