Under a deal announced Monday, Chevron will pay up to $349 million to farm into two shale prospects covering an estimated 810,000 acres in the Cooper Basin in central Australia controlled by Australia's Beach Energy.
The U.S. Energy Information Administration says the Cooper Basin could yield 85 trillion cubic feet of gas. Australia's current annual domestic gas usage stands at 1 trillion cubic feet of gas.
"The Cooper Basin is a huge potential resource," Reg Nelson, managing director of Adelaide's Beach Energy, was quoted as saying by the Financial Times. "This is ground breaking. This is nation building."
Chevron's announcement follows an exploration deal announced earlier this month between PetroChina and ConocoPhilips for gas in Western Australia.
That brings to $1.03 billion what overseas and domestic oil exploration groups are planning to spend during the coming years to drill and test Australia's shale reserves.
EIA estimates that Australia has the world's sixth biggest potential shale reserves.
While Chevron is one of the biggest foreign investors in Australia, it previously focused on large conventional gas ventures such as its $53 billion Gorgon LNG development in Western Australia.
"We have an industry-leading queue of LNG projects under development in Australia and this agreement provides an opportunity to explore a new, prospective basin and potentially add to our natural gas portfolio," Chevron Australia Managing Director Roy Krzywosinski said of the Beach deal.
"The Cooper Basin is an established petroleum producing basin and provides the opportunity to leverage our expertise in tight gas."
Beach's Nelson said Chevron first approached his company in early 2012, Bloomberg reports.
Cooper Basin has produced conventional oil and gas since the 1960s. So far, Australian oil and gas company Santos has started producing shale from one well in the basin and is actively searching for more, the Financial Times said.
Still, it will take 12-18 more months of drilling until Beach and other explorers such as Santos know if unconventional gas can be produced commercially from the Cooper Basin.
A report in The Wall Street Journal notes that exploration would take years and Chevron as yet has no equity interest in any of Queensland's export terminals where the gas likely would be processed if intended for export to Asia.
"People always ask me what price is needed to make the Cooper viable," Nelson was quoted as saying by the Financial Times. "And the answer is we won't know until we have determined the initial flow rates and the decline curve. Once we know those will be able to determine prices."