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Carnarvon Petroleum Cashed Up For North West Shelf Exploration

Jul. 27, 2015 8:41 PM ET
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Carnarvon Petroleum (ASX:CVN) has completed its transition into a technically driven oil and gas exploration and production company focused on the North West Shelf.

This is highlighted by its recent appointment of former Woodside Petroleum (ASX:WPL) senior executive Dr Peter Moore as a non-executive director.

Carnarvon has a market cap. circa $109 million, and with cash of A$97.3 million and potential royalty payments of up to US$32 million, it is trading under cash-backing. It has no debt.

Location of the Roc-1 exploration well, which will be funded by Quadrant Energy and JX Nippon to US$70 million, has been finalised with drilling expected to start in the fourth quarter of 2015.

A successful Roc-1 well will be suspended to allow for re-entry within six to twelve months to complete more extensive well sampling, including the cutting of whole cores, and to flow test the well.

Planning is also underway for the drilling of additional appraisal wells in late 2016 to follow the success of Roc-1.

The joint venture's plans have received support from the Government with the granting of a two year extension to August 2017 to complete the extensive work programs currently underway.

Two outstanding oil prospects have been identified in the company's Cerberus acreage while seismic acquisition across the Phoenix permits is ongoing with completion on schedule for the third quarter of 2015.

Carnarvon has also started early planning for further exploration drilling in 2017 and beyond.

Adrian Cook, managing director, said in the quarterly:

"With the sale of the company's Thai interests behind us, the focus of the entire board and management team is on capitalising on one or more of the high impact opportunities that have been identified in the North West Shelf by the new ventures team."

Greater Phoenix Area (Carnarvon 20%)

The Phoenix South-1 well, drilled in 2014, was the first well to be drilled in the Bedout Sub Basin for almost 30 years and was only the eighth well in the basin.

Phoenix South-1 was drilled to a total depth ("TD") of around 4,595 metres and discovered oil across an overall sand rich package between 4,160 metres and TD.

Six samples of high quality 46 to 48 degree API oil were recovered from the well.

This well is significant because it opened up the prospectivity of an entirely new hydrocarbon province in Australia and identified a new play concept in the North West Shelf.

Ongoing test data results from rock and oil samples collected from the Phoenix South-1 well continue to provide important new data to update exploration models, volume estimates and assumptions in the basin.

Whilst more technical work has to be undertaken, including the interpretation of seismic currently being acquired, further exploration could lead to more discoveries in the area.

Phoenix South-1 has Best Estimate recoverable oil of 19 million barrels while the Phoenix-1 well drilled in BP has also been assessed as an oil discovery that contains a best estimate of recoverable oil of 9 million barrels.

Exploration - Phoenix 3D Area

Within the Phoenix 3D area there are a number of prospects to follow up the Phoenix and Phoenix South oil discoveries.

The Roc prospect is interpreted to contain a greater volume of recoverable oil than Phoenix South, at a shallower depth, with a best case estimate of 42 million barrels.

With a probability of geological success of 42%, this in combination with the contingent resource estimates make this prospect one of the most attractive exploration prospects in the North West Shelf at this point in time.

The Roc-1 well is currently scheduled is to commence drilling in the fourth quarter of calendar 2015.

Carnarvon's share of the well will be funded to US$70 million (gross cost of well) by Quadrant Energy and JX Nippon.

Roc-1 is in shallower water and has a shallower reservoir target compared with the Phoenix South-1 well and is scheduled to be drilled by a jack-up rig and is expected to have lower costs.

In addition to the Roc prospect; the Bewdy, Bottler and Phoenix 2 Up-dip structures, which also all lie within the Phoenix 3D, provide early follow up opportunity in the case of success in the Roc-1 well.

These four prospects have a total best estimate of 73 million barrels of recoverable oil.

Exploration - Greater Phoenix Area

The Phoenix 3D area only covers an area of approximately 1,100 square kilometres or around 5% of a total permit holding of approximately 22,000 square kilometres.

Phoenix South-1 has proved there is a working petroleum system in this region that has given the Joint Venture confidence to commence further seismic activities to identify additional leads and prospects in the Greater Phoenix Area.

Following success at Phoenix South, the Joint Venture has licenced the Zeester 3D seismic survey that covers the Northern parts of WA-436-P and WA-435-P.

This covers an area of 3,854 square kilometres and incorporates the very large Bandy lead amongst others.

Interpretation of this seismic survey is underway and is expected to add to Carnarvon's lead and prospect inventory.

The Joint Venture has also committed to the Capreolus 3D seismic acquisition and licensing.

This survey will result in an additional 5,100 square kilometres of 3D seismic coverage in the basin and is expected to reveal a number of new prospects and enable greater delineation of numerous leads that lie to the west of Phoenix South as identified on existing 2D data.

Acquisition is on schedule and is currently around 70% complete.

Cerberus Blocks (Carnarvon 100%)

The three permits that make up the Cerberus Blocks are situated on the eastern flank of one of Australia's most prolific oil producing basins, the Carnarvon basin, and they cover a total area of around 3,200 square kilometres.

As part of the work program across these permits, Carnarvon has re-interpreted modern reprocessed 3D seismic data and has identified a number of new material oil prospects.

These prospects are associated with Lower Triassic source rocks that have been identified in nearby wells through recently completed geochemistry, petrophysics and biostratigraphy studies.

The Triassic source rocks are analogous to proven oil-prone source rocks at Phoenix and the Perth Basin. These Triassic sourced targets are in addition to the more traditional oil plays across the area, which are primarily sourced from the Jurassic and Cretaceous aged sediments like the Stag, Wandoo and Harriet oil fields nearby.

In particular the Belfon (Upper Permian) and Honeybadger (Early Triassic) prospects are estimated to contain significant volumes of recoverable oil.

Detailed analysis is ongoing to refine these prospect volume estimates and further updates are planned to provide shareholders with this information in due course.

Five Jurassic prospects exist (1,000-1,500 metre target depths) with a further set of Cretaceous shallow (circa 500 metres target depth) oil prospects which could be large in the context of North West Shelf oil prospects and are the focus of the current stage of geoscience studies.

The investment case in this area is particularly attractive because of the combination of very sizable targets and low exploration costs.

The shallow water depths (approximately 50 metres) and shallow oil target depths (500 metres to 3,000 metres) means drilling and development costs are expected to be low relative to normal expectations in the North West Shelf.

Multiple development options are available due to shallow depths, proximity to shore and existing production infrastructure.

Carnarvon is looking to progress its exploration plans with a partner with the intention of drilling one or more prospects while retaining a significant equity interest in the project.

Analysis

Carnarvon has a market cap. circa $109 million, and with cash of A$97.3 million and potential royalty payments of up to US$32 million, it is trading under cash-backing. It has no debt.

Newly appointed non-executive director Dr Peter Moore also brings his involvement in the giant Pluto and Calliance gas discoveries in the region from his time as Woodside Petroleum executive vice president exploration into play.

Besides the Roc-1 well funded by Quadrant and JX Nippon, the company also has oil prospects in its wholly-owned Cerberus Blocks and other exploration opportunities.

These provide a strong pipeline of news flow for Carnarvon.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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