Carnarvon Petroleum (ASX:CVN) has received observed encouraging gas and associated liquid hydrocarbons at the Apache Corporation (NYSE:APA) operated Phoenix South-1 well in the North West Shelf off Western Australia.
The company has a 20% interest in WA-435-P where the well is located and is free carried for drilling by Apache and JX Nippon to a cap of US$70 million (A$74.39 million).
Notably, the result validates the conceptual exploration model created by its interpretation of the original Phoenix-1 well that was drilled by BP in the early 1980s.
The gas and liquids were encountered prior to a drill bit failure that has required the drilling of a minor side-track around a small portion of the well bore.
"The observance of gas and associated liquid hydrocarbons validates the conceptual exploration model created by the interpretation of the original Phoenix-1 well outcome drilled by BP in the early 1980's," Carnarvon managing director Adrian Cook said.
"These observations are encouraging, although I would caution that they are untested, unquantified and preliminary observations only.
"This outcome has provided Apache with the encouragement to continue drilling, justifying the additional cost and time delay associated with drilling a second side-track well bore."
He added that while the second sidetrack would result in additional cost and time delay, it would be significantly less than the initial sidetrack.
"The plan is continue drilling to the target depth of 4,500 metres MD in order to test the sands that were observed to this depth in the Phoenix-1 well," Cook added.
"At this stage it is premature to make any conclusions around the quality of the observed gas or liquid hydrocarbons, their volumes or whether they will flow and accordingly whether they could result in any commercial development.
"Further drilling and evaluation is required before we are able to be more definitive and I will update the market as soon as we have the necessary information to hand."
Drilling to Date
The primary target within the Early to Middle Triassic Lower Keraudren Formation sands was intersected as expected at approximately 4,160 metres MD, about 10 metres high to prognosis.
Elevated gas readings were observed through this sand, with gas peaks being encountered from around 4,170 metres MD as the sands being drilled were cleaning up.
From the surface gas sampling while drilling, an increase in the measured C1 through to C5 hydrocarbons was observed through the section, indicating the potential for hydrocarbon liquids.
Logging while drilling formation evaluation tools indicate potential reservoir quality sands were intersected in these formations.
The forward plan is to side-track around the current hole to a total depth of around 4,500 metres to fully evaluate the gas charged sands that were still being drilled.
At the completion of the drilling, Apache plans to run wireline logging formation evaluation tools that will aid in determining any net pay and the composition and extent of any moveable hydrocarbons.
The mud logs indicate reservoir section from 4,160 metres MD until 4,245 metres MD, at which time the well encountered total losses and logging was interrupted.
Logging recommenced from 4,265 metres MD until the bit failure at 4,321 metres MD.
While gas was continually being observed at rates significantly higher than background, the quality of the measurements was compromised because of the continual losses.
Final analysis of all data from the well could take several months.
Phoenix South-1 is being funded by Apache and Nippon to a cap of US$70 million though the first side track could cost Carnarvon around $6 million if this limit is exceeded.
Success in the Phoenix South-1 well is likely to lead the Joint Venture to drill the Roc well in the adjoining WA-437-P permit.
This is a similarly large structure identified on modern 3D seismic data and is the next structure up from Phoenix South. Funding for this well has been secured through an agreement with Apache and JX Nippon.
Carnarvon is well-funded with cash of $50.5 million as of 30 June 2014, up to $35 million in future receivables and no debt.
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