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Carnarvon Petroleum Cash War Chest Swells To A$108M After Thai Asset Sale

Carnarvon Petroleum (ASX:CVN) is now funded to explore the Phoenix area in the North West Shelf following the divestment of its Thailand oil production concessions.

The sale strengthens its balance sheet with cash of about A$108 million after providing for transaction related costs.

The Phoenix area includes the Phoenix South-1 well in WA-435-P that discovered a new oil bearing hydrocarbon province. This contains light oil with exceptional quality and highly favourable mobilities.

Demonstrating its prospectivity, partners Apache Corporation (NYSE:APA) and JX Nippon had committed to drill the follow-up Roc-1 well in the adjacent WA-437-P permit.

In December 2014, the company agreed to sell its remaining 20% interest in its Thai assets to the Berlanga Group for a base consideration of US$50 million plus final completion adjustments.

In addition, Carnarvon retains its US$32 million receivable in the Thai assets, agreed to as part of the Loyz transaction announced in March 2014.

"We are pleased to have completed another important step in transitioning the company into a well-funded and well-resourced North West Shelf focused business," managing director Adrian Cook said.

"Carnarvon now has the cash to ensure it can add value in the Phoenix area through further exploration and appraisal activities, fund ongoing corporate costs through the US$32 million receivable linked to Thailand oil field revenue and grow the business through further exploration activities, such as those relating to its 100% held Cerberus blocks in the Carnarvon Basin."

Phoenix Area

In August 2014, Carnarvon and its partners struck oil at the Phoenix South-1 well with subsequent evaluation of samples confirming that it is high quality light oil.

Reservoir permeability inferred from pressure build-up during oil sampling ranges from tens to hundreds of millidarcies.

The ability for oil to flow from the reservoir is demonstrated by the recovery of these six oil samples, as well as being supported by the reservoir permeability results is indicative of a productive oil reservoir.

The oils are significantly under-saturated and there is no indication of a primary gas cap.

Apache and Nippon also committed to drill the follow-up Roc-1 well to a cap of US$70 million.

In January, the partners stepped up exploration by licensing modern 3D and 2D seismic that is being acquired over the Phoenix area in the North West Shelf off Western Australia.

The Polarcus Asima seismic vessel has started acquisition of the large Capreolus 3D multi-client seismic program.

The JV will license about 5,100 square kilometres of this program over WA-435-P and WA-437-P.

This increases the total modern 3D seismic to about 10,000 square kilometres of the 22,000 square kilometres covered by the four contiguous Phoenix area permits.

Additionally, a new two dimensional seismic acquisition program will acquire modern 2D seismic data over most of the remaining acreage holding.

Carnarvon will invest about A$10 million from existing cash to fund its share of acquiring the seismic data.

Operator Apache is currently undertaking the technically complex and thorough process of assessing the Phoenix South-1 well results on behalf of the joint venture.

The length of the evaluation period is due to the discovery of a new oil bearing hydrocarbon province when gas was anticipated as well as low porosity rock interspersed with intervals of potential high flow characteristics.

Discovering a new oil bearing hydrocarbon province means that any previous work is either redundant or requires re-evaluation.

Cerberus Blocks

In late May 2014, Carnarvon was awarded three contiguous blocks on the eastern flank of the prolific oil producing Barrow Sub basin - Petroleum Exploration Permit EP-490, TP/27 and EP-491 (The Cerberus Permits).

Carnarvon is operator and 100% working interest holder in these blocks that cover a total area of around 3,200 square kilometres.

The company was awarded these blocks as part of the government's gazettal process.

The blocks were attractive because of their proximity to a known oil producing province, and importantly, they were acquired with minimal cost commitments in the primary term with drilling not required until the fourth year of the work program, being a discretionary commitment.

With the aid of modern 3D seismic data, which has recently been acquired and reprocessed, Carnarvon's technical team has already identified a number of material oil prospects.

Three large prospects have been high-graded for near-term drilling.

Numerous additional leads and prospects have been identified in multiple play types, including the well-known Jurassic play, and an evolving play in the Permian and Triassic, which has been proven in the recent Phoenix South-1 well.

With a combination of shallow water depths (in the vicinity of 50 metres), and shallow depths to target ranging from 1000 metres to 2,000 metres, drilling costs are expected to be manageable.

Multiple development options exist due to shallow water depth, shallow target depth, proximity to shore and oil and gas production infrastructure nearby.

The company will look to introduce at least one joint venture partner to drill one or more of these prospects while retaining a significant equity interest.

EP-475-P permit

During the December Quarter 2014, Carnarvon entered into an agreement to acquire the EP-475-P exploration block at a nominal cost. The acquisition is currently subject to the standard government approvals.

EP-475-P is a shallow water block contiguous to and south of Carnarvon's Cerberus permits, and is an extension of the play types being developed in those blocks.

Similar to the Cerberus blocks, EP-475 is nearby and on-trend with undeveloped resources in Early Cretaceous sands and is in the vicinity of wells with significant oil and gas shows.

Since acquiring the exploration block the company has extended the seismic 3D coverage to include the outboard sections of WA-475-P and has begun the technical work required to high grade the leads in the block including Locker submarine canyon and fan traps.

These types of structures have the potential to trap significant volumes of hydrocarbons.

Evidence of a working petroleum system is supported by satellite seeps of hydrocarbons to surface and direct hydrocarbon indicators ("DHI") from the seismic data.

At the completion of the currently undergoing technical work Carnarvon will market this block to attract a partner in conjunction with the Cerberus blocks.

Fully Funded

With the completion of the Thai divestment, Carnarvon is fully funded for further activity in the North West Shelf in 2015 with A$108 million in cash.

It also retains its US$32 million receivable as part of the Loyz transaction earlier in 2014.

Analysis

The completion of the Thailand divestment ensures that Carnarvon Petroleum is fully funded for exploration activity in the highly prospective North West Shelf.

This includes its share of costs to license new 3D and 2D seismic that is being acquired in the area. The data will provide important new insights regarding the regional geology and its prospectivity.

News flow ahead includes a more comprehensive update on Phoenix South-1 sometime toward the end of the first quarter of 2015; drilling of Roc-1 in the middle of 2015; and finding a partner for the Cerberus blocks in the offshore Carnarvon Basin, Western Australia.

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