Carnarvon Petroleum Limited (ASX:CVN) is progressing redevelopment plans for the Buffalo Oil Field in the Timor Sea with preparations underway for the first production well.
Buffalo-10 will be the first of three proposed production wells at the project which is covered by the recently signed Maritime Boundary Treaty between Australia and Timor-Leste.
The wells are expected to produce an estimated 31 million barrels of oil over five years and revenue has been estimated at around US$2.2 billion.
The treaty has enabled Carnarvon to progress the Buffalo redevelopment plans while the company and partner Quadrant Energy are drilling at the Phoenix project to the southwest.
This news is likely to have a positive impact on shares, which have recently traded at a 12-month high of 16 cents.
“Low capital and operating costs”
Chief executive officer Adrian Cook said: “The low capital and operating costs mean Buffalo is a very high yielding, standout project at current oil prices.
“It is a project capable of supporting a mix of funding alternatives which could naturally include a portion of Carnarvon’s current cash, debt funding and partner and industry funding where interest is very strong.”
$48 million in cash
Carnarvon had $48 million in cash as at March 31, 2018.
The treaty means the Buffalo oil field will be completely within Timor-Leste jurisdiction.
As such, Carnarvon has established an office in Dili, appointed a specialist Timor-Leste advisor and initiated a series of meetings with government agency Autoridade Nacional do Petróleo e Minerais.
These meetings have demonstrated that the parties are aligned in wanting to achieve first oil as soon as practicable.
Engaging with suppliers
Carnarvon is engaging with suppliers for the redevelopment of the field, including preparing the basis of well design, starting the environmental approvals process and identification of rigs.
The company has also commenced discussions with floating production, storage and offloading (FPSO) providers, and is resourcing staff and contractors.
Field development consists of a well head platform connected to an FPSO through a production pipeline and control umbilicals.
Buffalo-10 will be positioned to test the new oil in the attic accumulation as well as drill deeper into the oil pool in the previously developed portion of the field.
With a depth to reservoir of around 3,250 metres, it is expected to take around 30 days to drill.
It will complete with an extensive formation evaluation program, which will complement the geological knowledge from the previous oil field well intersections.
Cost effective jack-up rig
Being in shallow water of only 25 metres, a cost-effective jack-up rig will be used to drill the well.
Cook said: “The nature of the project is also well suited to Carnarvon in terms of its scale, time to first production and overall risk profile.
“As such Carnarvon intends to take a leading role in redeveloping the oil field.”
Independent cost analysis
Carnarvon commissioned an independent cost analysis of the redevelopment with the report showing capital expenditure below US$150 million.
Annual operational costs were separately assessed in a range of US$80 million to US$100 million, on the basis the field has a production life of around five years.
The total operational expenditure is expected to be between US$400 million to US$500 million.
Buffalo is therefore deemed a low-cost operation with total expenditure representing US$18 to $21 per barrel.
At Brent oil prices of around US$73 per barrel, the field is expected to generate around US$2.2 billion in revenue.