Carnarvon Petroleum (ASX: CVN) is reaping the benefits of new wells drilled on its Thailand oil acreage with net production for the March 2014 Quarter increasing by 28% to 59,383 barrels.
Along with a 2.2% increase in the average sale price to $103.7 per barrel over the previous quarter, this sent its revenue up 32% to $6.2 million.
Separately, partner Apache Corporation (NYSE: APA) has reaffirmed plans to drill in late May or June this year the highly anticipated Phoenix South-1 well, which targets multi-trillion cubic feet of gas in Australia’s offshore North West Shelf.
“Production in Thailand is performing very well and as announced on 13 March 2014, flow rates are now deliberately being restrained to preserve the longevity of the new wells,” managing director Adrian Cook said.
“This is a new approach to managing these types of wells and we’re keen to see if they perform as expected over the long term, and importantly, slow the ingress of water, which has been a problem for this field in the past.”
Carnarvon had $21.2 million in cash and cash equivalents as at 31 March 2014.
Thailand Oil Production
During the March quarter, a total of six wells were drilled, completed and commenced flow-testing in the main L44/43 concession (Carnarvon 40%).
This includes the WBEXT-3C deviated development/appraisal well that flowed at initial rates of up to 3,500 barrels of oil per day (bopd) and the WBEXT-5A exploration well that successfully intersected several sandstones east of the current WBEXT production area and has been put on 90-day test with rates of around 80 to 100bopd with no water.
Operator Towngas (60%) is currently carrying out testing operations on the WBEXT-3D well, which is a follow-up to WBEXT-3C well, in the same fault block but interpreted to intersect the igneous V1 reservoir around 20 metres updip.
At quarter end, the production from the field was being deliberately limited to around 3,000bopd in a bid to preserve the longevity of new wells and slow the ingress of water.
Progress is also being made on the water injection project with about 28,000 barrels of water injected into the reservoir during the quarter.
The reservoir continues to pressure up while water production from the fault block remains low, leading the joint venture to anticipate future production increases as the project is optimised.
Notably, the water injection process has arrested the previous natural field decline and marginally improved production results from the first few months of operation.
The operator is undertaking additional field work intended to further lift production, in addition to that from continued water injection.
Recent independent assessments have also reported that Carnarvon’s oil reserves in Thailand are in line with last year with Proved Reserves net to the company at 3.2 million barrels and Proved and Probable Reserves at 11.8MMbbl.
Carnarvon had on 3 March announced the sale of half its 40% interest in Concessions SW1, L44/43 and L33/43 to Singapore’s Loyz Energy (SGX: 594) for an initial US$33 million on completion and up to US$32 million to be paid annually at the rate of 12% of the buyer’s future revenue, to a limit of US$10 million per annum.
“Following completion of the sale, Carnarvon expects to have cash of approximately A$50 million with no debt or hedging, and minimal commitments,” Cook said.
“The additional cash puts the company in a strong financial position for success in the Phoenix South-1 well and alleviates market concerns about needing to raise additional capital in the short term.”
North West Shelf
Operator Apache Corporation and partner JX Nippon are funding the cost of drilling the Phoenix South-1 well in WA-435-P and the contingent Roc-1 well in WA-437-P to a cap of US$70 million each.
Carnarvon has a 20% interest in both permits.
Phoenix South, which targets multi-Tcf of gas in Australia’s prime offshore gas province, is located on the border of WA-435-P and WA-437-P, which together cover about 28,000 square kilometres of contiguous acreage that are considered to be highly prospective for discovery of hydrocarbons.
The permits include gas discoveries made in the early 1980’s by BP at Phoenix-1 and Phoenix-2 that were considered uneconomic due to low gas prices at the time they were made.
Since then, rising gas prices both on the domestic and export liquefied natural gas markets have increased, making these historic discoveries potentially economic.
Besides their gas potential, both Phoenix South-1 and Roc-1 have the potential to contain liquids-rich gas based on Phoenix well mud logs in comparison with mudlogs from condensate-rich North West Shelf gas fields.
Given the potential scale of the resource and its proximity to existing and under construction infrastructure – including LNG, a success at Phoenix South has multiple options for development.
In addition, a number of other oil and gas leads are present in the two permits.
The rise in Thailand oil production clearly validates Carnarvon Petroleum’s strategy to convert its existing sandstone field in the L44/43 concession into a high value igneous and sandstone asset have clearly paid off.
It also clearly demonstrates the draw it had on Singapore’s Loyz Energy, which is paying up to US$65 million for half of Carnarvon’s 40% interests in its three onshore Thailand oil producing assets.
Notably, the increased production will offset the impact of selling half of the assets while allowing the company to reap the benefit of having $50 million in bank (post-sale) along with future sale royalty payments.
All eyes are now on the exciting Phoenix South-1 well that will be drilled late this month or in June.
This is a potential game changer for Carnarvon given that is free carried by Apache and JX Nippon for its 20% interest to a cap of US$70 million for both Phoenix South-1 and the contingent Roc-1 well.
With an influx of cash expected soon, Carnarvon’s current market cap. of circa $95 million is leveraged to the highly anticipated exploration program.
Proactive Investors continues to maintain a share price target of between $0.14 and $0.16 within 6-9 months.
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