Egdon Resources (EDR) listed on AIM towards the end of 2004 raising £4.5m with a focus on oil and gas exploration and development onshore UK and France. Prior to listing two of the three wells that the company had participated in discovered commercial oil, namely Avington-2 and Waddington Cross-2 appraisal wells. Both of the wells were oil producers and EDR hoped to get these discoveries into production with 12 months. Priority for the company was to firm up the size of the fields and come up with development strategies, and to further de-risk other prospects with 3D seismic.Onshore and offshore UK has a rich abundance of source rocks for the production of hydrocarbons. The coast of England and particularly the Jurassic coast of the South East are sourced by Kimmeridge shales and mudstones, which got their name from the oil discovery in Kimmeridge bay in 1959. Exploration in the area led to the discovery of the giant Wytch Farm, by BP in the 1970?s. The North of England has source rocks in the Carboniferous comprising of mudstones (for oil generation) and Westphalian Coal measures (gas and condensate) as the main source of gas accumulations in the North and Midlands area, as well as offshore in the Southern Gas Basin of the North Sea. The UK onshore is largely under-explored and targets tend to be small with only modest flow rates due to the shallow depths of most prospects. UK onshore is not really of much interest to the majors so small cap explorers can fill the niche.
France
In April 2005 EDR farmed out part of its working interest (wi) in the St Laurent licence in the south of France to Masefield Energy Holding AG, reducing EDR?s interest to 33.42%. The licence area holds the Grande heavy oil discovery that has been estimated to hold from 68-485mmbbls of total oil in place. The oil is thought to be approximately 10 degrees API and was discovered in the Adur-1 well drilled by ELF in 1975 which encountered a 97m column of oil. Principally the oil field has remained undeveloped as heavy oil trades about 50% less than intermediate and light crude. Typically heavy oil can be high in sulphurous impurities and less cost effective to produce. Futhermore the recovery factor can be less than 20% of the total oil in place and often require secondary recovery techniques. Modern oil recovery techniques and a price for heavy oil many times that of 1975 has made these types of fields more economically viable.
UK onshore gas storage
Egdon identified the lack of available gas storage in the UK as reliance on imported gas increased. As such, suitable depleted oil and gas fields would be required to store the imported gas for peak usage periods. UK annual gas consumption is around 114 billion cubic metres, with a storage capacity of approximately 3.25% annual consumption, compared to 25% in France and 21% in Germany (National Environment Research Council). This shortage prompted EDR to look for suitable reservoirs that could be prepared for gas storage at the Isle of Portland in Dorset. In April 2006 EDR confirmed that their Portland-1 well, investigating the potential for gas storage in salt caverns, discovered a salt sequence of 135m in thickness. The German Engineering firm DEEP suggested that the reservoir was capable of storing 250,000 cubic metres of gas once prepared for storage. EDR hope to develop 14 salt caverns capable of storing 34Bcf of gas.
UK onshore
EDR?s main focus was to drill multiple cheap shallow wells that could be quickly developed in comparison with the long lead times between discovery and development in the North Sea. EDR added to their 19 onshore licences with assuming operatorship of PEDL068 from Sterling Resources UK Ltd. Almost immediately EDR planned to drill two wells, Westerdale-1 and Kirkleatham-4, lead to a six well drilling programme.
The first well of the programme, Waddock Cross-3, was to target an elevated part of the Waddock Cross oil accumulation identified by the recent 3D seismic survey. A 600 m horizontal section was drilled and completed through the reservoir. The well was completed in December 2005 but tests revealed that the well was producing with a very high water cut - only 12% of the total was oil, i.e. 32-48bopd ? so the well was suspended until pump and processing equipment was acquired for the well to be further tested before being put into production.
Kirkleatham-4 was drilled immediately following the Waddock Cross-3 well. The Kirkleatham prospect was originally tested by two wells in the mid 1940s, with testing producing sub-commercial gas-flows in both wells from Permian age Zechstein carbonates. After completing modern seismic the gas was thought to be trapped up-dip from the previous two wells. The well reached total depth of 936 on the 7th of January 2006; a gas column of 19m was logged in the Cadeby formation with high gas saturation and good porosity recorded. 6m of perforations at the top of the Cadeby formation flowed at 2.8mmcfd when tested (466boepd), with a maximum test rate at 5mmcfd (approx. 833boepd). The well was suspended as a future producer and more seismic was planned to further define the Kirkleatham accumulation.
Westerdale-1 was designed to test an accumulation 50.5m up-dip and 3.7 km to the north of the Ralph Cross-1 gas discovery made by Home Oil Limited in 1966. Ralph Cross-1 tested gas at flow rates of up to 6 MMcfd from a 20.5m gas column in fractured Zechstein carbonates. In February 2006 the well was completed to 1,304.5m and logged two potential gas pay zones in a Permain age Brotherton carbonate and also in Carboniferous sandstone units. The Brotherton carbonate section flowed 130Mcfd when tested, and a decision was made to acid stimulate the well to see if commercial flow rates are achievable.
In May 2006 EDR farmed out 50% of its interest in PEDL071 to Granby Oil & Gas and to two subsidiaries of Gas Plus Italiana S.p.A. PEDL071 contains the Fraisthorpe-1 well and will be drilled to a depth of approximately 1800m early in 2007; EDR will retain 25% interest in the licence. The Fraisthorpe-1 well will target a Permian Leman Sandstone prospect and is located some 7 kilometers to the south of the Caythorpe gas field which produces from the same formation. The interpretation of the seismic data has indicated that the prospect has potential for up to 56 billion cubic feet of gas in place; usually 60-70% of any gas proven in place will be recoverable. As Fraisthorpe is an exploration prospect it still carries all of the associated risks of a potentially non-commercial result. Partners will be hoping that the high prospectivity of the area is reflected in their outcome. EDR also farmed out 50% of PEDL141 to Seven Star Narural Gas Ltd in August. PEDL141 contains the Nook Farm gas field which was discovered by shell in 1982. The field size is thought to be between 0.88Bcf and 3.83Bcf; the discovery well flowed at 1.12MMcfd (186boepd).
In December 2006 EDR acquired PEDL005 from Roc Oil GB Ltd. which contains the Keddington oil field that has produced 173,000 barrels of oil to date. Keddington has two producing wells that are currently shut-in pending work over and EDR hope to resume production in 2007 as well as potentially drilling an exploration prospect on the licence.
UK onshore
EDR were awarded UK North Sea block 15/7, along with AIM-listed Nautical Petroleum, in the 23rd Seaward Licensing Round announced in September 2005. Block 15/7 contains an identified heavy oil accumulation, which was discovered by Texaco in 1977. Nautical will assume the operatorship of the licence, and both companies will be required to reprocess 2D and 3D seismic data. The initial licence term is for 2 years. The heavy oil accumulation has been suggested to contain 16mmbbls of prospective reserves net to EDR. A well is planned for the Tees prospect in block 42/27 during 2007; EDR have a 10% interest in the block.
Conclusion
EDR has a mixture of low cost onshore light oil and gas developments as well as some heavy oil onshore France and in the North Sea block 15/7, and a total of 19 licence areas containing upwards of 50 drillable prospects. The multiple shallow well programmes onshore are steadily building a production base for the company and will provide cash flows to aid their heavy oil development in the St Laurent licence. An active field development programme allows for a mixed exploration risk as well as drilling a number of pure exploration prospects in 2007. EDR are moving from the gas storage focus by demerging its Portland gas storage facility. The company recently raised £11.5m in a placing so should have adequate funds to further its large heavy oil appraisal. The oil field at St Laurent could have significant appraisal potential, and as long as light and intermediate crude oil prices remain above $40/bbl economics should remain attractive. Steam will most likely be required to assist heavy oil flow, but nonetheless it could be a company maker for the future. Until then EDR have plenty of shallow targets to keep them occupied.