Red Sky Energy (ASX:ROG) will target the Flax Oil and Gas Project in the prolific Cooper Basin of northeast South Australia to deliver near-term revenues.
This decision was taken after the company completed a strategic review on its Cooper Basin projects.
The Flax project contains a 2C Contingent Resource of 9.9 million barrels of oil and six wells at the project have historically produced over 180,000 barrels of oil grading 54 API.
Two development phases
Red Sky has outlined two development phases at Flax with the first designed to be a low capex, quick revenue starter project.
The second will target the substantial 2C contingent resource that could potentially be increased by using enhanced oil recovery (EOR) techniques.
“Option of restarting oil production”
Red Sky managing director and CEO Andrew Knox said: “We believe we have the option of restarting oil production from the existing six oil wells at our 100%-owned Flax Project.
“Given in place infrastructure this is likely to be very low capex and should provide for early cash flows, particularly in light of current Australian dollar oil prices.
“We also believe we have enhanced oil recovery options available that may increase our 2C contingent resource of 9.9 million barrels of oil to something substantially larger.
“And when you consider oil of the quality that has been historically produced from Flax is currently selling at around A$100 per barrel FOB Flax, that could result in very substantial revenues.”
The company has also received consultant advice suggesting that natural gas within the reservoir, which amounts to 24 BCF, could be used to boost oil recovery by a factor of three to four times.
Test wells will be necessary to demonstrate the potential of the advice which lays the basis for the second phase strategy:
- Test EOR options using gas recycling and horizontal drilling to increases flow rates;
- Complete engineering studies to determine likely up-front capital and operating costs;
- Secure offtake contacts to support development; and
- Begin construction of a larger operation.