Carnarvon Petroleum (ASX: CVN) expects to increase gross oil production from its L44/43 Concession in Thailand to 4,000 barrels of oil per day from the current 3,000bopd with the start of production from the WBEXT-3D well.
The company also noted the sale of half its 40% interest in Concessions SW1, L44/43 and L33/43 to Singapore’s Loyz Energy (SGX: 594) for up to US$65 million will be completed soon.
WBEXT-3D, a follow-up to the successful WBEXT-3C well, which had flowed at initial rates of up to 3,500bopd, was recently brought into production and is currently being tested.
The well targeted the same fault block as the previous well but is interpreted to intersect the igneous V1 reservoir around 20 metres updip.
Production at WBEXT-3D is expected to be choked back – reducing oil production – over the coming weeks to reduce the chance of early water incursion due to water coning.
This is still expected to increase gross daily field production to about 4,000bopd from the average of 3,000bopd between 1 and 17 April 2014.
Previous wells in this region, in similar reservoir, have produced at similar rates for one to three months before water ingress resulting in significant declines in production rates.
L44/43
The success of the WBEXT-3D well and is expected improvement on field production validates Carnarvon and operator Towngas’ decision to convert the existing sandstone field into a high value igneous and sandstone asset.
Six wells had being drilled in the March 2014 quarter while water injection had arrested the previous natural field decline and marginally improved production results from the first few months of operation.
Towngas is undertaking additional field work intended to further lift production, in addition to that from continued water injection.
Divestment Agreement
Carnarvon also noted that its Sale and Purchase Agreement with Loyz to divest half of its 40% interest in the SW1, L44/43 and L33/43 Concessions in Thailand will be completed soon.
The agreement contains a number of standard industry conditions and both parties are currently working to satisfy them.
It will receive an initial US$33 million on completion, bringing its cash at hand up to about A$50 million.
In addition, the company will receive 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.
Analysis
The continued growth in L44/43 production highlights the value of pursuing the igneous reservoirs and is value accretive going forward.
Importantly, the WBEXT-3D is expected to boost field production by 33% to 4,000bopd despite being choked back to reduce the chance of early water incursion.
With two igneous wells returning such strong results, it also bodes well for future wells targeting similar reservoirs.
To top it off, further increases in production would offset, or possibly maintain its net oil production, despite the impact of selling half of its Thailand assets to Loyz Energy while allowing the company to reap the benefit of having $50 million in bank (post-sale) along with future sale royalty payments.
Proactive Investors maintains a share price target of between $0.14 and $0.16 within 6-9 months.
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