Horizon Oil - Oil and Gas Exploration Production
Activities Operations
China
Block 22/12 - Beibu Gulf (26.95% / 55.00%)*
Current activities
The operator of the WZ6-12 and WZ12-8W development, China National
Offshore Oil Corporation (CNOOC), continues to make good progress. Basic engineering design for platform and pipeline facilities is complete and award of the detailed design contract is imminent. The overall project was approximately 8% complete at the end of the quarter.
Procurement of equipment and service packages is advancing well, as is
contracting for fabrication and offshore installation of the major components of the project (see schematic below). The auxiliary platform PUQB and wellhead platform construction contract was awarded to COOEC, a CNOOC subsidiary, on 15 September 2011. COOEC has also been contracted to install the facilities. Pleasingly, over half of the estimated total project cost of about US$300m is now subject to fixed price contracts and at prices lower than those estimates contained in the overall development plan (ODP).
Planning for the development drilling and completion program continues.
It is intended that four in- and near-field exploration/appraisal wells will
be drilled in the development drilling phase in 2012. Three of the wells are planned to be drilled from the WZ6-12 platform following its scheduled installation in Q2 2012. If successful, these wells will be completed and equipped as production wells as part of the Phase I development. The fourth well will be a vertical test of the deeper zones of the WZ6-12 (north) structure.
While CNOOC, as operator, continues to anticipate first oil from the
project before the end of 2012, ongoing nationwide reviews by the State
Oceanic Administration (SOA) into offshore operations following an
incident in June at the Conoco Phillips operated Penglai oil field in the Bohai Bay
could potentially delay this schedule. This is seen as essentially an administrative approval
matter, rather than practical, because the Block 22/12 fields are in a different basin and not
subject to the difficulties faced in the Penglai field. Contingency plans are being prepared to
ensure that delays, if
experienced, are minimised.
Background:
The Petroleum Contract for Block 22/12 was awarded to Bligh Oil and Minerals (later Horizon Oil Limited) in 2001 for an initial 4 years and has been extended twice so far to a total of 8 years. Roc Oil farmed into the Block in 2002 to drill the Wei 6-12-1 well and also undertook operatorship.
Block 22/12 is a 364 sq km permit located in the Beibu Gulf offshore China in approximately 40 metres of water. The block is located near several known oil fields, with the nearest productive field being Wei 12-1, located 1,800 meters from the Block 22/12 boundary. Several discoveries have been made in the block; Wei 12-8-1 and Wei 12-3-1 by Total in the 1980’’s, Wei 12-8-2 and Wei 12-2-2 by CNOOC in the 1990’s and Wei 12-8-1 and Wei 6-12 South-1 in 2002 and 2006 respectively by the current joint venture. None of these fields have been developed. The block contains 58 mmbbls of oil in the Wei 6-12 and Wei 12-8 areas, with around 8 mmbbls in resources contingent on successful appraisal of the Wei 12-2 discovery.
Following the discoveries at Wei 6-12 and more significantly, Wei 6-12 South in 2006, Horizon Oil and its co-venturers commenced formulating appropriate development concepts in consultation with the China National Offshore Oil Corporation (‘CNOOC’). This process has culminated so far in the approval by CNOOC of the field reserves report, and completion of various metocean and environmental impact studies.
* Post-CNOOC backin:-
HZN 26.95%
CNOOC 51.00% (Operator)
ROC 19.60%
Majuko Corp 2.45%
CNOOC Limited (China National Offshore Oil Corporation), as the delegated authority, has internally approved Project Investment and the Overall Development Plan (ODP) for the WZ6-12 and WZ12-8 West oil fields in Block 22/12, Beibu Gulf, South China Sea. Project Investment and ODP will be submitted to Chinese Government Authorities for formal approval, although it is noted that early development preparation activities such as preliminary engineering design work and bidding for long lead equipment are already underway. The Financial Investment Decision (FID), have been approved on 14 February 2011.
Horizon Oil’s interest in the development is 14.7% and its share of certified proven and probable recoverable reserves for WZ6-12 and WZ12-8 West of 24 million barrels of oil is 3.5 million barrels. The Project Investment and Overall Development Plan (ODP) have now been submitted to the relevant Chinese Government Authority for formal approval, although it is noted that development preparation activities such as engineering design work and procurement of long lead equipment are already in progress.
Early development preparation activities such as preliminary engineering design work and bidding for long lead equipment are already under way. To take advantage of the existing synergies and lower cost structure, CNOOC will operate the project facilities on behalf of the joint venture and will be responsible for engineering and construction.
The development project plans to utilise existing CNOOC-operated facilities, including water disposal wells, oil and gas export facilities and the Weizhou Island oil terminal. A new CNOOC-operated integrated processing platform (PUQB) will host production from two unmanned platforms on the WZ6-12 and WZ12-8 West fields and support production from other new CNOOC fields (see schematic below). Eleven development wells are scheduled to be drilled during 2012 and 2013, with first oil production anticipated before year-end 2012. Operating costs are expected to be consistent with other CNOOC-operated fields in the area.
Provision has been made to drill several exploration prospects from the two new well platforms to further test reservoir limits and identified near-field prospects. The prospects are currently being matured and success will potentially increase the Development Area’s commercial reserves and also potentially the peak production rate. The WZ12-8 East field, also located within the approved Development Area, is currently undergoing feasibility studies. If commercially attractive, development of the WZ12-8 East field will constitute the second phase of an integrated development following completion of the current WZ6-12 and WZ12-8 West project.
The positive features of the above arrangements are:-
- The cooperative arrangements that have been agreed with CNOOC to use existing crude oil processing and export infrastructure serve to reduce capital cost and project risk. This is further enhanced by the local experience and economies of scale that CNOOC will bring as operator of the development and production phases of the project.
- The development plan provides for further exploratory and appraisal drilling, with the potential to considerably expand the currently certified recoverable reserves. Specifically the upside potential includes the discovered WZ12-8 East oil accumulation which, subject to successful conclusion of current feasibility studies, will constitute the second phase of an integrated development and also several ‘close-in’ and ‘drill deeper’ prospects in the WZ6-12 area, which may be accessed from the new wellhead platform planned in that area.
- The above factors will make the Block 22/12 attractive for potential bank financing. Horizon Oil does not specifically require debt finance to fund its approximate US$45 million share of the capital cost, being able on current planning to fund the project out of cash reserves and cash flow from its producing operations in New Zealand. However in view of the other development opportunities available to the Company the decision has been taken to obtain a debt facility to fund the combined development program.
On 2 June 2011 Horizon Oil announced it has signed an agreement with Petsec Energy Limited to buy Petsec's 25% interest, which includes a 12.25% interest in the WZ6-12/12-8W oil fields development.
The acquisition will be achieved through the purchase of Petsec Petroleum LLC (holding company for Petsec's interest in Block 22/12) for A$38 million (approx. US$40 million) cash plus the issue of 15 million options in Horizon Oil. The options will have an exercise price of A$0.37 and a term of 3 years.
The acquisition of the additional interest in Block 22/12 will increase Horizon Oil's stake in the develoopment project from the current 14.70% to 26.95%.
* CNOOC has a back in entitlement of up to 51% total equity in the field development.