Activities Operations

Papua New Guinea

 

Papua New Guinea


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Papua New Guinea Activities Operations

Horizon Oil has materially expanded its acreage holdings in Papua New Guinea with the award of a 50% interest in a new licence PPL 430 and the acquisition of 90% interests in PPLs 372 and 373. These additions, which are part of the Company's strategy of selectively building up its exploration acreage portfolio in and around discovered hydrocarbon accumulations (as outlined at the 2012 Annual General Meeting), increase Horizon Oil's gross acreage position in PNG from 3,900 sq km to approximately 7,900 sq km and is the designated operator of the three new licences as well as existing licences PRLs 4 and 21.

The above map illustrates the setting of the expanded acreage position in a regional context. PPLs 430 and 372 are very much part of the initial strategy of building up exploration acreage in the liquids-rich "sweet spot" of the foreland basin, where prospects have access to hydrocarbon charge from the prolific Cecilia Trough source kitchen located to the north of the Stanley, Elevala, Ketu and Ubuntu gas-condensate accumulations.

The Company considers PPL 373, which comes as part of the acquisition of PPL 372 and is also largely located in the relatively accessible foreland area, to more likely be prospective for dry gas. However its location offsetting the Kimu gas discovery and the likelihood that Kimu will ultimately be connected by pipeline to a coastal gas commercialisation scheme, makes this acreage an attractive proposition.

An exploration and appraisal program to evaluate Horizon Oil's deep prospect and lead inventory (see map below) is underway, with 67 km of new seismic on PPL 259 having recently been acquired and site work for the Tingu-1 appraisal well in PRL 21 progressing on schedule for a mid-year spud.

Horizon Oil and its joint venture partners are seeking to establish a reserves base of about 2-4 trillion cubic feet of gas, sufficient to supply a mid-scale LNG plant of 2-4 million tons per annum capacity. The Company considers that an aggregated resource base at the lower end of this range has already been identified and the task ahead is to build on this by exploring its substantive acreage position.

Current activities:

On 23 May, 2013 entered into an agreement to sell 40% of its Papua New Guinea assets to Osaka Gas Co. Ltd. of Japan for US$204 million, including US$74 million in cash on completion, a further US$130 million in cash upon FID for an LNG project, plus potential production payments where threshold condensate production is exceeded.

Horizon Oil and Osaka Gas to form a strategic alliance to commercialise Horizon Oil's net certified reserves and contingent resources of 125 mmboe and develop acreage covering 7,900 sq km in Western Province, Papua New Guinea.

Horizon Oil to transfer 40% of its interests in PRL 4 (Stanley field), PRL 21 (Elevala and Ketu fields) and PPL 259 and grant Osaka Gas the option to acquire 40% of Horizon Oil's interests in recently-acquired PPLs 372, 373 and 430 by paying a proportionate share of costs incurred.

Potential profit of approximately US$153 million, made up of US$23 million on completion and a further amount of approximately US$130 million upon achieving the LNG FID milestone.

The sale marks the beginning of a 60/40 strategic alliance between Horizon Oil and Osaka Gas, a leading global gas company and one of Japan's largest utility companies and LNG importers. The principle objective of the partnership is to grow and develop the PNG assets for the purposes of supporting a mid-scale LNG project located on the coast in Western Province. The companies intend to exploit the full potential of the assets via early condensate production, local gas sales and LPG sales and to market their respective shares of petroleum products, especially LNG, on a combined basis.

Completion is conditional upon customary consents, regulatory approvals and grant of the development licence for Stanley field.

Planning for the development of Stanley field and government negotiations relating to the petroleum development licence (PDL) application continued throughout the quarter. Progress was made on negotiation of the Gas Agreement (project fiscal terms) however the Development Forum, which was expected to be convened before the end of 2012, is now likely to occur in March 2013.

Negotiations with the participants in PPL 259 adjacent to PRL 4 regarding the formation of a unit to include the small portion of Stanley field that possibly encroaches into PPL 259 were initiated. The effect on Horizon Oil's interest in Stanley field will be minimal, because the Company is a participant in both licences.

Early works in advance of PDL grant are progressing. Significant progress was made on the civil site construction engineering and tender process. The 3D piping model has progressed and various technical reports required for the project completed. Fabrication of the construction and permanent camp has been completed in China ahead of schedule. Design work on the loadout facility to be located on the Fly River is continuing and pipeline construction bid documents are nearly complete.

Building of the river tanker at a yard in Jiangsu, China under the supervision of P&O Maritime is on schedule to achieve a yard delivery date of January 2014.

 

 


PRL 4 - Stanley (30.00%)

Background:
  1. PRL 4 is located in the forelands of the Western Province of Papua New Guinea, lying in close proximity to the Fly River.  Recoverable P50 resources are estimated at 261 bcf of gas and 8 mmboe of condensate.
  1. A successful workover and production test of the Stanley-1 well was conducted in mid 2008.  The well flowed at rates of up to 30 million cubic feet of gas per day (‘mmcfd’).  The well was tested through a separator unit and stable production rates of gas at 10 mmcfd and associated condensate at a yield of 24 barrels / million cubic feet of gas, with no formation water, were recorded.  These rates were limited by the capacity of the test unit.  Preliminary interpretation of the results indicates reservoir performance at the upper end of expectations.  The Stanley-1 well was suspended on 27 July 2008 as a gas reinjection / back-up supply well.

The good flow rates from the successful Stanley-1 production test have been supported by analysis of the gas properties and condensate content.  A BOD for the Stanley field development was completed by Icon Engineering Pty Ltd.  The better than anticipated deliverability of the gas reservoir and hydrocarbon liquids content of the gas have enabled a substantial gas recycling / condensate stripping development project to be designed.

Following completion of the BOD, the Company commissioned RISC Pty Ltd, a leading engineering consultancy in the region, to carry out an independent audit of all the work carried out by the Company and its advisers on Stanley field in PRL 4 (and the Elevala and Ketu fields in PRL 21).  This included a technical review of resource volumes, development plans, costs and schedules.  The RISC report provided confirmation of the work done to date, in particular on the Stanley gas-condensate project, and allowed an economic evaluation of the assets to be carried out.  Following receipt of this report, work on the initial stages required to bring Stanley field to development began in earnest.

In summary, the proposed project entails the production of 140 million of cubic feet of gas per day from two wells, extraction of initially over 4,000 barrels of condensate per day and potentially 40 tonnes of LPG per day, with re-injection of the dry gas until a gas market develops.  Detailed reservoir modelling supports the recovery of more than 8 million of barrels of condensate over a 10 year period.  The Company lodged the field development plan with the PNG Department of Petroleum and Energy ("DPE") in February 2009.

The participants are:-


Horizon Oil (Papua) Limited (operator)                                 30%

(a wholly owned subsidiary of Horizon Oil Limited (HZN:AU))

Osaka Gas                                                                         20%

Talisman Niugini Pty Limited                                                40%
(a wholly owned subsidiary of Talisman Energy Inc (TLM:US))

Mitsubishi Corp                                                                   10%

Subject to reduction to allow for PNG State Nominee participation at 22.5%

In 23 February 2012 Talisman and Mitsubishi announce strategic joint venture in PNG

Subsequent to the completion of drilling in May 2011, detailed geological and engineering evaluation of the data accumulated during drilling and testing has been finalised. Horizon Oil, on behalf of the PRL 4 joint venture participants and their respective financiers, commissioned RISC to carry out an independent resource audit of the Stanley gas/condensate field development. RISC is the leading oil and gas advisory firm in the region, providing independent commercial and technical advice to the oil and gas industry.

The assessment of reserves and resources was carried out in accordance with the Society of Petroleum Engineers Petroleum Resource Management System to update the independent evaluation carried out by RISC in 2008, prior to the drilling of the Stanley-2 and Stanley-4 wells. The report will be used to:

  • Certify resources to enable Horizon Oil to obtain financing for development capital expenditure funding;
  • Provide independent confirmation of gas resources in anticipation of the field owners entering into gas sales contracts; and
  • Will constitute a key component of the FID (Final Investment Decision) package.

In-place and recoverable hydrocarbon volumes from the RISC report are summarised in the table below. (A glossary of terms is included at the end of this release). In summary, current audited volumes are approximately 30% higher than the pre-drill volumes. Pleasingly, a high level of the 2P (P50) resource is in the proven (P90) category.

RISC has continued to classify the resources as contingent resources, but notes that when FID is approved the condensate resources will move to the reserves category. As gas sales are confirmed, those associated gas resources will also be classified as reserves.

Stanley field will be developed as a condensate recovery project, with the condensate exported to market via pipeline and river tanker. Gas will be available for possible consumption locally in the near term, with the balance of the dry gas volume to be marketed in the future to regional industrial consumer(s) or into a possible large-scale gas aggregation project. As previously advised, front-end engineering and design (FEED) for the development is complete. With reference to the map below, key components of the development are:-


  • The condensate production facility to be located at the surface location of the Stanley-2 and -4 wells (site and access largely complete, detailed design of plant underway and supplier selected);
  • The condensate export pipeline to the port of Kiunga (route selected and survey contracted);
  • A condensate storage facility in Kiunga (site largely prepared); and
  • The condensate load out facility on the Fly River (location selected).

Early 2014 has been targerted for first production from the field.

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Papua New Guinea

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PRL 21 (formerly PRL 5), Elevala/Ketu (27%)

Background:
  1. PRL 21 (former PRL 5) is located in the forelands of the Western Province of Papua New Guinea, lying in close proximity to the Fly River, approximately 65 km from PRL 4.  Recoverable P50 resources are estimated at 480 bcf of gas and 25 mmboe of condensate.
  2. Reprocessing of some 120 km of 2D seismic data across the Elevala structure was carried out, in order to better define the potential closure and assist in selection of an appraisal location.  The success achieved in reprocessing the seismic has led to the decision to process a further 232 km on the Licence area.  New mapping and the potential for a sizeable gas and condensate (50 barrels condensate per million cubic feet of gas) resource underlines the need to develop a commercialisation scheme.


Horizon Oil advises that the Elevala-2 well was spudded with Parker Rig 226 at 1600hrs local time yesterday, 14 November 2011, by its wholly owned subsidiary, Horizon Oil (Papua) Limited. The well has been drilled to a depth of 62 m and the current operation is running and setting 18-⅝” surface conductor, prior to drilling ahead in 17-½” hole.
The Elevala-2 well is located in Petroleum Retention Licence 21 (PRL 21), approximately 50 km east of the port of Kiunga on the Fly River in Western Province, PNG (see map below). The well is designed to appraise the Elevala gas/condensate accumulation, discovered in 1989-1990 by the Elevala-1 well, which flowed on test at a rate of 11.9 million cubic feet of gas and 634 barrels of 54 deg API condensate per day.

The well program is to drill to penetrate the Elevala sandstone and the deeper Toro sandstone down-dip from the Elevala-1 discovery at a location 2.1 km west of that well. The targets will be evaluated to determine the gas water contact, the composition of the hydrocarbon column and the quality of the reservoirs. The planned total depth of the well is 3,500 m to basement. An option to sidetrack to complete the well for production purposes will be available.

  1. Current activities:


Pre-FEED (front end engineering and design) development planning has commenced for the Elevala/Ketu condensate recovery project. A LiDAR (topography) survey is proposed for Q1 2013 to cover the greater Elevala area including potential pipeline routes and road access. Information from the survey will underpin investigation of the preferred development concept, especially the civil engineering aspects. Equinox Engineering, the firm undertaking the design of the Stanley plant, is actively engaged in reviewing facility and pipeline options. The pre-FEED phase is scheduled for completion in May 2013.

The PRL 21 joint venture intends to drill the Tingu prospect, adjacent to and northwest of Elevala field (see map above) in the middle of this year and site work on the drilling program is underway with the target for completion in June.

The participants in PRL 21 are:

Horizon Oil (Papua) Limited (operator)                                          27%
(a wholly owned subsidiary of Horizon Oil Limited (HZN:AU))

Osaka Gas                                                                                18%

Talisman Energy Niugini Limited                                                   32.5%
(a wholly owned subsidiary of Talisman Energy Inc (TLM:US))

Kina Petroleum Limited (KPL:AU)                                                 15%

Mitsubishi Corp                                                                          7.5%

 

In 23 February 2012 Talisman and Mitsubishi announce strategic joint venture in PNG

 

PRL 259 (15%)

Background:

On 24 January 2012 the Company executed a farmin agreement with Eaglewood Energy Inc. to earn a 25% interest in PPL 259 in Western Province, Papua New Guinea. Under the terms of the farmout agreement, after receipt of requisite government approvals transferring a 25% participating interest share in PPL 259, Horizon Oil will reimburse a proportionate share of Eaglewood’s PPL 259 sunk costs (approximately US$2.5 m) and will carry Eaglewood for future seismic and drilling costs to a capped amount of US$6.375 m. The drilling program will be operated by Horizon Oil.

The farmin is part of the strategy of increasing the Company’s acreage position around what is seen as the “sweet spot” for liquids-rich gas in the Papuan Basin foreland, centred on planned production hubs at Stanley and Elevala/Ketu and is timely.

The acquisition will deliver a number of benefits:-

  • The inventory of prospects and leads increases significantly and this will spread geological risk and provide the potential for increasing reserves;
  • the return on the likely investment in infrastructure at Stanley (PRL 4) and Elevala/Ketu (PRL 21) stands to increase by way of potential add-ons from PPL 259 (and also Ubuntu in PRL 28);
  • a larger gas reserves base has the potential to provide the scale needed for monetisation by way of, for example, a small scale liquefied natural gas plant at Kiunga or Drimdenasuk, exporting LNG, LPG and condensate via the Fly River. The proposed road upgrade between Drimdenasuk and the Strickland River (see map) presents as a likely pipeline route for transport of gas from the Elevala, Ketu and Ubuntu discoveries and other add-ons from PPL 259 along its route; and
  • exploitation of PPL 259 offers synergies with Horizon Oil’s existing acreage in PNG in operations, as well as engineering design, implementation, product marketing and shipping.

The participants in PPL 259 are:

Horizon Oil (Papua) Limited (operator)                                          15%
(a wholly owned subsidiary of Horizon Oil Limited (HZN:AU))

Osaka Gas                                                                                10%

Eaglewood                                                                                65%
      

P3GE                                                                                       10%


 

 

 

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