Horizon Oil - Oil and Gas Exploration Production
Activities Operations
Papua New Guinea
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Papua New Guinea Activities Operations
PRL 4 - Stanley (100.00%)
Background:
- Previously the holder of a 27.95% interest in the PRL 4 joint venture, Horizon Oil completed the purchase of the remaining 72.05% interest in April/May 2008. As a result of the purchase, Horizon Oil’s interest in PRL 4 now stands at 100% and the Company has assumed operatorship. The acquisition of the additional interest remains subject to PNG Ministerial approval.
- 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.
- 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.
Current activities:
The better than anticipated deliverability of the gas reservoir and higher hydrocarbon liquids
content of the gas have enabled a substantial gas recycling / condensate stripping development
project to be designed. The BOD involves the production of 140 million 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 barrels of
condensate over a 10 year period, which is expected to be priced at about a US$5 per barrel
discount to Tapis crude. The plan provides for a 4” flow line to transport the condensate from
Stanley field 40 km to the river port of Kiunga for shipment to customers.
The test information and hydrocarbon samples from the production test were comprehensively
evaluated and the results provided to Icon Engineering Pty Ltd, a Perth-based oil and gas
engineering and construction firm, for the purposes of providing a Basis of Design (BOD) for
development of the resource.
The principle risk that remains relates to the continuity and connectivity of the productive gas
sand over the structure. It is not assessed as being high, based on seismic mapping, pressure
build-up recorded during the production test and the presence of the target sandstone observed
in surrounding wells. Nevertheless, a financial investment decision on the project will not be
made until the results of the Stanley-2 appraisal well, which if successful will be completed as a
gas supply well, are in hand. Should the well be drilled in 2009, the Company believes the
condensate stripping project can be onstream in 2010.
Horizon Oil has engaged with the Department of Petroleum and Energy in PNG for the
purposes of obtaining a Gas Agreement and Petroleum Development Licence over the field.
The PNG Government has the right to participate in the project at a level of 22.5%.
Shareholders have been advised that Horizon Oil has been in discussions with PNG Sustainable
Energy Limited (PNG SEL) regarding the use of Stanley gas to supply power to the nearby Ok
Tedi mine (see map). This was going to involve the supply of relatively small volumes of gas to
PNG SEL and the stripping of a modest amount of condensate. The results of the Stanley-1
production test and the various engineering studies that have now been completed support the
viability of a much larger and more lucrative liquids project, as described above. This fact,
coupled with recent advice from PNG SEL of uncertainties with the economics of the small Ok
Tedi power project, has shifted Horizon Oil’s focus to the liquids project. Inevitably this will
have a higher capital cost and come on stream roughly one year later.
Notwithstanding the hesitation regarding Ok Tedi, Horizon Oil has identified a potentially
sizeable market for power in the Western Province of PNG and across the border in West
Papua. The Company believes that the replacement of existing fuel oil and diesel-fired power
generation in this area with gas-generated power could account for the entire Stanley gas
resource, which has been evaluated by an independent expert to be 260 billion cubic feet of gas
at the Proven and Probable (2P) level. The way forward will be to begin with condensate and
possibly LPG stripping with re-injection of dry gas and then divert the dry gas to power
generation as that market develops over the next 5 years or so.
PRL 5, Elevala / Ketu (49.65%)
Background:
- Horizon Oil’s interest in PRL 5 is now 49.65%. 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.
- PNG Sustainable Energy Limited (‘PNG SEL’) has also approached the PRL 5 participants, proposing a similar study to focus on the Elevala and Ketu discoveries (refer to discussion at PRL 4). In this case the joint venture decided to carry out its own scoping study before formally engaging with PNG SEL.
- 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.
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Current activities:
The recent completion of the reprocessing of seismic data over the Elevala and Ketu structures concluded that the existing seismic data grid is adequate to select an Elevala appraisal well location for possible drilling in 2009.