Carnarvon Petroleum (CVN) and its partners, led by Apache Petroleum, the big US independent, are to drill a second hole to test an oil discovery in the Phoenix South 1 well offshore the Pilbara coast in WA which could be the largest oil strike in Australia for 30 years.
Apache said yesterday the Phoenix South-1 well found oil in a well drilled in an exploration permit in the Canning Basin off the West Australian Coast.
The discovery is offshore from Port Headland, which is the busiest iron ore handling port in the world.
If the discovery proves to be commercial, the development costs should be relatively low because of the proximity to the port infrastructure on the coast.
But the most likely way of development could be a floating production facility, which is a favoured method in the WA oil industry.
Some early rough estimates claim the development could cost from $1 to $3 billion, depending on the complexity of the field, and just which production method is used.
Apace said it had found oil in four separate parts of the well and testing has shown the reservoir to be productive, with potentially up to 300 million barrels of oil in place, Apache reported on Monday.
The news saw the shares in the only listed partner in the well, Carnarvon Petroleum, which holds a 20% stake in the soar, from 8.1 cents at the close last Friday, to a high during late trading of 28 cents. The shares closed up 196% at 24 cents.
The news of the strike was enough to get Apache and Japanese group, JX Nippon to sign up to drill not only the new well, but share three other exploration areas adjacent to the discovery.
Carnarvon told the ASX yesterday that the partners will drill the Roc prospect as "a follow up exploration well to the new major discovery made at the Phoenix South 1 well".
"Apache Northwest Pty Ltd (“Apache”) and JX Nippon have formally notified Carnarvon that they are committed to drilling the Roc prospect in WA-437-P in the North West Shelf of Western Australia." (Phoenix South-1 was drilled in WA-435-P.
"In doing so they will pay the earn-in costs to a cap of US$70 million (gross). The Roc prospect is a follow up exploration well to the major new oil discovery made at the Phoenix South-1 well," Carnarvon said.
"In addition to the above, Apache has exercised its option to acquire a 40% interest in WA-436-P and WA-438-P. Apache will assume operatorship of these permits and Carnarvon retains a 30% interest."
Managing Director, Mr Adrian Cook said “Following the recent and exciting oil discovery in the Phoenix South-1 well, I am delighted that Apache and JX Nippon have committed to drilling the Roc prospect and to join ourselves and Finder Exploration as we look for more exploration success in the area.
"At this stage I expect the Roc well will be drilled in 2015 with an Apache contracted Jack-Up drilling rig," Mr Cook said.
Source: Carnarvon Petroleum
But for Apache, there’s a diemma.
Just as it’s on the cusp of selling some of its Australian gas interests, US independent, Apache and three partners, have made what could be the biggest oil strike in Australia for 30 years.
On the face of it the oil strike is yet another big exploration discovery, but the question is whether Apache is a long term holder.
That’s after Apache revealed at the start of August that it was going to sell some of its oil and gas assets around the world, including Australia.
The area where Apache and its partners are searching in the Canning Basin wasn’t mentioned in the asset sale statement from the company.
The company is under pressure from a US hedge fund to concentrate on its US assets (it has also sold some in the Gulf of Mexico) to try and boost profits, do more share buybacks, and ultimately raise the share price.
In a statement, Apache’s executive vice president and chief operating officer for the international business, Thomas Voytovich, described the result as "exciting", while cautioning that the results were still in the early stage of evaluation.
But he said the qualities of the reservoir found "point to a commercial discovery".
"If these results are borne out by further appraisal drilling, Phoenix South may represent a new oil province for Australia," Mr Voytovich said.
The key parts of the Apache statement yesterday were:
"Wireline and formation pressure tools have confirmed at least four discrete oil columns ranging in thickness between 85 and 151 feet (26 to 46 meters) in the Triassic Lower Keraudren formation, within an overall, sand-rich section between 13,648 and 14,763 feet below sea level (4,160 to 4,500 meters).
"Six light oil samples have been recovered from three intervals to date; permeability measurements from the sampled zones indicate a productive oil reservoir with preliminary estimates that there might be as much as 300 million barrels of oil in place.
"Evaluation of the formation penetrated in the Phoenix South-1 is under way, and final calculation of hydrocarbon pay will depend on additional analysis.
"The Phoenix South-1 well is located in permit WA-435-P, offshore western Australia, 110 miles (180 km) north of Port Hedland in 435 feet (133 meters) of water."
Carnarvon Petroleum one of the three junior partners in the Apache-led venture and it described the result as "one of the most significant developments in Australian oil and gas in recent times".
Carnarvon managing director Adrian Cook said the find was "the most significant new oil play in the North West Shelf since the Enfield discovery opened up the Exmouth Basin almost 20 years ago."
"The implications on the rest of our acreage are still being assessed but the potential is extraordinary," Mr Cook said.
Besides Carnarvon’s 20% stake in the WA-435-P drilling venture, Japan’s JX Nippon and unlisted Finder Exploration own the same percentage each, while Apache owns 40% and is the operator.
The race will be now on to find other smaller explorers with interests around where the Apache led-consortium is drilling.
Apache’s asset sales in Australia will attract some interest.
Included in the sale in Australia is its 19% stake in Chevron’s $29 billion Wheatstone LNG project as well as potential other assets in Western Australia.
Under pressure from activist hedge fund Jana Partners, Apache is refocusing on the development of onshore oil and gas resources in North America. It has already sold around $US10 billion of assets in the last 18 months.
Apache’s other WA interests include the Balnaves oil project, which is due to start production within the next few weeks.
The Coniston oil project, which was originally scheduled to start up this quarter through a link to the Van Gogh project, has been delayed until early 2015 because of problems with the offshore production ship.
Apache also owns the Devil Creek gas processing plant in WA, which processes gas from its offshore Reindeer field, and is one of the largest producers of domestic gas in the state.
Apache also said it would completely exit the Kitimat LNG export project in western Canada, (it had already said it wanted to reduce its stake this project). Chevron is also Apache’s partner in Kitimat LNG.
