Question

[Spartina]

mcfe for prl 15. Why is there such a large difference in the price for an undiscovered gas structure in prl 15 vs just more gas in E/A? There has been some mention that the "elephant" may actually be in comunication with E/A which would make it part of the same E/A structure and therefore be worth 1.29 $ per mcfe. BUT, if it's not connected, and considered a seperate structure with in prl 15, it's only worth .33 $ per mcfe and Total gets the first T for free. Can anybody help explain why there is such a huge differential here? Pet? This does not make sense to me. Tia.

[admin]

As far as I understand that it's an industry convention not to pay big bucks for undiscovered gas. Having said that, it's a curious convention, because one pays only if it is discovered, and then it's no longer undiscovered of course.

But there are more conventions and institutions that don't make much sense (QWERTY, Windows, etc.) but have continued to exist because of some form of path dependency.

[jft310]

mcfe for prl 15. Why is there such a large difference in the price for an undiscovered gas structure in prl 15 vs just more gas in E/A? There has been some mention that the "elephant" may actually be in comunication with E/A which would make it part of the same E/A structure and therefore be worth 1.29 $ per mcfe. BUT, if it's not connected, and considered a seperate structure with in prl 15, it's only worth .33 $ per mcfe and Total gets the first T for free. Can anybody help explain why there is such a huge differential here? Pet? This does not make sense to me. Tia.

To me the choice of words Hession used tell the tale . He did NOT call the formation Bighorn but called it Antelope Deep implying its part of the Antelope structure they believed . Or if they are right IOC gets paid $1.29 . Seems Dave Holland has good reason to think it's connected somehow.

[Palm]

Is it possible Spartina that any structure within PRL15 which is in communication with the Antelope Field would be that much less expensive to develop making it more valuable? Also, since they only get one well to make it or break it, the Discovery Bonus for that structure would be somewhat limited. So if Bighorn is a 10T structure, they might get a P50 of 4-5 Ts if the hit a sweet spot. Nice big Discovery Bonus but somewhat limited.

[Spartina]

Thanks men, good points.

[ArtM72]

Is it possible Spartina that any structure within PRL15 which is in communication with the Antelope Field would be that much less expensive to develop making it more valuable? Also, since they only get one well to make it or break it, the Discovery Bonus for that structure would be somewhat limited. So if Bighorn is a 10T structure, they might get a P50 of 4-5 Ts if the hit a sweet spot. Nice big Discovery Bonus but somewhat limited.

I don't understand how any single well can be used to evaluate the size of a field unless I presume there is a long term flow test which the government is unlikely to sanction.  Nor should they.  So the question is just why would Hession accept a single well to determine the size and value of a field for the purpose of the discovery bonus?  Common sense dictates that the single well should be a discovery well and the size of the bonus should be based on the resource find after full delineation, not the P50 based on a single well .

If IOC's bonus for a new PRL15 discovery is based upon the reserves identified by a single well then Hession and his experts failed stockholders miserably in a way that begs the question just whose interests is he looking after?

[petrengr1]

mcfe for prl 15. Why is there such a large difference in the price for an undiscovered gas structure in prl 15 vs just more gas in E/A? There has been some mention that the "elephant" may actually be in comunication with E/A which would make it part of the same E/A structure and therefore be worth 1.29 $ per mcfe. BUT, if it's not connected, and considered a seperate structure with in prl 15, it's only worth .33 $ per mcfe and Total gets the first T for free. Can anybody help explain why there is such a huge differential here? Pet? This does not make sense to me. Tia.

Spartina-


I would be hard pressed to give you a believable answer but here are a few thoughts.

Hession  says it is unheard of for someone to pay for undiscovered resources. On what basis could they pay for undiscovered resources? There is nothing to buy until you have a discovery. So maybe Hession and his team figured out a way to get “something” instead of nothing for undiscovered gas “after it is discovered”.
If it was not for this clause about the discovery bonus we would have gotten nothing “extra” for any future discovery. With or without the Exploration Well clause we would still be able to sell our 30% share of any and all gas from PRL 15 at market price through the proposed LNG Plant, assuming it reaches FID and is built. So with this agreement we get $100,000,000/TCF  for each TCF over and above the first TCF for any new “discovery” made in PRL 15 by this first Exploration Well. I don’t know how you arrived at the value of  $0.33/MCF. The discovery bonus would only be worth $0.05/MCF for a 2 TCF discovery and $0.10/MCF for a 11 TCF discovery. But still it is not “chicken feed”, $100 million to $1 Billion soon runs in to real money. Whatever we get is that much more than we would otherwise have had with no exploration well clause included in the agreement.

I had not heard of any such clause in the proposed Exxon deal. Also it is unlikely that we would have been able to acquire 30% interest in the Exxon LNG plant so we would not have had  that very much improved benefit from PRL 15 and all future discoveries.

I do not see a date as to when the certification for the Exploration Well 2C resource certification must be completed. All I see is that the payment will not be made until after the first delivery of LNG which could be as late as 1-1-2020. So we may have a lot of time as to when that certification is made. What could happen in the next several years that could make the final certification more  accurate? If a huge discovery is made by this one carried exploration well will other wells be allowed to be drilled before certification? Will a CSP be built and a pipeline laid to the coast before the Total/IOC LNG plant is built? Could we possibly sell gas to the Exxon LNG plant before the Total/IOC LNG plant is built? Will Exxon or Oil Search take up the 19.3% interest in PRL 15 as is being discussed? If so that might give us a leg up on being able to sell gas to the Exxon Plant for some period of time.

The reason I ask these questions is the resource certifiers are required to use:

(A)    the Petroleum Resources Management System sponsored by Society of Petroleum Engineers, American Association of Petroleum Geologists, World Petroleum Council and Society of Petroleum Evaluation Engineers (PRMS); and


    (B)    the Guidelines for Application of the Petroleum Resources Management System November 2011 sponsored by Society of Petroleum Engineers, American Association of Petroleum Geologists, World Petroleum Council, Society of Petroleum Evaluation Engineers and Society of Exploration Geophysicists (PRMS Guidelines).


Here is a link: http://www.spe.org/industry/docs/PRMS_Gu...ov2011.pdf

They are able to use all of the usual information: well logs, cores, seismic data, drill stem tests/well tests and pressure build up analysis etc. in the determining of the certified volume. What is the best and most accurate way of determining the resource volume? That would be to put the well on production for an extended period of time and monitor the reservoir pressure and/or pressure build up analysis after an extended test. If we could put the well on production to the Exxon LNG plant for a year or so at a rate of 100 - 200MMCFD we could get a good number for the resource volume proved by this first “carried Exploration Well” without any additional wells being drilled. Of course it would be best to have both more wells and put the well(s) on production.

Just something for you to think about.

Have a good evening/day.

[Spartina]

Thanks Pet.