Antelope 7 / Deep is a Bust

[bdahl385]

From the quarterly OSH report (see page 8 - Forelands / Gulf section):  http://www.asx.com.au/asxpdf/20170419/pdf/43hlmjm2qp46jy.pdf

[Palm]

Kind of shoots a hole in the dissent valuation as all of Mikey's huge resource targets suddenly look much more questionable.

[bpjensen]

Did you notice this in the report-

"Following the completion of appraisal drilling and a technical reassessment, Oil Search’s

estimate of 2C contingent gas resources at the Elk-Antelope fields in PRL 15 increased by 21%,

confirming that this is a world class gas resource which, combined with resources at P’nyang,

can underpin at least two additional PNG LNG-sized LNG trains"

What bearing will this have on the CRP?

[bdahl385]

Did you notice this in the report-

"Following the completion of appraisal drilling and a technical reassessment, Oil Search’s

estimate of 2C contingent gas resources at the Elk-Antelope fields in PRL 15 increased by 21%,

confirming that this is a world class gas resource which, combined with resources at P’nyang,

can underpin at least two additional PNG LNG-sized LNG trains"

What bearing will this have on the CRP?

I doubt it will have any affect.  Their statement depends on the timing of when they made this reassessment and what this 21% increase is relative to.  Remember, they had to pay off their minority holders with the appraisal size of E/A (just like TOTAL was supposed to pay IOC and now XOM is paying thru the CRP).  Their payment was based on the average of the two reserervoir engineering firms they hired to do the work last year.  The outcome of that was a 12% difference (by percentage basis) between the two companies, Gaffney Cline & Associates (GCA) and Netherland, Sewell & Associates, Inc. (NSAI).  The average for 2C was 6.43 tcf but NSAI calculated 6.06 tcf and GCA calculated 6.80 tcf.

Remember the Golden Rule - when making resource size estimates for your shareholders, make the number as lofty and certain as possible.  When making resource size estimates for payout from your company to the former owner, make the number as low and uncertain as possible.

The other nugget in this OSH report was that the timeline for decisions on Papua LNG is moving out yet again thanks to the PNG government giving their license renewal with favorable terms.   FEED is now not expected until late 2017 / early 2018 and FID not until early 2019.  Who would have thought this could be drug out so long.  My first IOC purchase was in the 2008/2009 timeframe, I surely thought then we would be producing LNG by 2017, not still studying the field and delaying FEED and FID - sheesh.....

[Li'loilady]

OSH's original 6.43 + 21% = 7.7803

So, the CRP might come in at around $11.17.  Of course that all depends on what XOM's certifiers calculate.

[bdahl385]

OSH's original 6.43 + 21% = 7.7803

So, the CRP might come in at around $11.17.  Of course that all depends on what XOM's certifiers calculate.

I would be tickled pink (Dr. Hession aside) if we had a CRP payout of  $11.17.  I just doubt there is any way the XOM reservoir certifiers will somehow find this 21%  boost like OSH did.  A7 is not going to add to the Netherland-Sewell or Gaffney Cline certification numbers from last year.  What was their basis for this boost?  From their Feb. 27, 2014 PR on the acquisition, OSH was originally thinking 5.3 tcf when they bought out the minority holder interests.  After A5 and A6 results, they started talking 6+ tcf, so I am wondering if this 21% boost is based on their original buy-in amount ( 5.3 tcf x 1.21 = 6.4 tcf ).

[Palm]

This paragraph was in the OSH 2016 YE report filed in February. It supports what Lil is saying I believe.

"Following a full technical assessment of the results to date, our estimate of 2C gross contingent resources in the Elk-Antelope fields has increased from 5.3 tcf of raw gas to 6.45 tcf of dry gas and 57.4 mmbbl of condensate (equivalent to 6.53 tcf of raw gas). This has resulted in the addition of 253.9 bcf of gas and 13.1 mmbbl of condensate to our net 2C contingent resource estimate for the fields.
During 2016, in accordance with the Sale and Purchase Agreement between Oil Search and the sellers of the PAC LNG Group of Companies (PAC sellers), an independent certification of the Elk-Antelope fields was completed by two world-class certifiers, Gaffney Cline & Associates (GCA) and NSAI. GCA and NSAI utilised a full set of available data, up to and including the results from the Antelope 5 long term test and the Antelope 6 appraisal well (but excluding Antelope 7). NSAI’s estimate of 2C contingent resources is 6.06 tcf of raw gas and GCA’s estimate is 6.88 tcf. The average 1C (proven contingent) and 2C (proven and probable contingent) resource of the two certifiers is 5.17 tcf and 6.43 tcf of raw gas, respectively, similar to Oil Search’s estimates. As the average certified 2C resource is less than 7.0 tcf, Oil Search was not required to make an additional payment to the PAC sellers at this stage."

[bdahl385]

It supports what Lil is saying I believe.

I don't think so.  Lil' was hoping that the 21% increase was from the certified average of 6.4 tcf but in reality it was a 21% increase from their original amount of 5.3 tcf.  Thus if the XOM certifiers come up with a similar 6.4 tcf, the CRP will not be her hoped for $11.17.

The CRP is likely to be around $1.41 based on the terms of the buyout:

US$7.07 for every trillion cubic ft of natural gas discovered at Elk-Antelope above a minimum level of 6.2 tcf.  

6.4-6.2 * $7.07 = $1.41

[bdahl385]

We already figured out A7ST1 was a bust but now it's double confirmed by the release of the OSH April drilling report:

http://www.asx.com.au/asxpdf/20170504/pdf/43j0vr5gq2kl31.pdf

In summary:  "Interpretation of the available data continues, but at this stage the data  suggests that the penetrated carbonate (510 metres) is unlikely to contain commercially producible hyrocarbons. The Antelope 7ST1 well has been plugged and abandoned..."

That hoped for "string of pearls" seems to have lost a bead or two after this well...  I doubt exploration wells like Antelope South or Wahoo 2 will see any capital deployed in the foreseeable future for true wildcat drilling.  Appraisal wells at T-R-B could possibly be budgeted if extra gas is needed to help with the FEED and FID decisions.

[Northoil]

[quote='bdahl385' pid='80255' dateline='1493931163']

We already figured out A7ST1 was a bust but now it's double confirmed by the release of the OSH April drilling report:

http://www.asx.com.au/asxpdf/20170504/pdf/43j0vr5gq2kl31.pdf

In summary:  "Interpretation of the available data continues, but at this stage the data  suggests that the penetrated carbonate (510 metres) is unlikely to contain commercially producible hyrocarbons. The Antelope 7ST1 well has been plugged and abandoned..."

That hoped for "string of pearls" seems to have lost a bead or two after this well...  I doubt exploration wells like Antelope South or Wahoo 2 will see any capital deployed in the foreseeable future for true wildcat drilling.  Appraisal wells at T-R-B could possibly be budgeted if extra gas is needed to help with the FEED and FID decisions.

______________________________________________________________

Spoken like a true reservoir engineer.  Appraisals are certainly needed, but reserve additions are usually incremental (or not, in the case of A7).  New discoveries, through wildcat drilling, are the upside, particularly for an existing LNG plant. Dry holes aren't fun but even dry holes give you pieces of the puzzle that tie real rock to virtual models built by geologists and geophysicists.  Success rates usually improve with time and data. This really appears to be a string of pearls and the extensive acreage position makes it a happy hunting ground for Exxon and Total, who have deep pockets.  There'll be plenty of wildcats drilled.  I just don't feel like reading Oil Search's drilling reports for the next 20 years.