Oil Search Resource Press Release

[Indoreservoir]

From Page 4 of the press release:

GCA and NSAI satisfy the ASX requirement of qualified petroleum reserve and resource evaluators as required by ASX Listing Rules Chapter 5 and have consented to publish the resource estimates in the form and context presented in this announcement. These resource estimates are based on, and fairly represent, information and supporting documentation prepared by GCA and NSAI.

The Certifiers were provided with a full set of available data at commencement of the process and new data as it has been received from the operator. The Certifiers have utilised results and data from all appraisal wells up to, and including, Antelope 6. The Certifiers were provided with the same data and information, with Oil Search providing such data or information (including raw, analysed and processed data and interpretive data and assessments) as the Certifiers reasonably required and requested and Oil Search reasonably believed would assist the Certifiers.

It is quite possible that both certifiers used OSH maps, verified them as reasonable, and then prepared the estimates.  That is likely based on the nearness of the results.

It is also unusual that they have some 80% C1 (C1 is about 80% of C2) which is very high.  They appear not to have given much upside and the spread from C1 to C2 to C3 is quite tight.

Will have further comments later – I just saw this information as haven’t been following things – too heavy in US natural gas at present!

But for now:

1. I was wrong when I thought GCA’s numbers would move towards GLJ

2. I do not think either reserve certifier did their own mapping based on what was noted above 'interpretative data and assessments'.  This reduces the certification cost and time considerably.  I don’t know how else to explain the close agreement between them.  The fact OSH internal numbers were very similar before the additional wells and seismic processing smells funny.  May be wrong on this; dunno.

3. There should have been reasonably broad ranges for porosity and water saturation and net thickness, which in turn would have made C1 to C3 range larger.  C1 being 80% of C2 is a big flag, ESPECIALLY in a carbonate.

4. PacLNG might have no rights to dispute the numbers – I guess.  Anyone who enters these agreements must insist on raw data only to the certifiers, with processed seismic being the only manipulated information presented, and the certifiers do ALL the work from scratch.  Costly/time consuming but necessary.  XOM will have done this.

5. OSH personnel involved in the certification would have been answering questions and commenting on both certifiers work.  As will all professionals, geophysicists, petrophyscists, geologists, and engineers are generally hesitant to criticize other’s work.  Especially when your firm is getting paid by OSH and want further work.

6. Wonder what Dave Holland will say about this.

More later.

Bernstein’s comment that the resource results look odd is an understatement.

I’d say the GCA look very questionable given the very tight range and the statement that they did a probabilistic analysis. The C3 value is only 37% greater than C1.  They must have used (or been suggested to use) incredibly narrow ranges for recovery factor, porosity and water saturation – which on would seem to be difficult to support given this undeveloped, areally large reservoir with NO production history.

I wonder what analogues and simulation (they damn sure should have used both) they’ve used to come-up with RF – unfortunately, no info given.

Either OSH gave them very strict guidelines, or the people working this have never done carbonate work because the one major known is its variability and the uncertainty in resource estimation inputs. XOM learned this (again) Phu Horm Field in NE Thailand where Hess got it for a song and found the good reservoir that XOM had not found and made a very profitable development.

The same could be said for NSAI though it's better at C3 being 68% larger than C1. –

For both GCA and NSAI the range from C1 to C3 seems simply too tight to reflect a 90% chance that all possible resource sizes are less than their C3 values (That's basically the definition of C3).  

Even OSH says A7 could add 1-2 TCF to the numbers, which would exceed the GCA C3 number, and the 2 TCF value would just about equal he NSAI 3C number thought strictly speaking some of that 1-2 TCF would be in the C2 and C3 numbers.

I’m surprised by what I see having done this type of work many times in the past.   Without more information being released, I would expect Civelli’s reservoir engineers to scream bloody bulls---- and poke large holes in GCA’s and NSAI's work..  Note OSH did not release in-place numbers so we have no idea what RF they are using, but it is quite possible they are claiming 50-60% considering the low permeability matrix.

This makes a 2nd reserve determination after 1-2 years production incredibly important – the material balance (p/z plot) would see the contribution of the low perm matrix and could result in quite a large payment from Total.

On balance, the press release leaves a lot of questions and many more details of the report should be released to answer those questions. I certainly would not accept this level of detail – as Bernstein says, something is odd.  I’d say very, very odd.

GLTAL