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Drill, baby, drill!

July 12th, 2009 · 25 Comments

Apart from large quantities of natural gas with world class delivery, there is oil at the bottom of InterOil’s resource Antelope. The odds of getting it out look very good….

We have sensed great enthusiasm around the company, confidence of getting that oil to flow. That enthusiasm has translated into shifting priorities. Apparently, it’s now top priority to finding it, and it’s the reason the company spend so much time evaluating the bottom of the Antelope1 well.

Don’t forget, a commercial oil find will change everything:

  • near instant cash-flow, especially because InterOil at present already operates a refinery on the island (PNG, Papua New Guinea) for which they have to import crude.
  • The much lower cost base of refining it’s own oil will open up export possibilities and will get the refinery to operate at full capacity (at present, it operates at less than 2/3 capacity), further significantly adding to the bottom line.
  • The early monetization will turn resources into reserves and further underpin the already clean balance sheet
  • It would up the value of the find very significantly.
  • It would greatly reduce the need for InterOil to rely on third parties to finance the LNG facility.
  • It would greatly increase the bargaining position vis-à-vis those third parties.

The company has shifted priorities for now of finding the right spot with high porosity and permeability which will allow the oil to flow in commercial quantities. Antelope1 is, in all likelihood, not the well for that, the porous rock doesn’t lie deep enough, where the oil is.

But, and this is the crucial ingredient, low porosity draws the water higher, so where porosity is higher, the water contact is lower (it’s actually a contact zone, or transition zone). This has been pointed out by the most respected poster on the boards.

He has just revised his position with regards to the possibilities at Antelope2. He first thought that the ‘reef’, the part with by far the highest porosity, wouldn’t be deep enough for the oil zone. He has apparently changed his mind. Here is the whole post:

  • OK, I guess I will have to admit that I have been asleep at least since the presentation of November 11,2008. http://www.interoil.com/presentation/200… I try to see what they are showing us in these presentations but sometimes I miss something very important. Maybe others have noticed what I am about to show you but they have not pointed it out to us.
  • First, you should disregard what I said in the last part of Part 3 above about the oil being in the low porosity limestone platform in Antelope 2. I have been misled by the numbers on the side of the seismic charts such as chart 15 in the above November 11,2008 presentation. Those numbers appear to be sub sea depths but that must not be the case or they are incorrect, so let’s quit looking at those numbers. Now that you have chart 15 in front of you, look at the cartoon at the bottom which I assume still depicts what they expect to see at Antelope 2.
  • As you know Antelope 2 will be drilled on the South end of the reef or the right side of this chart. Now back on November 18th this chart showed that they had gas down to -7221 feet sub sea. It was not clear on the chart but both of the depths shown in meters and feet are sub sea measurements. Now look at the bottom red line as in moves to the right side of the reef and you will see they expect the -7221 feet to be in the reef. Now the good news. They have determined that the gas/oil contact in Antelope 1 is at 2368 meters which is -7114 feet sub sea or 107 feet higher than shown on the November 11 chart 15. Now let’s move along to the July 7th presentation at: http://www.interoil.com/presentation/Elk…
  • As you know they have told us on chart 11 they think the gas/oil contact is at 2368 meters or 7769 feet measured depth which is -7114 feet sub sea. Further, they have told us on the same chart that the oil/water contact is at approximately 2486 meters or 8156 feet measured depth which is -7501 feet sub sea. I have been estimating the top of the oil/water transition zone to be at about 2450 meters which I believe is still about right.
  • My thoughts had been that any test below that would produce water but now I believe the meaning is that the lower the porosity is the higher (thicker) the transition zone will be. They estimate the porosity in this lower zone to be 4% which is too low to be productive but the low porosity draws the water higher in the formation due to capillary pressure. Note on chart 8 they refer to “capillary height data” . What does this mean? Well I think they are saying if we have high porosity in other parts of the field such as Antelope 2, then the transition zone will not be so thick and the zones above the sub sea depth of -7501 feet will be oil productive. So they are saying they think we have 387 feet of oil column (7501-7114).
  • Now let’s have a look at their new schematic shown on chart 28 (pictorial only: not to scale). Maybe it has no meaning since we don’t have depths shown and it is not to scale but just for fun let’s draw a horizontal line from the bottom of the lines used for well bores at Elk 4 and Antelope 1 across the page to where we will drill Antelope 2. As Julio would say, if we find 387 feet of oil in the reef porosity at Antelope 2 it is game over. Have a nice weekend.

We can’t wait the drilling to start..

Tags: IOC

25 responses so far ↓

  • 1 shamrockoil // Jul 12, 2009 at 9:29 pm

    Great post STP! I missed that one and I am very happy to read it. There’s going to be a lot of unhappy campers who sold too early!

  • 2 admin // Jul 12, 2009 at 11:05 pm

    Yes sham, we were always confident there must be substance behind the company’s efforts the last months to get that oil out, without being able to exactly pointing out the odds. It takes a petroleum engineer to do that, and he’s just done it..

  • 3 Harold Chamberlin // Jul 13, 2009 at 3:28 pm

    Thanks STP, that was a great post from a well respected poster. There was another poster in that same string I believe, that mentioned he had been to the shareholders meeting and sat between two of the directors who saw he had circled a part of the diagram around Elk/Antelope, Bighorn. It sounded like they wanted to say something but couldn’t, but one of them gave him a big smile… I love those kinds of posts..

  • 4 TJ // Jul 13, 2009 at 11:38 pm

    Thanks for the post STP…nice work on the Oil Search article as well…I am one of those that is impatient and anxious for IOC to get a deal done, HOWEVER, I am slowly beginning to believe that just a few more months of drilling and the stock may reach $100 without a deal. This is easily the most exciting investment I have ever owned. Keep up the good work.

  • 5 kencooksam // Jul 14, 2009 at 1:34 am

    Exciting times between now and Jan 30 2010.

  • 6 Janine // Jul 24, 2009 at 1:01 am

    Update: Antelope #2 spudded this weekend, announcement early next week. Over 10 qualified bids made already. Looks like the deal will be more open-ended “accretive in nature”than originally thought. Co. gets paid more as they find / verify more assets. Government deal will be approved shortly. Top of formation on Ant #2 should be reached within 30 days. Look for stock to take off around this time. Company and Government work very well together, no problems going forward. Be patient.

  • 7 optionray // Jul 24, 2009 at 1:45 am

    Hi Janine, when you say the government deal will be approved shortly, would you say more or less than 30 days? Thanks,

  • 8 Roger // Jul 24, 2009 at 5:48 am

    Janine thank you so much for the update!

  • 9 Janine // Jul 24, 2009 at 12:40 pm

    Optioray: Don’t know for sure. No problems is the key!

  • 10 Bruce // Jul 24, 2009 at 2:27 pm

    Aviation jet fuel comes off the upper trays of the distilation cracking columns. Anybody have have any thoughts about gas condensate feed stocks being more suited/more efficeint for producing higher yields of jet fuel than crude oil? The aviation business in PNG will not only be seeing increased traffic, but this may better utilize the refinery and maximize gas condensates as a feed stock.

  • 11 optionray // Jul 24, 2009 at 2:51 pm

    Thanks for the reply Janine!

  • 12 Darcy Patten // Jul 24, 2009 at 10:15 pm

    No disrespect intended here Janine, but I have a hard time believing that IOC will reach the top of the formation on Ant 2 in 30 days. It took 60 days for them to reach top of formation in Ant 1 and I don’t see much difference in drilling depth between the two. So why would be Ant 2 be twice as fast as Ant 1?

    If they can do it, that would be fantastic, but I think it is more realistic to expect late Sept or early Oct to be at the precipice.

    And just for the record, I would like to offer a special thanx to SPT and PetEngr for this post as I have a couple bottles of Dom labelled “IOC Commercial Oil Find” that is hopefully going to be popped in October!

    Peace!

  • 13 kencooksam // Jul 25, 2009 at 2:20 pm

    Sal Illaqua stated on Friday that IOC expected to be on top of the formation in 30 days. Thats based on seismics.The formation is not level underground. Higher/lower in different places..Early Sept looks interesting.The oils commercial just where is it commercial..Antelope 2 looks good

  • 14 Janine // Jul 27, 2009 at 11:10 pm

    Keep an eye on the Japanese… Was told that they recently have offered to buy all of IOC’s interest in the LNG plant if they choose to sell all of it. Things are definately getting very serious here.

  • 15 Roger // Jul 28, 2009 at 1:42 am

    Thanks Janine , sounds like the first domino may soon fall…………

  • 16 bob // Jul 28, 2009 at 1:42 am

    What a beautiful comment, Janine! You have always been right on target. Any idea why the gov’t final approvals can’t get completed? While I know you say there is nothing to worry about, the delays seem like Phil is being held hostage for a bigger payday. Your thoughts?

  • 17 Janine // Jul 28, 2009 at 2:33 am

    Bob: No problems… Business takes time. XOM have never been friendly to PNG. Patience.

  • 18 Harold Chamberlin // Jul 28, 2009 at 12:52 pm

    Thanks Janine, always appreciate your comments.

  • 19 Greg // Jul 28, 2009 at 6:40 pm

    I enjoy Janine’s posts as much as anyone but I don’t see how she can be so positive of a PNG gov deal given the recent headlines of turmoil in the gov. IOC will drift downward until the gov agreement can be reached and announced. There are rumors that XOM is behind this turmoil to force IOC into selling out to XOM.

  • 20 Roger // Jul 28, 2009 at 8:59 pm

    It appears Somare’s level of respect and leadership has trumped the internal division of the govt. I expect an announcement soon like Janine has predicted. If Exxon truly was behind this here’s hoping oil search’s gas fields prove fruitful. If not IOC can hold their feet over the coals with excess gas not needed for liquid niguini.

  • 21 Greg // Jul 29, 2009 at 7:11 pm

    As a long, I am greatly concerned that bidders will retract or reduce bids based on the increased risk of an unstable government in PNG.

    I think IOC needs to issue some stabilizing PR when possible.

  • 22 Janine // Aug 4, 2009 at 10:48 pm

    Things are falling into place quite rapidly.. Exact quote I heard today ” Things have never been better for IOC” Deals being offered for all parts of this company, investment bankers are working around the clock.Ant #2 at about 700 feet, should hit the pay zone by end of month.Ant # 2 will be a home run for this company. Ant #4 will be the crown jewel in the structure.

  • 23 Darcy Patten // Aug 4, 2009 at 11:36 pm

    Good to hear Janine. During this lull in “really exciting” information being released from the company, it is comments like yours that keep me focused on the target.

    Peace!

  • 24 Greg // Aug 4, 2009 at 11:44 pm

    Thanks Janine!!! Heard anything about PNG gov approval?

  • 25 Harold Chamberlin // Aug 5, 2009 at 3:34 am

    Make my day Janine. Thank you.