InterOil’s geological prospects

A must read, based on Wayne Andrews 2004 report…
Time to get a move on, or better, a farm-out.

From Petengr1 on Yahoo

Jonleba – The Raymond James September 30, 2004 report is here:…

Before I start discussing this let me tell everyone upfront that what Wayne was talking about in September, 2004 is “POTENTIAL UNDISCOVERED RESOURCE ESTIMATE”. As I told you once before Geophysicists are by nature and training optimists. When they see a structure on their geophysical data they assume the structure is FULL of hydrocarbons. The truth is sometimes they are full of water and sometimes they are only partially full of hydrocarbons. In the case of Antelope I believe the structure is pretty much full.

Now in this 2004 Research Report on page 22 you can see what Wayne calls the 10 main Exploration Targets and the Potential Undiscovered Resource Estimate for each of them. The total for the 10 prospects at that time was estimated to be 4.5 Billion BOE.

Now when IOC first started exploring this area they were looking for oil in the Pale/Subu sandstone and fractured Eocene limestone. At the time they apparently did not think any of these structures were reefs. Notice that Antelope is not shown on this list. Antelope is a Miocene Limestone Reef so it is younger rock than we originally were targeting. We have still not penetrated and tested the older Pale/Subu quartz sandstones. The early exploration was partly based on shallow stratigraphic (core holes), Subu-1 and Subu-2, which showed a very thick pale/subu quartz sandstone with good oil shows. The area where these core holes were drilled was relinquished in March, 2009. Prior to Wayne’s report IOC had also drilled Moose-1 and Moose-2 where they found oil shows in Eocene Limestone and low reservoir pressure. These wells were only drilled to about to about 2650 feet, I believe due to the capability of the rig, and the Pale/Subu quartz sandstone was not reached.

You will note in the Table on page 22 of the report that they expected to find up to 2,515 MMBO in the Pale Quartz Sandstone. We have never drilled deep enough to see the Pale Sandstone except in the shallow core holes which were about 25 miles East-Northeast of Antelope… chart 20. You can also see all of the wells drilled and the result on chart 21. The other 2,076 MMBO was expected to be in Eocene limestone. I do not know if they reached the Eocene limestone in the bottom of Antelope-1 or Antelope-2 but if they did it was wet (water filled). Otherwise we have not yet tested the Eocene Limestone either.
Let’s see how we are doing on this list so far. We have drilled Sterling Mustang and failed to reach the Pale/Subu target. In March of 2009 IOC relinquished this area so they apparently no longer believe it to be prospective. We have drilled Black Bass and found a little gas cut water but no discovery. We have drilled Elk which lead to the discovery of Antelope and, at present, we have found 1519.8 MMBOE or 1.5 Billion
BOE.… page 7. So, Mr. Tree is correct, we have found 1/3 of the 4.5 Billion barrels in one structure. I expect a slight increase in this resource estimate this week when IOC releases the new GLJ 2010 year end resource estimate.

The other six of these prospects have not yet been drilled. They are Bison, Longhorn, Marlin, Mastodon, Rhino and Whale. There were other known prospects at the time Wayne wrote this report and some of them are mentioned in the report but they were not included in the “best” 10 list.

At the time of the writing of Wayne’s report they had seismic data on Rhino, Mastodon, Mammoth and Stegosaurus prospects and they had drilled the Moose wells and the Sterling Mustang wells. Of course I believe they also had a lot of the airborne gravity and magnetic data.

Now, let’s see what has happened since Wayne wrote this report. Look at… chart 18 for all of the seismic data that has been acquired since 2004. This includes Elk, Antelope, Lion, Longhorn, Hippo, Bison, Big Horn, Bwata and Wolverine. You will also see on chart 23 that they plan to get new seismic data on Barracuda, Tuna, Whale which are in PPL236 and Seismosaurus which is in PPL237 during 2011.

They also plan to get more airborne magnetic and gravity surveys to fill in the gaps shown on chart 16 for PPL237 and PPL238. Apparently no work is planned to fill the gap in PPL236. Please note on chart 24 that they now recognize some of the prospects as possible reefs i.e. Seismosaurus, Bwata West, Wolverine, Big Horn, Zebra, Tuna and Mackeral (sic). They also mention Tsoma Trend Anomalies which could include the Cougar prospect. So, that could be as many as eight more reef prospects in addition to the discovery at Antelope.

None of these reef prospects are mentioned in Wayne’s 2004 report. I believe they were not thinking about reefs at the time so all of this is upside potential since the 2004 report and we still have not tested any of the pale/subu sandstone prospects for oil. Since we have about 40 identified prospects we must have about 30+ non-reef prospects which could be Pale/Subu quartz sandstone oil prospects. You can see where all of these prospects are located by looking at… and magnify to about 300% so you can read it.

It looks like we have huge potential but in order to retain these prospects we need to drill wells on all of them before the licenses expire in March 2014. We need some contract rigs, some JV/farm outs and/or more Company rigs. If they go the Company rig route they will have to move a lot faster that they have on the new Rig 3.