Since entering the PSC in 2011 Cue has participated in drilling three wells, all of which encountered hydrocarbons, but downhole issues mean the company was unable to establish a commercial flowrate from any of the oil or gas wells.
It now has 100% of the block, having bought PetroChina's 60% stake for an undisclosed sum, and it is gearing up to drill the Naga Selatan-2 [Southern Dragon] in the third quarter.
Managing director David Biggs said the company was not looking for a partner, and was happy enough to carry the costs of the drilling from its cash reserves of some $37 million, boosted by the recent sale of its Papua New Guinea assets.
"We'll drill this well ourselves," he told Energy News.
"It's not a deep well as the others have been in the block and we have costed it at $5 million, which is well within our budget."
The prospect is assessed as having a potential 25 million barrels at depths above 1000m across multiple formations, all on trend with the large Sei Nangka and South Pelarang oil fields.
Hopefully it will be a case of fourth time lucky for the company.
In 2012 it drilled Naga Seletan-1 may have intersected oil, but poor hole conditions prevented testing, however subsequent data review identified a large structure adjacent to the well that will be tested by Naga Seletan-2.
Given the Sanga-Sanga oil field is just a few kilometres away, Biggs said the well was a relatively low risk of finding hydrocarbons "at least as far as exploration wells can ever be considered low risk", and there are oil seeps in the area flowing to surface.
"We could see hydrocarbon and the logs [in Naga Seletan-1], but these wells are difficult at depth, so we're looking at shallower structures there, where we hope we won't encounter the downhole issues we did on earlier wells."
Past exploration also involved two gas wells at Naga Utara, which encountered indications of hydrocarbons in wireline logs but they were judged to be insufficient to warrant drill-stem testing in Naga Utara-2.
Mechanical issues thwarted testing in the Naga Utara-1 discovery well, where gas shows seen in Miocene-age sandstones were unable to be fully evaluated but nevertheless successfully flowed to surface over seven days.
PetroChina secured its interest in the permit via the takeover of Singapore Petroleum, and has obviously decided there are better opportunities elsewhere.
Cue has been beefing up its interests onshore in Indonesia as it has been moving out of PNG and offshore Western Australia as part of a rebalancing of the company.
In November Cue secured a 12.5% interest in the Mahato PSC, onshore Central Sumatra with Canada's Bukit Energy and enjoys cashflow from the Oyong and Wortel fields in the Madura Strait
The Mahato PSC covers a highly prospective area close to several large producing oil fields containing multiple appraisal and exploration opportunities have been mapped and two wells are planned for mid-2015 and a 2D seismic program to high grade further exploration prospects is also planned for 2015.
Cue's participation depends on Indonesian government approval, which it expects this quarter.
"We're stepping back from the North West Shelf and New Zealand," Biggs told Energy News.
"We'll start a farm-out campaign for WA-359-P and WA-409-P at APPEA, and in NZ we only have one commitment well there this year. I don't think we are planning to do much else, because in NZ we haven't been able to find the prospects we hoped."
Biggs also indicated that Cue was seeking some onshore Australian permits for the first time in its long history, where it could get more ‘bang for its buck' and better control costs than the expensive offshore adventures for which the company is best known.
In WA-359-P it has defined the 300 million barrel oil-in-place Sherlock prospect. WA-409-P is the adjacent block.
Cue is also keen to find a farminee for WA-360-P that it shares with MEO Australia. The JV is completing the reprocessing of approximately 650sq.km of existing 3D seismic data over the Maxwell prospect to improve imaging of the structure.
The primary term ends in 2016.
Takeover
The NZ oil producer is fighting off a takeover offer from rival Kiwi oiler New Zealand Oil & Gas, which recently secured a 19.9% stake in Cue.
NZOG is closely aligned with Bukit in its attempts to establish a large position onshore Indonesia, in addition to enjoying oil and gas production in NZ's Taranaki Basin, close to Cue's exploration and production interests.
While synergies between the two companies' projects are obvious Cue has urged shareholders to reject the offer.
Its paid-for independent export considering the $0.10 per share offer is neither fair nor reasonable and below the bottom of Grant Samuel valuation of Cue of $0.117 to $0.152/share, although it would offer a modest premium relative to recent Cue Energy share prices.
