PNG oil JV at odds; Horizon holds its breath

THE PRL 339 joint venture on Papua New Guinea’s Gulf Coast appears to be at odds over plans by Oil Search (35%) and new farminee Total (35%) to drill the Kalangar-1 wildcat well to test a prospect on-trend with the Antelope field. Reports by Haydn Black

  • 02 May 2016
  • 16:20
  • News
PNG oil JV at odds; Horizon holds its breath

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While Oil Search describes the well as a firm commitment that is planned for early in 2017, junior partner and original PRL 339 applicant Kina on Friday appeared to be more sceptical on the robustness of the prospect.

Oil Search recently said wellpad scouting was underway with the aim of drilling the well in the dry weather window next year, and hopefully leading to opening up a new prospective trend in the Gulf Province, but last week Kina said it was reviewing the economic/risk profile of the Kalangar prospect, which it described as high risk.

Kina said the potential of the target was yet to be demonstrated because of the shallow depth to the primary objective, defined by the seismic reprocessing that Kina has completed over the prospect.

"Given the risk profile of the prospect, the further technical work which Kina believes is required to make the prospect drill-ready and in view of the licence extension not yet having being granted, Kina is working with the operator to determine the optimum way to progress licence activity," the junior said.

Kina seems to be more interested in testing the Cassowary prospect further along trend, which is deeper, or the Bowerbird prospect which could be tested with the re-entry of Upoia-1, an earlier well that has oil and gas seeps and oil leaking into the wellbore.

The junior says that Bowerbird is the most attractive target in the block, although it is waiting on the Vailala seismic lines before working on potential volumes.

Kina, which recently dropped PPL 337 in northern PNG, says it will not participate in a well in PPL 337 unless it can see material potential.

But success would add volumes to Oil Search and Total's planned Papua LNG project.

The partners also need the government to extend the permit terms, something the government would be more likely to do with a well commitment.

Kina had $9.4 million in cash at the end of March.

Neither Kina nor Oil Search had responded to requests for comment when PNG Report went to print.

Meanwhile Horizon Oil is anxiously watching the outcome of the planned two-well program on the Strickland project in Papua New Guinea's highlands to aid expansion of Oil Search's LNG ambitions, as the outcome likely to determine how quickly its 27%-owned and operated Elevala, Tingu and Ketu gas-condensate fields can be developed.

While the PRL 21 partners - Horizon (45%), Repsol (32.5%) Kina Petroleum (15%) and Mitsubishi (7.5%) - are still examining a standalone greenfield LNG project at Daru Island as a base case, and there is also potential for gas sales to West Papuan agribusiness and industrial users, by far the easiest option for the JV is opportunity to aggregate its fields with the ExxonMobil-operated PNG LNG project.

The proven P'nyang field has gross 2C contingent resource estimates of 3.5 trillion cubic feet, recently upgraded from 2.6Tcf, and the planned P'nyang South-2 well is designed to move those resources into the 1C category, while further drilling at Muruk (PPL 402) and Strickland-2 (PPL 269) is aimed at adding at boosting those resources above the 4Tcf needed to sustain one extra LNG train for 20 years.

But, if the PNG partners fall short of the magic number needed to underpin Train 3, Horizon believes there could be demand for its own gas, offering a potentially attractive proposition with less engineering and financial risk given Elevala, Tingu and Ketu could easily add 1Tcf and 500 million barrels beside a possible pipeline route from P'nyang.

Horizon's other major project in PNG, the Stanley gas-condensate field development, remains subject to new operator Repsol completing commercial and technical discussions with Ok Tedi Mining and regional mining operators with respect to gas sales for power generation.

Horizon brought in revenue of $US16.1 million ($A21.1 million) for March quarter, based on production of 353,718 bbl, from average daily production of 4000 barrels of oil per day.

It gained an average price per barrel of $US46.45/bbl, with average costs across its New Zealand and Chinese production of $US13.28/bbl.

It had cash on hand of $US17 million, and paid down debt a further $US31 million during the quarter.

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