InterOil's next drilling campaign

INTEROIL aims to take advantage of emerging gas demand in the Philippines while it prepares for a solid year of exploration in the Gulf Province of Papua New Guinea.
InterOil's next drilling campaign InterOil's next drilling campaign InterOil's next drilling campaign InterOil's next drilling campaign InterOil's next drilling campaign

Published in the April 2011 PNG Report magazine

PNG'S sole petroleum refiner made a series of project milestones last year as part of its efforts to commercialise its gas discoveries made in the Elk and Antelope fields.

The final investment decisions for InterOil's condensate stripping facility with Japanese conglomerate Mitsui, and for its 3 million tonne per annum liquefied natural gas plant with Energy World Corporation, are both expected to be made this year.

Pending the necessary approvals among its joint venture partners, InterOil anticipates that both facilities could start production by early 2014.

The proposed LNG plant location is about 90 kilometres from the Elk-Antelope field, while the planned modular design means that most aspects of the facility will arrive prebuilt, with some engineering work required for onsite modifications.

Given sufficient demand, the modular design also allows the plant to be incrementally expanded up to 8Mtpa of LNG with EWC, and further LNG capacity up to 11Mtpa with floating or other technology.

EWC was the first producer of LNG in Australia and plans to bring its know-how to the Philippines, a country keen to expand greener forms of electricity generation despite its declining gas production.

In late January, the Philippines government gave EWC approval to develop an LNG hub terminal along with an associated 300 megawatt combined cycle gas turbine power plant on Pagbilao Grande Island in the northeast of the country.

This effort is to shift power generation away from coal-fired plants to reduce carbon emissions.

InterOil has since strengthened its ties to EWS last month, striking a non-binding memorandum agreement which gives InterOil the opportunity to invest in this project plus gain a potential market for its future gas in the competitive Asian market. Yet the New York-listed company will remain open to securing future off-take agreements from other potential customers, while it also works towards a separate floating LNG development in PNG capable of 2-3Mtpa, bringing capacity to the 11mtpa level.

InterOil has foreshadowed this level of production capacity as it becomes more confident in the amount of potential gas within its three vast onshore tenements. Independent engineering evaluation by GLJ Petroleum Consultants recently estimated the neighbouring Elk and Antelope fields have 6.2-9.9 trillion cubic feet of gas resources at the end of 2010, with 8.2tcf and 128.9 million barrels of condensate rated as the best case scenario.

But this evaluation did not cover the large Mule-Deer reef structure which InterOil identified with seismic years ago, while the company is becoming confident that its Bwata and Triceratops prospects might possibly form a single large gas field greater than the Elk and Antelope fields combined, which also has indications of significant reef build up (exceeding 500 metres).

Efforts during 2010 mainly centred on project negotiations and resource evaluation, which included processing of 100km of 2D seismic at the Antelope field alone.

But InterOil successfully raised $US266 million through its first fully unwritten public offering in late 2010 and is making preparations to embark on another drilling spree.

InterOil chief executive Phil Mulacek told the PNG Report he expects 2011 to be one of the strongest exploration years in the company's history.

This is a big statement given that InterOil holds PNG's top 4 records for gas flows, and that the Antelope-2 well broke Antelope-1's world record after it flowed 705 million cubic feet of gas per day in late 2009, while it also yielded 11,200 barrels of condensate per day.

The first exploration well on the cards is Bwata-2, a follow-on target from the Bwata-1 discovery well drilled back in 1959 which had a calculated absolute open flow of 42 million standard cubic feet and is located about 15 miles away from the earlier and somewhat notorious Puri-1 discovery made the year before.

Despite some big shows, the fractured limestone and consequential lack of porosity in these wells ended exploration in this region decades ago, but InterOil is better defining targets through its use of seismic and other surveying.

The company also reported strong porosity levels in its last two Antelope wells.

"The plan is to fast track two in-field lines on Bwata and Triceratops to ensure we have the best crestal high location, targeting the potential largest reefal accumulation," Mulacek said.

"Early seismic indicates a reef structure 1500 to 1600 feet thick above the gas water contact which was detected at the original Bwata discovery well."

InterOil aims to shoot more seismic lines on another six prospects.

"They will be delineated and then be placed in a rolling drilling program," Mulacek said.

"We do expect a number of structures to be defined and be ready to be drilled over the next 12 months, and we look to develop the priorities of the structure by size and by a hub approach to our developed infrastructure."

Paving the way for a drilling campaign, InterOil's heli-portable Rig 2 underwent extensive maintenance over the past few months.

On the other hand, Rig 3 will be deployed as the development, completion and work-over rig for the Elk and Antelope fields for long-term production surety.

Although gas has become big business in recent decades, InterOil is not ruling out the possibility of striking oil, which could be barged across to its Port Moresby refinery for stellar returns.

Given that the gas supply equation for its LNG plans is largely taken care of through the Elk and Antelope fields, Mulacek said InterOil will first establish how many structures are in the area.

"After we bed down all the bigger gas structures that we see, then we will focus on the deeper targets which are more oil prone. The natural process is to shift and drill more oil prone structures following LNG FID."

There are signs there is oil in the region, as the gas flow tests also featured some black smoke at both Antelope wells, with good condensate recoveries. The gas analysis has also confirmed that the gas generation is from an oil window, meaning oil is the primary source. Regionally small oil did flow at the Puri-1 well, which remains an anomaly at this stage.

Mulacek is confident that there is an oil window in the region at a depth of around 3000m to 3500m from the surface, at least 500m further down from depths drilled in the Antelope wells.

While InterOil has been subject to considerable industry scepticism, especially given the disappointment around the Elk-2 well, which missed the main gas zone and intercepted a gas/water transition zone, Mulacek said the company had kept over-performing on what it had stated with its gas expectations.

"We thought that it was between one and three trillion cubic feet, but now have close to 11 trillion cubic feet, while the overall gas in place volumes are increasing.

"And the overall understanding that we are going to get really good gas recoveries have improved the overall recovery volumes. This in combination to other structures and the potential for a lower oil system will substantially improve our capacity."

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