Lofty ambitions for experienced team

COTT Oil & Gas is working on giving PNG what it would dearly love – a new LNG project that diversifies the country’s imminent gas export and production away from the majors that currently control that space. Anthony Barich reports
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Published in the August-September 2013 edition of RESOURCESTOCKS

If the success Cott Oil and Gas has achieved in the six short months it has been in PNG is any guide, investors could be in for an exciting journey.

Cott is working up prospects in three Petroleum Production Licenses (PPLs) in the west of the country that could feed the fledgling country's next LNG project.

PNG's only LNG plant is being developed by Exxon Mobil and Oil Search and is due to commence exports in 2014. The JV partners are aggressively working up feedstock to drive the expansion of the PNG LNG project and are currently running their eyes over Interoil Corporation.

It is not practical, largely as a result of the harsh terrain, nor is it politically desirable to connect all gas discoveries to the PNG LNG plant.

Talisman Energy, together with Australia's Horizon Oil, is driving a gas aggregation strategy to the west of the country with a view to working up sufficient gas to justify a second LNG plant on the PNG coast at Daru.

Horizon Oil has recently done a deal with Japan's largest gas importer, Osaka Gas, that is partly conditional on Horizon proceeding with an LNG project - a big positive for Cott's potential.

All this of course is easier said than done, however Cott and its joint venture partner Kina Petroleum, has some very experienced industry veterans with extensive experience in PNG.

The team includes technical consultants Ian Longley, a former long-term Oil Search executive, and former Woodside executive, Clifford Ford. Then there is Kina managing director Richard Schroeder, who has 20 years' experience as an operator in PNG and who was exploration manager of Santos' South-east Asia operations where he helped pioneer Santos' boutique seismic technology responsible for significant savings and drilling success.

In just six months since acquiring PPLs 435, 436 and 437, Cott has discovered potential upside to the south where there are additional uncommitted reserves of gas that could come into a new western LNG project.

"We didn't believe it would progress quite as quickly when we took on the blocks," Cott managing director Andrew Dimsey said of the three new PNG tenements.

"Our initial view was that exploration would be steady for a couple of years, however a little work has yielded results very quickly. We've only had this acreage for six months but, within that time, we've identified a number of leads and oil prospects.

"This is a huge geographical growth area and the location of this new oil potential is the real bonus.

"It is terribly underexplored, but we know there are hydrocarbons there. The northern sector of PPL435 especially has high potential for liquids. As you go down towards the coast, a couple of seeps have been identified and one flows at about 5 barrels a day.

"The beauty of this area is that we have some 2D seismic in PPL 436, and drilling is potentially a lot cheaper because drill sites can be accessed via the Fly River rather than by using helicopters.

"So that's one of our main areas of focus - to get on top of these oil seeps and try to find exactly where they are. We have enough data to identify structures, with strong leads in the area, and we'll be looking at firming up those leads in a short space of time.

"The structures we have mapped are all large - potentially multi-TCF (trillion cubic feet) gas structures. If they are oil-bearing, we are looking at hundreds of millions of barrels - so it's exciting stuff.

"We're a small cap company, so if we can leverage our potential around existing major discoveries, then we can open up a new area. This recent data will give us strong indication but there are still a lot of unknowns in PNG as itis vastly underexplored."

PPL 437 borders PRL 21, whose participants include giants Talisman and Mitsubishi and which contains the Elevala and Ketu wet gas discoveries where probable contingent resources of 795 billion cubic feet of gas and 40Mbbl of condensate have recently been identified.

Cott's JV is planning a 2D seismic survey for PPL 437 later this year, and Horizon is drilling the Tingu - 1 well just south of the Elevala structure in Q3 2013. If successful, this would probably extend the Elevala structure by taking PRL 21 to 1.5Tcf and 60 million barrels, Dimsey said.

After they've seen the seismic, the challenge for Cott and its JV partner will be to fund the drilling of a well.

"The oil and gas exploration business requires a culture where you're continually generating prospects and ideas, and the guys on our board and Kina have been doing this all their lives," Dimsey said.

It's all part of Cott's dual approach of looking at exploration opportunities and corporate opportunities.

"There are always companies around that have good exploration or production development opportunities that aren't being taken forward," Dimsey said.

"We're looking primarily in PNG and Western Australia. My view is that you can create value across a range of opportunities, you don't have to focus on just one. Sometimes you can do better with a project than the previous owners."

Cott's acreage in the offshore Carnarvon Basin of WA is also an area that has the majors salivating. Cott has a 33% interest in WA-460-P which overlies part of the massive Palta* prospect currently being drilled by Shell and Mitsubishi. Shell has been drilling the Palta-1 well since October 2012 and, after a series of delays appears to be nearing completion. Chevron, Woodside and Hess are also actively exploring the surrounding licenses.

Despite the activity in the northwest of the State, Western Australia is short of gas, as most of this production is committed to LNG. While up to 15% of future gas processed in Western Australia will be reserved for the local market, the domestic gas available from existing projects is tailing off.

The move towards processing new discoveries with floating LNG facilities is likely to further squeeze available gas supply. Consequently, there is a ready market for companies such as Cott which have hydrocarbons that can easily be added to the domestic market.

The company aims to follow up on the Chamois discovery in WA-261P, whose prospects have been independently verified at 8.85 million barrels.

Then there is EP325, which holds the 18Bcf Rivoli gas discovery which, Dimsey said, could have the potential to get up to 100Bcf.

The focus, however, is PNG.

"Cott and Kina are small players working together to try to establish a fairly significant exploration and development program," Dimsey said.

"We might be riding on the back of existing discoveries but getting into that market and having prospective acreage that follows potential infrastructure (Horizon's proposed pipeline) down to the coast means we'll end up with a substantial interest in any potential prospects that are identified and which can then be farmed-down."

*Update: The Palta well failed to find commercial hydrocarbons last month.


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