The oil and gas players positioning for a post-COVID recovery with high-impact drilling
Link copied to
The oil and gas sector has not had it easy this year thanks to the COVID-19 pandemic and the resulting travel restrictions and impact on international travel.
Oil prices have struggled to break past the $US45 ($62) per barrel mark and have in fact slipped below $US40 per barrel this week thanks to bearish news from world financial markets.
Russia expects global oil demand to decline by between 9 million barrels per day (MMbpd) and 10MMbpd this year, a bigger drop than the 8.1MMbpd estimate put forward by the International Energy Agency (IEA).
However, Russian Energy Minister Alexander Novak forecast that average oil prices could rise to between $US50 and $US55 per barrel in 2021, noting that global oil demand will return to pre-pandemic levels at some point in 2021.
Global natural gas consumption is set to decline by 4 per cent this year, according to the Global Gas Report 2020, but is expected to return to growth after the pandemic thanks to low natural gas prices and stricter environmental policies.
With oil and gas demand expected to turn around, several companies are drilling high impact wells that will leave them well placed to ride the wave.
Melbana Energy (ASX:MAY) is preparing to drill two wells to test up to 235 million barrels (MMbbl) of prospective oil resources across four separate targets at its onshore Block 9 in Cuba.
Angolan national oil company Sonagol is paying 85 per cent of the costs of the drill program in return for a 70 per cent interest.
Executive chairman Andrew Purcell told Stockhead that Melbana had picked up Block 9 because it was under-explored due to Cuba’s bad relationship with the US, despite having a proven and developed hydrocarbon system with a very large volume of prospective barrels.
“Wells have been drilled in this area and hydrocarbons have been discovered and flowed to the surface before, so that increases the chance of success considerably from what a normal exploration well would be,” he said.
“We’re going into a place where we know there’s oil and where there is infrastructure with this very large potential discovery still to be made, and we can do that with a minimum of capital at risk because of that situation Cuba finds itself in.”
Purcell said Sonagol decided to farm in because it was looking for opportunities outside of Angola and the potential prospective resource at Block 9 made sense for an organisation of its size.
“If we’re successful, we would, I suspect, immediately put these wells into production, and that would mean revenue for us, which would be a nice development for our shareholders,” he said.
“Infrastructure is already in place, so the infrastructure development would be very minimal and production could start very quickly.”
Success will also open up the rest of the block, which has prospective recoverable resources of up to 676MMbbl.
Moving on to gas plays in Western Australia, Cue Energy (ASX:CUE) is participating with a 21.5 per cent interest in the upcoming tier one Ironbark-1 well in WA-359-P within the Carnarvon Basin, offshore Western Australia.
The well, which is operated by UK supermajor BP, is aimed at testing the deep Ironbark prospect, which has best case prospective recoverable gas resources of about 15 trillion cubic feet of gas.
“The main reservoirs are the Mungaroo reservoirs, which are also seen at Gorgon. They are regionally extensive, they are very thick and very large at the Ironbark site,” chief executive officer Matthew Boyall told Stockhead.
Ironbark is mapped out over 140sqkm on very good seismic, which Boyall noted made it a world-scale prospect.
It is just 50km from existing infrastructure at the North West Shelf (NWS) liquefied natural gas (LNG) project.
“It would be simple to tie-in to the NWS as BP is a partner in the NWS, and we also saw a few weeks ago when Beach reported that the northwest shelf is opening up for tolling,” Boyall added, though he did not rule out the potential of supplying gas to other LNG projects.
Development in the event of a success is expected to be simple with a number of wells, a subsea tie back and a short pipeline being the only requirements to bring it into production.
While Cue already has oil and gas production, a success at Ironbark-1 could take the company’s value into the multiples and open up other permits.
Boyall pointed to the neighbouring WA-409-P that is operated by BP (80 per cent), with Cue holding a 20 per cent stake.
He said the permit had potential upside to Ironbark and could see a contingent well being drilled.
“If Ironbark proves up the deep Mungaroo reservoir concept that we’re looking at, Cue also has the adjoining WA-389-P permit, which contains a very similar structure,” Boyall said.
While both Melbana and Cue are participating in exploration wells, Warrego Energy (ASX:WGO) is more advanced as its upcoming wells are appraisal wells of the West Erregulla-2 gas discovery in Western Australia’s Perth Basin.
West Erregulla- 2 flowed 69 million cubic feet of gas per day in October 2019 from the primary target Kingia Sandstone, well above the 50MMcfd target that operator Strike had estimated in September 2019.
Warrego and operator Strike Energy (ASX:STX) are now poised to drill two firm and one contingent wells that would increase both reserves and production if successful.
West Erregulla-3 is expected to be drilled in the middle of September and will test the northern block in the permit, while West Erregulla-4 and the contingent West Erregulla-5 will test the eastern part of the permit, in the same central block as West Erregulla-2.
“Of the up to three wells that we plan to drill, West Erregulla-3 is probably the riskiest of them and it still has a very high chance of success,” Warrego’s Australian chief executive officer David Biggs noted.
“They are appraisal wells not exploration wells, and in normal course, appraisal wells do have a high chance of success.”
Biggs said the three wells, which would all be as deep as West Erregulla-2, would be drilled as producing wells.
“At the moment, we are hoping that we can drill them back to back,” he told Stockhead.
“That depends very much on permitting but it would be a good outcome if we could successfully get that approval from the West Australian authorities.”
Biggs added that Warrego was targeting the domestic market and that a development decision was expected some time in the next six months.
“We expect to make an announcement by the end of this month regarding the conclusion of the gas sales agreement,” he said.
Success at the appraisal wells could also pave the way for Warrego to tie-up additional contracts for the sale of gas.