Noel Newell, 3D Oil managing director
KUALA LUMPUR: Malaysia’s Hibiscus Petrol eum Bhd (Hibiscus) and Australia’s 3D Oil Ltd (3D Oil) are set for a joint venture (JV) targeting the development of its first project, the West Seahorse oilfield, which is expected to start delivering oil and generating income by 2014.
3D Oil sealed a mutually advantageous commercial relationship with Hibiscus when it agreed to a A$27 million (RM87 million) farm-in deal with Malaysian oil and gas explorer Hibiscus that would allow it to progress with its development of the West Seahorse oilfield in VIC/P57.
According to 3D Oil managing director Noel Newell, Hibiscus would receive 74.9 per cent of the petroleum produced until it recovered A$27 million, then revert to 50.1 per cent while 3D Oil would get 49.9 per cent.
“We are optimistic we will be able to get back our capital expenditure in just six month’s time and Hibiscus will recover its A$27 million in seven to eight weeks,” he told BizHive Weekly in an exclusive interview recently.
West Seahorse was expected to generate a revenue of A$270 million (RM2.38 billion) based on the best estimate 2C contingent oil resources of 9.2 million barrels.
The lowest estimate contingent was 4.2 million barrels while aggressive estimate was at 14.5 million barrels.
Kenneth Pereira
Even at the conservative 1C contingent resource of 4.2 million barrels of oil reserves, the project could generate overall revenue of more than A$200 million (RM645 million) net to the company at current oil prices.
“With an estimated 9.2 million barrels of oil available, it will be quite economical for us to develop the oil field because of its relatively small size with reserves that could last up to 20 years,” Newell pointed out.
“The production cost is also lower as it is located in shallow waters and with the tax credit granted for offshore development in the location, the project looks very attractive.
The oil there is of Brent crude quality, which always trades at a premium to that of the West Texas crude.”
Located 14 kilometres (km) offshore from the coast at 1,400 metres drilling depth, the oil field is estimated to produce 6,000 barrels to 8,000 barrels of oil per day from two drilling wells that would generate revenue of A$600,000 (RM1.9 million) to A$800,000 daily (RM2.6 million).
“We believe West Seahorse will be able to produce 50 per cent of its total oil reserves in the first year given that it is on the same trend with the oil discoveries of Seahorse, Wirrah, West Moonfish and Moonfish, which have a success rate of 70 per cent,” Newell added.
Although the estimate d reserve of West Seahorse was 9.2 million barrels, as is the practice, oil companies usually did not extract all but would leave some behind.
In the case of West Seahorse, it was estimated that 7.4 million barrels would be extracted.
Raw extracted oil would be transported to shore by a 14km pipeline before travel ling along an additional 1 9 km onshore pipeline to a new oil processing plant.
“In addition to the West Seahorse being developed, we also hope to drill another prospective site at the same time, the Sea Lion, as it is estimated to contain 11 million barrels of oil reserves there,” Newell said.
He highlighted that Sea Lion had significant upside potential, which might materially increase the economic value of the development.
The Felix prospect, on other other hand, was the biggest prospect that 3D Oil had under its assets.
It contained potential deep gas prospect together with shallow oil prospect at a sizeable nature of about 100 million barrels.
Newell pointed out that the cash generated from West Seahorse would be used to kickstart the development of two other fields.
Activities on Sea Lion was expected to commence by end-2013, while prospecting works on Felix were scheduled towards end-2014 or early 2015.
SIZEABLE LAND: Photo shows the VIC/P57 exploration which is located in the northwest of the Gippsland Basin with the northern boundary some 10kms offshore of the south-east Victorian coast and infrastructure.
It was reported that Hibiscus would take a 50.1 per cent operating stake in VIC/P57 and would also subscribe for 30.96 million 3D Oil shares valued at A$2 million, giving it a 13 per cent stake in the company.
Hibiscus would transfer A$13.5 million (RM44.4 million) to a joint operating account on completion of the transaction.
Another A$ 6 .7 5 mi l l ion (RM21.8 million) would be held in escrow and transferred into the joint account when required to fund cash calls issued under the Joint Operating Agreement while up to an additional A$6.75 million would be paid into the escrow account when the first tranche was transferred.
Hibiscus would b e t he second largest shareholder, seeing Kenneth Pereira being appointed as a director of 3D Oil.
Meanwhile, Newell would own 15.9 per cent of 3D Oil following completion of the transaction.
In addition, the JV was also exploring the possibilities of building a mobile offshore production unit (MOPU) and a floating, storage and offtake tanker, which would be moored to a buoy.
MOPUs are converted jackup drilling rigs that can usually be installed within 12 months from contract awards.
MOPUs can also be relocated quickly, which make the rigs suitable for the development of oil fields with a short field lives.
Since its renewal in August 2011, VIC/P57 is approximately 186 square miles (483 square kilometers) in size, covering a geological ly diverse area of the Northern Terrace and the Central Deep areas of the offshore Gippsland Basin.
About four billion barrels of oil and 12TCF of gas have been discovered in this region and it has the highest historical exploration success rate in Australia.
Newell was confident with the development of West Seahorse, the company’s net present value (NPC) expecting to reach A$149 million.
Sea Lion, on the other hand, had the potential to double or triple the NPV of the West Seahorse project.