contentsDrillsearch Comes Of Age, Facilitates Technological Advances In Cooper Basin
Drillsearch has experienced a boom in its 2P reserves, foreshadowing further activity in the Cooper Basin as past exploration work has "barely scratched the surface". It is also set to bring a "game-changing" new piping solution to tie into the Santos system.
While Drillsearch experienced an 887% increase in 2P reserves for FY 2011 and for FY 2012 a further 30% increase, taking its 2P reserves up to 11.1 MMbbl Managing Director Bradley Lingo said there is plenty more potential. At a time when there is upward pressure on domestic gas supply as Santos was understood to be working on selling its uncommitted 2P reserves in the basin to the Gladstone GLNG project, Drillsearch is gearing up exploration and development activities to help fill that void in gas supply.
"There's a tremendous amount of appetite within the domestic market for additional new suppliers in the Cooper Basin", Lingo said.
In 2011 Drillsearch completed a six-well exploration campaign on the Western Flank Oil Fairway with Beach Energy where Drillsearch holds 60% of the program. Here, it had five discoveries out of six exploration wells since the program started in May and it has already drilled three further oil development wells.
Saying the discoveries were a "pleasant surprise" for Drillsearch is an understatement. They have now put the company in a position to secure more acreage and take a greater stake in the domestic gas supply. Its conservative expectations hoped for discoveries in two out of five wells, with a discovery size of a million barrels over the two. The Hanson-1 well alone was a million-barrel recoverable oil discovery with 60% to Drillsearch's interest. The Bauer-1 well - the same deal - had 3.5 MM barrels. It also had a modest discovery at Snellings, the second well in the program, and the third well in the program, Arno, has 250,000 barrels 2P recoverable. Drillsearch holds a 100% interest in Arno with pay in the McKinlay and Namur Sandstones and the Birkhead Formation stratigraphic play and oil shows in the Murta. "Getting three pay zones out of four zones with oil shows is quite a significant outcome for us", Lingo said.
The most exciting new oil discovery is the Bauer oil field which was drilled in late July-early August and is one of the biggest on the Western Flank, with 2P reserves currently estimated at over 3. 5 MM barrels with some of the best quality
McKinlay/Namur reservoir seen so far in the Western Flank. "A result like this at Bauer, along with the other discoveries, really opens up this whole section of the Western Flank Oil Fairway and is a great outcome for Drillsearch", Lingo said. A further three follow-up development wells drilled in October are pointing to an even bigger discovery becoming one of the biggest oil discoveries in the Western Flank Oil Fairway.
The exploration program concluded with the Basham-1 Birkhead Channel Sand oil discovery which is estimated a best case of 3.5 MMbbl OIP The Basham-1 exploration well encountered 18 m of oil shows with an estimated 11 m gross oil column. Drillsearch believes there is even more upside potential in the Basham oil discovery with an exploration upside with prospective resources of as much as 15 MMbbl OIP with typical recovery factors for the Birkhead Channel Sand oil fields running about 25-30% of oil in place. The Basham-1 exploration well - located NE of the Bauer Oil Discovery - also encountered the Namur Sandstone Formation 17 m high to pre-drill expectations and this result has potentially very positive implications for the northern extension of the Bauer oil discovery, pointing that the northern section of the field may be even larger.
Drillsearch Chief Financial Officer Ian Bucknell said it was telling that since the company has carried out exploration drilling in the Western Flank oil fairway using 3D seismic, all eight out of eight wells had oil, and six of those wells have yielded commercial discoveries. Five of those discoveries have either been completed or slated to be completed and go into production. "So in the Western Flank oil fairway there is quite a shift from the initial focus in the south in PEL-92, to a shift into PEL-91 as being really where the growth is in terms of additional drilling and more importantly new discoveries", Bucknell said.
Lingo said Drillsearch has always held a strong view on the likely Birkhead pay zone, ever since it had its initial discovery at Marino, which was the company's second well drilled in 2009 on 3D, and it was then that it was pushing to focus on the Birkhead pay zone potential. "We know that pay is working well and actively just to the north of us with the Wirraway, Growler, Snatcher and Charo discoveries and we could see the same Birkhead Formation plays continuing south into PEL-91", he said.
Bucknell added that this is really the continuation of a trend; "at PEL-91 you have the convergence of the Namur Standstone play and the convergence of the Birkhead play, so you have multiple valid targets".
Drillsearch completed one 3D seismic survey and in the third quarter of 2011 commenced a second - a 450 km2 Aquillus 3D seismic survey covering the central core of PEL-91 and all the way up to the northern Birkhead oil discoveries at Wirraway and Growler.
"The success we've had is a great problem to have. We're going to have to accelerate the capital expenditure around what we're doing. We've discovered so much oil now that rather than just have the little trucking operations we have relied on at our Chiton oil field - the first oil discovery in PEL-91, we are now looking at producing more than enough oil to support a pipeline development program. We know we now need to build a crude oil pipeline and it's more a question of how big and how much capacity to plan for the future", Bucknell said.
Delivering increased oil production with the new oil discoveries is a first step for Drillsearch. The company has 10 existing wet gas discoveries. Four of those it holds 50/50 in a joint venture with Beach in the PEL 106B area. Lingo said Drillsearch has worked "long and hard" with Beach and Santos (the operator of the South Australian Cooper Basin Joint Venture, SACBJV) to strike commercial terms and secure technical arrangements to put those four discoveries into production by tying it to the South Australian Cooper Basin gathering system and selling gas, condensate and LPG to the joint venture.
Drillsearch and Beach have been awarded the production license, completed the construction of the gas pipelines and are currently installing the other surface facilities. Drillsearch is also at the cusp of just completing the tie-in and commercial arrangements with the SACBJV with a view to starting production from the Middleton and Brownlow fields, which it holds in JV with Beach, before the end of the year.
It will also set technology hurdles for the Cooper Basin. The pipelines that Drillsearch will lay to tie into the Santos system use a plastic pipe solution called Fiberspar - the first time that technology has been used onshore in Australia for production of high-pressure, high liquid content conventional gas. It is a proven technology and has been in service for 10 years - about 35 MM feet are installed in the United States and a further 14,000 km are installed in Canada.
Lingo said that Fiberspar has several merits, including lowering both capital and operational expenditure. This ultimately leads to greater investment returns, with substantial capital cost savings over steel. Also, as it's a plastic pipe it's not subject to corrosion. "It's no surprise to anyone that Cooper Basin gas has elevated CO2 content - anywhere from 5-25% depending on where in the basin you're producing from. That CO2 content, over time, has quite a corrosive impact on steel pipe, requiring either internal coating of the pipe to ward that off or the injection of corrosion inhibitors which adds to the operational expenditure", he said.
This pipeline solution has a design life in excess of 25 years. Installation is much quicker and to a certain extent, Lingo said, it's just a "higher-spec version of the type of pipeline that the coal seam gas people are laying for their gathering pipes".
"We want to be in production by the end of November. This, I think, will be a significant game-changer for the development of gas accumulations in the Cooper Basin", he added.
Drillsearch has also become the first independent company in the Cooper Basin outside of the Cooper Basin Joint Venture that has sold into the joint venture. It has been done before by Drillsearch's subsidiary company, Great Artesian Oil and Gas. Bucknell said he believes that this signals to other independents a willingness from Santos now to replicate these arrangements with those companies as well. "I think we're going to see more of this and it signals that the Cooper Basin Joint Venture may want to take additional gas through the Moomba Gas Plant as there is more and more need for a domestic gas supply", he said.
"It really is a game-changer from the Cooper Basin perspective as Drillsearch has been a technical leader there through the utilisation of large regional 3D seismic - at the time the Spinell 3D in 2006 was the largest 3D seismic program ever acquired in the Cooper at nearly 600 km2", Lingo added.
On the back of that survey was the stunning drilling results - 10 discoveries out of 12 wells saw Drillsearch nominated as explorer of the year by Resource Stocks Magazine Best of the Best. Drillsearch was the only oil and gas company nominated.
On the unconventional front of Drillsearch's business, it has secured a $130 MM joint venture focused on shale gas with BG Group through its Australian operating company QGC. Drillsearch will also acquire the largest 3D seismic survey ever acquired onshore Australia in the Cooper - close to 1100 km2. Drillsearch hopes to commence acquisition early in 2012.
Lingo said that acquiring 3D seismic instead of 2D "really does pay the dividends".
"The South Australian Government has shown over the last 10 years that when exploring for oil, when you drilled with 2D your drilling success was about 20%. When you drill with 3D your drilling success rate in number of discoveries is closer to 50%", Lingo noted.
"What's embedded in our DNA is 'measure twice, cut once' - do the job right the first time, and you do that by the well reasoned, well-thought out application of best-available technologies. These are proven technologies.
"There have been loads of examples pointing to how important 3D seismic really is in the development of exploration, appraisal, delineation and development of unconventional resources. You're using it for a different purpose so you can use it to find the sweet spots and know how to drill your wells, you can see stress orientations in certain areas. That actually leads to successful exploration, appraisal and delineation."
And all this is just the beginning.
"What we say to many people is that the Cooper Basin is not mature. It couldn't be any further from the truth to say that the Cooper Basin is mature", Lingo said.
"If you look at the South Australian side of the basin, it covers 27,000 km2 and there have only been 850 exploration wells drilled. That well density barely scratches the surface, both from a conventional and an unconventional perspective.
"When people talk about declining rates of production in the Cooper, that's from legacy discoveries and focused on one facet of the basin. We know that Santos is out there looking at how to produce the mixed conventional/unconventional aspects of their holdings in the Cooper, particularly around tight gas.
"We are the only ASX-listed company exclusively focused on the Cooper Basin. Drillsearch has specifically focused on holding significant positions in key play fairways and built its business around the application and deployment of appropriate technologies to open up new plays as the market itself evolves to accommodate the need for new suppliers."
