Aspiring mid-cap oiler Carnarvon Petroleum (ASX: CVN) is zeroing in on drilling its first production well at its Buffalo oil field in the Timor Sea.
The oiler said the recent signing of the Maritime Boundary Treaty by the Australian and Timor-Leste governments in March this year enables Carnarvon to progress its productive intentions at Buffalo and will mean the oil field is redeveloped – starting with drilling of the Buffalo-10 well.
The company said that “the government meetings to-date have demonstrated that the parties are aligned in wanting to achieve first oil as soon as practicable”.
Carnarvon said that it has begun preparing its well design by beginning work to obtain environmental approvals, identification of drill rigs and commencing discussions with floating production, storage and offloading (FPSO) providers to determine availability of suitable facilities.
Additionally, Carnarvon has confirmed it has begun the process of resourcing staff and contractors to operate drilling and subsequent production.
Shepherding Buffalo into production
The Buffalo-10 well is intended to be the first (of potentially several) production wells in the oil field redevelopment. Carnarvon is now positioned to “test the new oil in the attic accumulation” as well as drill deeper into the oil pool in the previously developed portion of the field.
According to the oiler, the previously developed portion of the oil field was producing around 4,000 barrels of oil per day.
Carnarvon says that given the 3,250m estimated depth to the reservoir at Buffalo, the well will take around 30 days to drill and to complete an extensive formation evaluation program and adding that “being in shallow water of only 25m, a cost-effective jack-up rig will be used to drill the well”.
In preparation to drill a potentially lucrative well that could significantly lift the oiler’s near-term production ambitions, Carnarvon commissioned an independent cost analysis of the field redevelopment, with the resulting report estimating capital expenditure below US$150 million (A$200 million) which includes three production wells.
The oiler also said that annual operational costs were separately assessed in a range of US$80 million to US$100 million (A$106 million to A$133 million) per year, with a forecast production life of five years.
Carnarvon estimates its total operational expenditure at Buffalo is expected to be between US$400 million to US$500 million (A$533 million to A$667 million) and would enable a low-cost operation sporting a production cost of around US$18-$21 per barrel of oil.
Given that Brent crude oil prices are currently trading at close to US$73 per barrel, the Buffalo field is expected to generate around US$2.2 billion in revenue based on the 2C contingent resource of 31 million barrels, declared by Carnarvon back in August last year.
However, these are preliminary estimates and could still be subject to change upon further exploration results.
“The low capital and operating costs mean this is a very high yielding, standout project at current oil prices. It is a project capable of supporting a mix of funding alternatives which could naturally include a portion of Carnarvon’s current cash pile of $48 million as reported on 31 March 2018),” said Mr Adrian Cook, chief executive officer of Carnarvon Petroleum.
“The nature of the project is also well suited to Carnarvon in terms of its scale, time to first production and overall risk profile,” added Mr Cook.