Real Energy Corporation (ASX: RLE) has kicked off a drilling campaign in what it considers to be the “Goldilocks” zone of Australia’s Cooper Basin, hoping the results pay off “just right”.
The Sydney-based oil and gas explorer today announced the spudding of Tamarama-2, one of two pilot development wells in a drilling program at its Windorah gas project in south-west Queensland.
The company has enlisted Ensign International to provide a rig to drill the wells, Tamarama-2 and Tamarama-3, in Real Energy’s wholly-owned exploration permit ATP972P.
The first well was spudded on Friday afternoon and is currently at a depth of 710m, with pressure testing of the blowout preventers being undertaken prior to drilling out the production hole.
The Windorah gas project covers more than 1700sq km and has been estimated to contain a prospective resource of 13.7 trillion cubic feet of gas.
Real Energy managing director Scott Brown told Small Caps that the Tamarama development drilling was ideally located compared to previous surrounding exploration attempts.
“There’s other gas plays in the Cooper Basin that people have looked at but for various reasons they haven’t really worked,” he said.
“We think this is a Goldilocks zone where it is buried deep enough that you have gas maturity, but it’s much shallower than a lot of the other plays that people have been chasing in the last couple of years.”
“That means you get lower drilling costs and you also have greater porosity and permeability than some of the deeper areas,” he explained.
The Windorah gas project contains the eastern part of the Windorah Trough, which is known to contain source rocks within the Permian Toolachee and Patchawarra formations that are mature for hydrocarbon generation and are believed to have sourced the surrounding gas-condensate fields.
“We’ve come up with this theory that all the wells are correlated in the same formations and wherever you have that formation, you’re going to have gas charge,” Mr Brown said.
“Because it’s quite thick, the volumes of the gas will be quite significant, and that’s why we’ve had independent geologists come up with very large volumes of gas in place within that acreage area,” he explained.
The decision to drill these wells followed the success of Real Energy’s maiden exploration well, Tamarama-1, which was first drilled in 2014 and underwent a five-stage fracture stimulation program in 2016 before commencing flow testing.
As at March 2018, the company reported gas has been flowing from Tamarama-1 at variable rates between 500,000 and 2 million cubic feet per day.
Real Energy has utilised knowledge gained from the drilling, testing and fracture stimulation of Tamarama-1 to plan the current program, which called for a deviated well design suitable for multi-stage fracking.
The drilling of Tamarama-2 and 3 has been estimated to cost about A$6 million and is being fully funded by Real Energy.
“At December, we had A$8.4 million in cash and that’s more than enough to fund the current drilling that’s taking place,” Brown said.
If the development wells are successful, the company plans to establish pilot production and will look to connect flow lines so that sales gas could then be supplied to Australia’s east coast gas market.
Mr Brown noted that while getting into production would mean getting cash flow, the company also aimed to prove up the deliverability of gas by converting its contingent resources into reserves.
“By the time we’ve drilled the wells, got all the results and then we get an independent geologist back to look at all the data, it’ll take probably until the end of the year to have a new reserve assessment done,” he said.
Brown said Windorah’s estimated 13.7Tcf gas resource would be important to Australia’s east coast market, especially given the depleting reserves in NSW and Victoria.
“That is a significant enough resource that if a big percentage of that came to market, you’d be able to supply most of the east coast market, or a big chunk of the east coast demand, out of this one project,” Mr Brown added.
Real Energy has already teed up deals for Windorah’s potential future production, including a signed memorandum of understanding with major gas player and acreage neighbour Santos to use its Moomba gas processing facilities in South Australia.
In addition, Real Energy inked a deal in July last year to sell 3 petajoules of gas per year to Australian gas retailer Weston Energy for a period of five years.
Mr Brown said Real Energy’s immediate focus was on proving production and commercialising the Windorah project.
“Once we’ve proven production then we will have a lot of companies that will value the resource because the resource is very large,” he said.
“Our ultimate game plan is probably bringing in a partner on ATP927P or to sell our permits out, but that probably won’t happen for a year or two, until we prove up the value,” Mr Brown added.
“If we establish much more value, then we can potentially transact on a bigger transaction … once you prove up a good gas asset, lots of people are pretty interested in developing it, buying it and putting their foot on it,” he said.