Bedout Basin and Beyond
by David Archibald
17 October 2018
Carnarvon Petroleum has released has mapping on prospects it has generated near its Dorado oil and gas discovery. Following is what can be interpreted from that:
Roc South
The Company’s announcement is strange in that an oil quantum and an amount of gas are listed for each prospect. Thus Roc South is listed as 56 million barrels of oil and 100 BCF of gas for a total of 74 million barrels of oil equivalent.
This is understandable for the Roc South prospect in that the gas pressure encountered in the Baxter in Dorado-1 indicates that the gas/fluid contact is way down dip, much further downdip than the three oil columns quoted. Dorado-1 encountered a fourth oil sand below the Milne but the reservoir quality is unknown as logs weren’t run over this interval due to the danger of getting the logging tools stuck in six inch hole.
Thus the Baxter in Roc South is likely to be in communication with the Baxter in Dorado-1. The Company’s predrill mapping of Dorado has a gas sand extending through Roc South to the Roc wells. So the chance of at least a gas discovery in Roc South is a near certainty. Three out of three other sands in Dorado-1 had oil in them. So the chance of at least one oil column in Roc South is also high.
Pavo
This is a structural closure at the top of the Caley Formation. The prospect does not rely upon lateral seal against the Dorado Canyon. It is 5 km long by 2 km wide. Assuming 80 metres of closure and 43% recovery of the oil-in-place along with reservoir parameters from the Caley in Dorado-1 derives a figure for recoverable reserves that is about twice Carnarvon’s estimate of 82 million barrels.
Apus
Carnarvon has mapped prospects on the stratigraphic pinchouts of four formation in this structure:
Apus Caley 154 Million BOE Pmean
Apus Baxter 129 Million BOE Pmean
Apus Crespin 198 Million BOE Pmean
Apus Milne 272 Million BOE Pmean
This is in effect four prospects that will require four wells because each reservoir interval has a different location for top of porosity. The ultimate potential is way beyond that because of down-to-the-basin rotational faulting that has created the potential for sands to be sealed updip by fault seal and laterally by the canyon shales.
Sourcing should not be a problem. The shape of the canyon and the fact that the sediment package dips to the west has created a funnel effect that is draining a large area of mature source rock. The fact that three of the four reservoirs in Dorado-1 have oil means that the chance of oil versus gas is good. The Apus structure will be a happy hunting ground for some time to come.
The Carnarvon has ascribed each Apus prospect as having a 21% chance of a discovery. As a program that means that the cumulative chance of a discovery on the Apus structure is 61%.
Summary
Based on the Company’s figures, the six wells outlined are expected to find a risked 56 million barrels net to Carnarvon, worth $850 million at $15/bbl in the ground, for a cost to the company of about $5o million.
The Company can be expected to get its money back from Roc South even if the rest of the wells are dry.
Figure 1: Apus structure diagrammatic cross section
Comparative Value
The market appears to be paying about $14.29 per barrel of oil equivalent in the ground. It doesn’t seem to matter whether or not reserves are oil or gas. For example the market capitilisation of Comet Ridge, a pure CSG developer, is approaching the line of best fit. The following chart plots enterprise value (market capitalisation plus net debt) against 2P reserves in barrels of oil equivalent:
Figure 2: ASX-listed oil and gas producers and explorers
The detail we want to examine is obscured by the Santos and Woodside valuations in Figure 2 so Figure 3 replots the data minus those two companies:
Figure 3: Smaller ASX-listed oil and gas producers and explorers
The line of best fit to Beach is good because on Figure 2 that took us directly to Santos, suggesting that this is the valuation criterion that the market is using. FAR appears to be cheap but that may reflect a discount for West African deepwater risk. In comparison Carnarvon’s reserves are in jackup depth in a tax regime that generates franking credits. Based on its existing declared 2P reserves of 100 million barrels, Carnarvon’s share price would triple to be fairly valued compared to the rest of the market. Adding the risked mean potential of its prospects near Dorado takes value to nigh on $2.00 per share. The market is not paying for that potential yet but can be expected to do so after these wells are drilled.
Figure 4: Carnarvon Share Price Chart
Figure 4 shows Carnarvon’s daily share price chart plotted logarithmically. It is evident that expectation was steadily building in the stock from mid-2017 when it announced that a new seismic reprocessing technique had revealed the presence of 31 million barrels of attic oil in the Buffalo field. The Company had expected to drill a gas discovery or two in the Bedout Basin in 2018 and then sell that interest in order to fund the redevelopment of the Buffalo field.
The gap in the chart is due to the unanticipated oil discovery at Dorado-1. Since then the stock appears to have wound up in a symmetrical triangle that projects to $1.50. This pattern, if valid, will be resolved by 25th October, 2018.
Disclaimer
These are opinions only and not a recommendation to buy or sell anything. Do your own research.
Disclosure
The author retains a holding in Carnarvon Petroleum.
David Archibald is the author of American Gripen: The Solution to the F-35 Nightmare.
