Aurelian Oil & Gas poised to frac second horizontal well at Siekierki

Investors reacted indifferently to an update from Aurelian Oil & Gas (LON:AUL) indicating that it is preparing to frac its second horizontal well on the Siekierki gas field in Poland. 

The well, Trzek-3 was successfully drilled and completed with a cemented liner. Hydraulic fraccing, an enhanced oil recovery (EOR) technique, is scheduled in early July and it will take up to six weeks to complete. Aurelian. A flow test is scheduled to take place by mid-August.

Andrew Matharu, head of oil and gas analysis at Westhouse Securities, believes that investors are in ‘standby mode’ at the moment, as they wait for Aurelian to show that they have mastered the project’s technical challenges, and flow the multi-fracced wells at commercial rates.

“Aurelian's share price has drifted since April, when it announced the technical difficulties affecting the results of its first Siekierki well flow rates,” the analyst said in a note to clients.

“Although today's announcement does not contain definitive information relating to the commerciality of its tight gas projects in Poland, the company is making substantial progress en route to achieving this.” 

Similarly Matrix Capital analyst Vugar Aliyev, who rates the stock as a ‘hold’, said: “Good Aurelian is making progress on Trzek-3, indications so far are very positive, but the real prove will be in test results. 

“In our view, Aurelian needs to demonstrate stabilised flow rates of 8 - 9 million cubic feet per day to prove commerciality of the Siekierki project.” 

In this morning’s statement Aurelian also told investors that the rig will now move to the wellsite of Krzesinki-1, Aurelian’s first Siekierki South-West well. Spudding is planned for early July. 

The group expects the well to reach target depth of 4,150 metres in early Q4 2011. Krzesinki-1 is on trend with producing fields in areas of good permeablity and is targeting net resources to Aurelian of 44 billion cubic feet (bcf) with an upside of 465 bcf.

Aurelian said processing and interpretation of the recently acquired 2D seismic data on the Poznan Block 208 adjacent to the Siekierki project should be completed by the end of the first quarter 2012. The survey will be processed and interpreted to determine the block's prospectivity with a focus upon the Rotliegendes and Zechstein plays nearby Siekierki.

The Siekierki project is located on the Poznan licences which are 100 percent held by Energia Zachόd, a company owned 90 percent by Aurelian and 10 percent by Avobone NV.

The partner group drilling the first well on Bieszczady block in Poland announced that the Niebieszczany-1 well, which spudded on October 14 2010, is currently drilling ahead at 3,946 metres with wire line logs having been taken over the interval to 3,840 metres. 

Drilling progress has been slower than expected due to an over-pressured permeable interval between 3,845 - 3,848 metres which was required to be cemented to control the well. 

In total, four drill stem tests, all recovering hydrocarbons, and six cores have now been taken in the Krosno sandstones. These tests and cores indicate the formation to be characterized by porosities of up to 7 percent with numerous fracture zones facilitating the flow of the hydrocarbons. 

Longer term tests on all of these zones will be required to determine overall commerciality, however at this stage, the results from the drill stem tests are encouraging, Aurelian said, adding that cost exposure to the slow progress of this well has been mitigated due to the fixed cost nature of the contractor's turnkey contract.

The primary reservoir targets are expected between 4,000 metres and 4,800 metres and these remain the primary focus of the well which is targeting up to 100 million barrels (gross) of oil. 

Interests in Bieszczady are: Polskie Gornictwo Naftowe i Gazownictwo, operator with 51 percent; wholly owned Aurelian and Gas Poland unit Energia Bieszczady with 25 percent; and Eurogas Polska with 24 percent.