North Sea Energy (CVE:NUK) has oil prospects in its portfolio with potential for up to 3.6 billion gross barrels of oil in place (P10), so attractive that they have lured partnerships from heavyweight oil and gas companies such as Maersk (OMX:MAERSKB) and Premier Oil (LON:PMO).
While the prospects themselves are named rather lightheartedly after characters associated with cats– Blofeld after James Bond’s arch-enemy whose signature pose is with a white cat and Bagpuss after a UK children’s cat series (Petro Canada previously named the prospects Fat Cat) – the nature of the prospects demands more serious attention. In the span of one week in August, both Premier and Maersk signed on to farm-in to the prospects, meaning potentially sizeable prizes for all parties involved.
And there are quite a few parties. North Sea Energy, a Toronto, Ontario-based company focused on the UK’s prolific North Sea region that is infused with infrastructure, holds a 15% interest in both prospects, with Maersk holding 25%, EnCounter Oil having 15%, Premier Oil owning 37.5% and Groliffe holding 7.5%.
Maersk was brought in by North Sea Energy just this summer, with the oil major agreeing to carry 100% of North Sea Energy’s costs, subject to a cap, to drill the initial Bagpuss prospect exploration well, including a site survey and agreed past costs. A second appraisal well would see 50% of North Sea Energy’s costs covered by Maersk, subject to a cap.
The prospects lie on the crest of the Halibut Horst, adjacent to the producing Blake and Captain Fields, the latter of which holds 1 billion barrels of oil in place. As a point of comparison, chief executive officer of North Sea Energy, Craig Anderson, told Proactive Investors in an interview that Bagpuss and Blofeld could be three times the size of the Captain Field on a high estimate basis (P10).
North Sea Energy has experience in the region to back it up, achieving first production in April 2009 at the Jacky prospect, just two years after the company was founded.
“In the last 20 months, two of our previous partners were purchased by much bigger companies for over US$1 billion, having never produced oil,” reflecting the potential of the region’s prospects, says Anderson, who is referring to Encore Oil being acquired by Premier for approximately US$420 million and Nautical being bought by Edinburgh-based Cairn Energy in 2012 for approximately US$660 million. The management of Encore Oil and Nautical are now operating their new companies as EnCounter and Groliffe, respectively.
The chief executive says one well is committed at Bagpuss and Blofeld, with the first well looking to prove that heavy oil will flow. “We don’t know the exact API or the porosity, permeability and characteristics of how it will flow.”
“We know the reservoir is very shallow – approximately 1,500 feet subsurface. Generally we would be concerned about oil viscosity, but it’s sitting on top of granite which seems to have a heating effect on the oil, and we therefore think the chances are better that it will flow,” says Anderson, who likens the granite in the North Sea to the Canadian Shield.
With Premier Oil to take over as operator from EnCounter Oil this month, the operator has termed the first committed well on Bagpuss as an "exploration well", but Anderson says this perhaps suggests too early of a stage for the prospect. "It's actually more like a quasi-appraisal well, which has a much higher chance of success than an exploration well."
He further explains that Petro Canada previously owned the block, relinquishing it in 2009 after outlining development plans and production scenarios. Petro Canada had characterized the first well at Bagpuss (then known as Fat Cat) as appraisal risk, with a 56% chance of success (COS). The CEO says this COS is quite high, as most exploration wells are risked at 20%.
And the resource has a good chance of being increased even further, according to Anderson, with the joint venture partnership hoping to tap into the granite wash and the granite that sits below the Bagpuss prospect. The Bagpuss structure has a potential oil column of over 225 feet.
"There were 15 companies in the data room, and we chose to go with Maersk, while EnCounter went with Premier," says Anderson, illustrating his confidence in both oil majors, with Premier relying heavily on EnCounter's technical experience, as early backers of the company are among those responsible for the giant Buzzard discovery in the Moray Firth in 2001.
Indications are rife that the UK's North Sea is not a dead region, but one that is re-emerging as a key hydrocarbon exploration area, spurred by recent discoveries including Catcher, Cladhan and Statoil's Norwegian Johan Sverdrup that may hold 2.5 billion barrels of oil. Recent deals by Chinese players in the area also indicate renewed interest, such as Talisman Energy (TSE:TLM) selling its 49% stake in its UK division to China's Sinopec, and China National Offshore Oil’s purchase of Nexen.
North Sea Energy is looking to capitalize on this interest, with all of its plays concentrated into a specific area in the North Sea. It has relevant experience, with such team members as technical and exploration advisor, C. Brent Austin, who was also involved in the Buzzard discovery; senior reservoir engineer Marcus Marsh, who spent 29 years with BP focused in the North Sea; and Peter Rhys-Davies, an exploration manager with 35 years of worldwide oil and gas exploration and production experience.
With the Jacky prospect likely to be decommissioned within two years, the company is certainly focused on Bagpuss and Blofeld, along with other prospects in the region, such as Norfolk. The Norfolk prospect is located in the Inner Moray Firth, a short distance from the Scottish coast, and has a lower Cretaceous sands reservoir - "a common reservoir type in the North Sea", says the chief executive.
"It's a pure exploration play, with a 25% chance of success. We shot additional seismic over it, and it shows a large flat spot, which geologists believe is very encouraging." We have a significant prospective resource on the prospect, with expected work on Norfolk to be figured into the budget for 2014.
Other near term possibilities include the Cloud and Cloud East leads, which North Sea Energy owns with EnCounter, split 40/60. More information is due from these Jurassic Upper formations shortly, which could mean they would become a subsequent play to Bagpuss and Blofeld. “If all goes well, we will open up a data room seeking a farm-in partner," says Anderson.
"We have a number of opportunities available to us that we may look to farm-out, including three blocks that could be awarded to us by the end of the year," adds the chief executive.