Carnarvon Petroleum (ASX:CVN) is advancing its existing projects including the upcoming Roc-1 well later this year and its wholly-owned Cerberus Blocks in the Carnarvon Basin.
The company is also actively looking for new opportunities that have the potential to add significant upside to its business.
Carnarvon is well-funded and is currently trading at a discount to cash backing and royalty payments.
Adrian Cook, managing director, said:
“Despite challenging industry conditions, we’re continuing to advance our existing projects and we’re actively looking for new opportunities that have the potential for us to add significant upside to our business.
“One example of this may arise in the Government bid round for offshore oil and gas exploration permits, with bids required in the fourth quarter of this calendar year.”
“Behind the scenes work is well and truly underway preparing for the drilling of the Roc-1 well later this year.
“The joint venture partners have been meeting regularly to review the drill plans and budgets and of course the technical material from the reprocessed Phoenix 3D and other data upon which these drill decisions are being made. And we remain encouraged by what we are seeing and with the progress being made.
“As you would have seen from our recent Cerberus update we have also been working on the technical aspects of this acreage over the last year.
“This is another very interesting area of the North West Shelf and now we’ve advanced the technical work we’d definitely like to see our key prospects drilled and tested.
“Ideally we’ll secure a partner to join us in this project but we know we need to be patient in this market as most of the large company exploration budgets have been heavily curtailed for the moment.”
This month, the company appointed its commercial manager Thomson Naude as its chief financial officer.
Its staff own more than 1% of the company through purchases on market, ensuring they are aligned with shareholders.
Roc-1
Quadrant Energy – a consortium between Brookfield Asset Management (NYSE:BAM) and Macquarie Capital (ASX:MQG) consortium (Quadrant Energy) that acquired Apache Corporation’s (NYSE:APA) Australian assets – has reaffirm intentions to drill the Roc-1 later this year.
Roc-1 well targets P50 Contingent Resources of 42 million barrels of oil and follows on the successful Phoenix South-1 well in WA-435-P that was confirmed as a light oil discovery.
Quadrant and JX Nippon will fund drilling and testing costs within WA-437-P to US$70 million (gross cost). The current estimate to drill the Roc-1 well is around US$45 million.
Carnarvon will update on timing of the rig and spud date for the Roc-1 well as it gets closer to a firm spud date.
The recent independent resource assessment of the Phoenix & Phoenix South discoveries came to best estimate gross contingent resource of 31 million barrels of oil.
Cerberus Blocks
In June, the company identified the Belfon (Upper Permian) and Honeybadger (Early Triassic) prospects at its wholly-owned Cerberus Blocks in the Carnarvon Basin that are estimated to contain significant volumes of recoverable oil.
Honeybadger and Belfon offer low cost drilling in shallow water with shallow depth reservoir targets, providing Carnarvon with significant value for a modest investment.
Besides requiring lower cost jack-up drilling rigs, the reservoirs are also located between 1,000 to 3,000 metres subsea, with the time required to drill down to total depth to test these targets estimated to be between ten to fifteen days.
These factors result in the independently estimated total cost to drill each prospect from as low as US$10 million per well in the current environment.
Meaningful oil volumes with multiple follow on prospects are also present at the EP-490, EP-491 and TP/27 exploration blocks.
Notably, work carried out by the company has resulted in the discovery of the same early Triassic systems that are present at the Phoenix oil discovery.
The Cerberus Blocks are located in an iconic hydrocarbon region and have the potential to host a number of similar sized oil fields as in the neighbouring blocks.
Nearby fields include the Wandoo Oilfield that hosts 250 million barrels of oil in place; the Stag Oilfield with an estimated 125 million barrels of oil in place; the Barrow Island oil field that has produced over 300 million barrels of oil since its discovery in 1964; and the Harriet oil and gas fields that have produced over 75 million barrels of oil and almost 400 billion cubic feet of gas.
Analysis
There is a pipeline of news ahead for Carnarvon Petroleum with upcoming drilling of Roc-1 and potential to acquire new offshore oil and gas blocks in Australia.
Its Cerberus Blocks also offers two prospects with significant oil potential at relatively low costs that do not require further technical work.
While securing a partner will take time, a successful replication of the Phoenix success at Cerberus will add substantial value.
The company is well positioned with a range of quality projects, cash as at March quarter end of $101 million in cash, up to US$32 million in royalty payments, zero debt and the Roc-1 well funded to US$70 million by Quadrant and JX Nippon.
Carnarvon also benefits from a strengthened board and management team as well as a clear consensus on the strategy and plans needed to grow its business.
It is currently trading at a discount to cash backing and royalty payments with no value given to assets and volumes.
Perth-based broker Argonaut Securities recently valued Carnarvon at $0.19. Shares in CVN are currently trading at $0.11.
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