Carnarvon Petroleum (ASX:CVN) has set a spud date next week for the Roc-1 oil well in Australia’s North West Shelf region as the company’s broader Phoenix offshore property demonstrates increasing potential.
With the drilling rig now received by joint venture partner Quadrant Energy, the highly anticipated exploration program is ready to begin around November 17, with drilling to take about 35-40 days to a depth of 4.7 kilometres.
Roc will target the same Lower Keraudren reservoir in which oil was discovered in the 2014 Phoenix South-1 well by the same joint venture partners in an adjoining area of the Phoenix project.
Well logging and sidewall coring is expected to take about 5-10 days in a success case.
If the initial drilling is successful, the plan is to re-enter the Roc-1 well bore in Q3, 2016 for comprehensive testing (including flow testing) and coring.
Carnarvon is targeting a best-case estimate of 42 million barrels of oil at Roc.
This would represent a substantial portion of the larger Phoenix resource, estimated in a best-case scenario to total 104 million barrels of oil over only 5% of acreage held by Carnarvon.
About 45% of this acreage is expected to be explored using 3D data techniques before the end of the calendar year. This program is supported by $52 million in investment commitments and is aimed at identifying new targets for drilling over 2016 and 2017.
As a starting point to this wider development plan, Roc represents a promising prospect with minimal investor risk attached.
Importantly, spudding of the well has been carried to US$70 million by JX Nippon and Quadrant – a consortium between Brookfield Asset Management (NYSE:BAM) and Macquarie Capital (ASX:MQG).
Phoenix progress
New traction at Roc represents only part of the broader development work taking shape at the Phoenix project.
The nearby Phoenix South-1 well, drilled in 2014, was the first well to be drilled in the Bedout Sub Basin for almost 30 years and was only the eighth well in the basin.
The well was drilled to a total depth of around 4.6 kilometres and discovered oil across an overall sand-rich package between 4.2 kilometres and total depth. Six samples of high-quality 46-48 degree API oil were recovered from the well.
This well is significant because it opened up the prospectivity of an entirely new hydrocarbon province in Australia.
Equally importantly, it demonstrates that there is a new play concept in Carnarvon’s area of focus: the North West Shelf.
During the past quarter, new prospect identification in the greater Phoenix area continued with substantial completion of a new seismic acquisition program covering the entire Phoenix acreage.
This data will provide the company with important new information next year that will be used for drilling activities in 2016 and beyond.
Analysis
Tighter scheduling for spudding at Roc adds clarity to Carnarvon’s development plans at the site and demonstrates the systematic efficiency of the company’s development effort in the greater Phoenix area.
Investor support for the latest progress at Roc has been illustrated by a 15% improvement for Carnarvon stock since the start of last month to A$0.115.
The company currently enjoys a market capitalisation of, A$114 million and a strong financial position with no debt and cash of $103.2 million as of the end of September.
Carnarvon also boasts up to US$32 million in future cash flow from oil receipts.
Importantly, Roc-1 is well funded to US$70 million (gross) by Quadrant Energy and JX Nippon.
Rollout of development plans at Phoenix have been strategically timed with the downturn in the oil sector, with crude prices now fluctuating in a range reflecting less than half the value of prices in recent years.
Carnarvon’s strategy for optimising this opportunity has included a focused business model with an in-house technical team solely focused on the North West Shelf.
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