Carnarvon Petroleum (ASX:CVN) has gained exposure to a drill-ready offshore project with already defined resources in proximity to the company's existing Phoenix oil properties on Western Australia's North West Shelf.
Carnarvon has secured a 35% stake in the Barrow sub-basin oil project, with the company's Phoenix operating partner Quadrant Energy retaining the balancing 65% interest.
With Quadrant as operator, the joint venture has proposed to drill the project's Outtrim East prospect around June 2016 along with a suite of related targets and leads.
This work will attempt to add to the project's existing Blencarthra resource by testing the extent of the Outtrim-1 oil discovery and new oil charged sands to the north and east of the Outtrim-1 well.
Carnarvon will pay its 35% share of the cost to drill the Outtrim East-1 well which is estimated to be approximately A$10 million net.
The company will also pay a modest consideration to the vendors to enter the project.
Prior to the deal, Carnarvon held three exploration permits in the Barrow sub-basin, including a block containing the highly prospective Kybra channel where state government research as recently flagged the presence of mature oil source rocks.
Recent progress
Expansion of Carnarvon’s footprint in the North West Shelf region has built immediately on momentum related to the recovery of gas from the nearby Roc-1 well.
The quality of this sample has been confirmed as being at the top end of Carnarvon’s condensate-to-gas ratio estimate of 20 to 40 barrels per million cubic feet of gas.
This update coincided with completion of the project's wireline logging program and removal of the rig from the Roc-1 location, about 20 kilometres southeast of last year's Phoenix South-1 oil discovery and around 150 kilometres north of Port Hedland.
This program had previously confirmed reservoir quality sands with net hydrocarbon interval of 10 metres from the gross 40 metre sand column over the interval from 4,380 metres to 4,420 metres.
Pressure testing has confirmed at least three discrete hydrocarbon columns in the section from 4,380 metres to 4,420 metres.
Roc-1 is controlled 20% by Carnarvon and 40% by operator Quadrant.
Analysis
Carnarvon’s consolidation of its holdings on the North West Shelf represents a significant show of faith in this region and could prove a savvy move to opportunistically grow its portfolio during a rough patch for the oil sector.
The project likewise illustrates the mutual confidence and strong relationship between Carnarvon and its partner Quadrant - a consortium between Brookfield Asset Management (NYSE:BAM) and Macquarie Capital (ASX:MQG).
The opportunity provides Carnarvon with substantial development upside for a relatively modest investment and represents another step forward in its strategy to position Carnarvon for a recovery in oil prices.
Timing of the deal appears to be positive, with West Texas Intermediate crude having gained more than 20% in value over the past week.
Carnarvon price catalysts now include the upcoming drilling program at the newly acquired property as well as an estimate of the recoverable volumes at Roc-1, where recent gas quality analysis has reinforced potential for a simple, low-cost development close to infrastructure.
Proactive Investors is a global leader reporting financial news, media, research and hosts events for listed emerging growth companies and investors across four continents.