Carnarvon Petroleum Ltd (ASX:CVN) has now made two discoveries in its first two exploration wells in the North West Shelf (NWS) off the coast of Western Australia, with two more wells planned for CY2016.
Carnarvon has a strategic focus on the NWS where it has a 20% equity stake alongside operator Quadrant Energy in both the Phoenix South and Roc joint ventures (JVs).
After making the gas and condensate discovery at Roc-1 in January, the JV has committed to drill Roc-2, commencing between June and September this year.
The company has entered into an agreement to participate in the Outtrim East-1 exploration well in June 2016 where it has a 28.5% interest with operator Quadrant.
Carnarvon were also awarded an exploration permit adjacent to the blocks containing the Phoenix South and Roc discoveries.
At 31 March, the company had A$95.5 million in cash, future receivables worth up to US$31.3 million and an A$8 million cost carry on the Roc-2 well.
Increasing portfolio
Carnarvon acquired 28.5% of WA-155-P(1) which contains the 1984 Outtrim-1 discovery.
The JV is on target to commence drilling the Outtrim East-1 well in June 2016 with the Noble Tom Prosser drilling rig.
The Outtrim East-1 well is located to test the extent of the Outtrim-1 discovery and test highly prospective sands to the North and East of the Outtrim-1 well.
The company was also awarded the WA-521-P exploration permit which was accepted on 6 April 2016.
This block is adjacent to the successful Phoenix Area which contains the Roc and Phoenix South
discoveries.
Preliminary work has identified large structures in the permit and seismic data indicates the potential for hydrocarbon source rock for Phoenix South and Roc to also be in the new permit.
Phoenix South
Light oil was discovered in the Phoenix South-1 well in the second half of 2014.
This is the first time an oil discovery has been made in lower triassic aged sediments on the NWS.
DeGolyer and MacNaughton assessed the mid case estimate of recoverable oil at Phoenix South to be 19 million barrels, with upside potential of up to 55 million barrels of recoverable oil.
This Phoenix South oil is of a similar quality to the Roc condensate and could be tied in and produced within a common development infrastructure.
Roc
Gas and condensate was discovered while drilling the Roc-1 well, as reported in January 2016.
Preliminary technical work indicates that the gas and condensate can be brought to surface and will be confirmed by a flow test in the proposed Roc-2 well.
The forthcoming Roc-2 well will target the interpreted crest of the Roc structure, thereby testing the extent of the contingent and prospective resources.
A successful result would not only clarify the current contingent resource but also enable the recategorisation of the prospective resource into contingent resource.
These prospective resources are classified as low risk with a geological chance of success of 80%.
Carnarvon estimates if Roc-2 encounters the 2C and mid / best case estimates of gas and condensate, it is likely that the Roc resource will be commercial and well advanced in terms of being re-categorised as reserves.
Analysis
Carnarvon maintains its strategic focus on the NWS with two discoveries in the first two wells.
The two wells planned for CY 2016 gives investors access to large potential catalysts.
The company is actively growing its asset portfolio in the current period of opportunity and strengthening its relationship with its partner Quadrant.
West Texas Intermediate crude has consolidated off its recent lows and is now trading around US$43.50 per barrel.
Carnarvon maintains a strong financial position with A$95.5 million in cash, future receivables worth up to US$31.3 million and an A$8 million cost carry on the Roc-2 well.
With a market cap of circa $85 million, the company is fully cashed backed.
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