Determining the oil-in-place in an oil or gas reservoir is not a simple process. It involves advanced technology and a large amount of uncertainty. Even if we get the proportion of original oil-in-place right (and it only rarely amounts more than 25% of the total rock volume of the reservoir) then we still have to make an estimate of how much of that oil is reasonably (cost-effectively) extractable. Using current techniques this percentage varies tremendously depending on the type of reservoir. In many Middle Eastern limestone reservoirs the recovery factor may be as low as 10 to 15% of an imprecisely-known initial value. Recovery factors of 40 to 60% may be achieved in Australian sandstone oil reservoirs.
There are both technical and political reasons why arriving at a reliable estimate of the amount of oil or gas in a reserve is challenging. That is why reserve figures are often quoted in terms of probability. The P10 amount is the company's estimate that there is only a 10% chance that the reserves in a field will exceed that (high) volume of oil or gas. The P90 amount is the company's estimate that there is a 90% chance that the reserves in a field will exceed that (low) amount of oil or gas, and the P50 amount is the company's estimate that there is a 50/50 chance that the reserves in a field will exceed that (middle) amount of oil or gas.
A country may, for strategic reasons, wish to restrict access to the data that lie behind these estimates. Without access to these data, and reliable production records from the start of production, it would be impossible to objectively evaluate the remaining reserves in all the fields in a country.
- Dr Cedric Griffiths, Theme Leader -Oil; Team leader - Predictive Geoscience, CSIRO Petroleum
I particularly like the bit: Recovery factors of 40 to 60% may be achieved in Australian sandstone oil reservoirs. Now we don't know how good the recovery rates will be but this certainly gives hope.
Now 40% of 120 million barrels is about 50 million barrels. This would give an in-situ reserve worth about $4 billion, or maybe total profit over the lifetime of the prospect, assuming costs of $30/bbl, of $2.5 billion.
Not to get carried away though they will need to raise a fair amount of capital to put enough wells down and a pipeline to fully utilise this. I would hope though that they will take the approach of drilling a few wells and taking the oil 80km by tanker to the nearest pipeline to give cashflow, then funding an 80km pipeline and more wells with a combination of a cap raising (about $50m) plus debt ($30-40m). This would limit dilution to about 25%. Further wells could then be funded by oil revenue (with 6-8 wells producing 2K barrels per day revenue is about a million dollars a week, enough to fund a fairly intensive drilling program with 2 rigs putting a new well down every 2-4 weeks). The number of wells can then obviously rise at an increasing rate as cashflow continues to rise.
This is why I think INP is a great long-term prospect, just don't get spooked by the fluctuations in SP due to the overwhealming number of day-traders operating on the market now.
INP Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
