oilbarrel.com - nge update 8th june

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June 08, 2010

New Guinea Energy Reports Its Rig Is In Transit Ahead Of Panakawa Well Spud In Papua New Guinea

Excitement is mounting at New Guinea Energy, the ASX-listed explorer that has established an impressive footprint spanning some 53,000 sq km in Papua New Guinea. Last week the company announced that Australian Drilling Services Rig 6 and associated equipment was enroute to Port Moresby, the capital of PNG, where it will clear customs before proceeding to the companys 100 per cent owned PPL 267 permit in the South Foreland area. This is the site of the companys first well, Panakawa-1, which is targeting a possible 200 million barrel prospect.

This will be an interesting drill as the Panakawa structure seeps around five barrels of oil to the surface per day. The exciting thing here is not the confirmation of an active oil system but the fact that the oil is 35-degree API, different from the 55-degree API found in the Highlands region and therefore pointing to a possible new oil play. There is further upside, with a new lead delineated just 10 km from the Panakawa drill site. Whats more, the lead is in an easily accessible location via existing logging tracks, making it a candidate for a reasonably quick and cost-effective follow-up by PNG standards (some wells in these jungle frontiers are only accessible by helicopter, making for hefty drilling costs).

PPL267 is just one of six licences held by New Guinea Energy in PNG, a country that has seen something of a land grab in recent years as major oil companies piled in to sign up acreage that offers more favourable terms than many other places in Asia and is well-placed to feed into energy-hungry markets in the Pan-Asian area. New Guinea Energy has profited from this land grab, last year agreeing farm-in terms with Canadas Talisman Energy for its PPL 268 and 269 permits.

This farm-in was important for two reasons: first, it will accelerate seismic and drilling activities on licences PPL 268 and 269 as the Canadian firm has committed to spent over US$100 million over the next two years; second, it provides third-party endorsement of NGEs acreage from a player that has been at the forefront of 2009s land grab. Calgary-headquartered Talisman has stitched together a serious acreage position in the western province of Papua New Guinea over the course of the last year through a series of acquisitions (it bought AIMs Rift Oil for US$188 million in June 2009 and Papua Petroleum Limited in November), corporate deals (it bought 50 per cent of Horizon Oils PRL 4 and 5 licences in September 2009) and farm-ins (the New Guinea Energy deal).

As NGEs executive chairman Michael Arnett told shareholders at a recent AGM, Talisman has, through its actions over the last year, clearly articulated a gas aggregation strategy in the Western Province foldbelt. NGE hopes to play a key role in that strategy, which, if successful, could transform the fortunes of Talismans junior partner.

Under the farm-in agreement, Talisman will spend up to US$11 million on seismic and a possible US$90 million on a six well programme to earn up to 70 per cent of PPL 268 and PPL 269. There is certainly enough scope on these licences to keep the Canadian company interested with PPL 269 home to five mapped prospects and 34 identified leads, with both oil and wet gas potential, and the under-explored PPL 268 block on trend with Rift Oils (and now Talismans) Puk Puk and Douglas gas discoveries. The first Talisman wells under the farm-in agreement are expected to spud in Q4 2010.

The Canadian company has also agreed to co-operate with New Guinea Energy on some of its other licences, most recently by extending the seismic programme over its PPL261 licence into the north-east section of NGEs PPL 266. The seismic programme was completed in early April and results are due in Q3.

It all adds up to a busy timetable for the remainder of the year, with some near-term newsflow due in the coming months from Panakawa to keep investors interested until the big wells with Talisman start spudding in Q4.
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