Hartshead Resources CEO Chris Lewis buoyed by significant increase in gas volumes
“This outcome provides substantial upside potential for the overall project and economics, and comes at a time when the UK natural gas spot price is sitting at a record high due to supply constraints,” says CEO.
Hartshead Resources NL (ASX:HHR) has recorded a 43% increase in gas volumes within its Viking Wx gas field, substantially boosting the capacity associated with its Phase I assets in the UK’s Southern Gas Basin.
In an operational update, the Europe-focused energy business told the local share market that its Viking Wx field now hosted 368 billion cubic feet (Bcf) of gas-initially-in-place (GIIP) resource, marking a 112 Bcf boost on prior estimates.
As a result, the GIIP volume for Hartshead’s entire Phase I portfolio, which comprises the Viking Wx and Victoria gas fields, now stands at 603 Bcf.
With development activities underway at the Phase I fields, Hartshead intends to define a development concept and gas export route next year, make a final investment decision in 2023 and achieve first gas in 2024.
New volumes trigger “project upside”
Hartshead Resources CEO Chris Lewis told Proactive: “The increase in gas volumes is welcome news and provides a significantly larger gas volume to target for development than previously calculated.
“This outcome provides substantial upside potential for the overall project and economics and comes at a time when the UK natural gas spot price is sitting at a record high due to supply constraints.
“We now have an expert technical team in place, which remains on schedule and within budget with key deliverables scheduled for the coming months.
“I look forward to the revised production profiles and seeing what positive impact this has on recoverable volumes, 2C resources and project economics.”
Hartshead’s Viking and Victoria fields, which form part of its wholly-owned and operated seaward licence, host a combined 217 billion cubic feet in audited 2C contingent gas resources and are historical producing gas fields.
Specifically, the licence comprises five blocks in Quads 48 and 49 on the United Kingdom Continental Shelf within the Southern Gas Basin.
It contains multiple gas fields, some of which have been only partially developed, and several exploration prospects.
These are divided into three phases for workstreams and operations across the licence.
Modelling Phase I gas fields
Today’s operational update comes after consultancy firm Xodus Group completed a geological model for the Viking Wx gas field, leading to the 43% increase in gas volumes.
Essentially, Xodus used a new model to calculate the field’s gas volumes based on fresh analysis and interpretation of seismic and well data.
In addition to confirming the existing GIIP estimates, work has identified a field extension in the form of a fault block to the southeast.
The block hosts 40 Bcf of additional gas-in-place resource, included in the Xodus estimate, which Hartshead intends to evaluate as another development drilling target.
Adjacent and to the northeast of the field, an undrilled structure has also been identified that will be evaluated as a potential, near field, exploration prospect.
In tandem with the southeast fault block, this new exploration target could also add further gas volumes to the Phase I development, although it is not currently included in the GIIP calculations.
Development underway
Today’s boost in gas volumes comes as Hartshead pushes ahead with planning and development activities in a bid to bring its Southern Gas Basin’s Phase I fields into production.
So far, key activities include subsurface interpretation and modelling, development well and production facilities planning, work on commercial gas transportation and quality, health, safety and environment workshops.
Fraser Well Management has firmed up drilling and completion cost estimates over Phase I’s production wells, while all cost estimates have been completed for its various greenfields development options.
Oilfield services provider Petrofac has also tabled its Concept Select report, identifying what it considers the preferred development option based on the costings.
Essentially, this option proposes two wireline capable production platforms, stationed at the Viking and Victoria fields, to enhance economic performance and decrease drilling risk.
It’s hoped that Viking’s production will tie in subsea with Victoria’s export pipeline, allowing both platforms to operate by themselves to mitigate any production shortfalls that could result from outages.
Meanwhile, discussions continue with gas transporters and infrastructure providers located around the Phase I region.
While some workshops have already taken place, Hartshead has further activity planned as it works to kick off engineering feasibility studies into the tie-in of its facilities and gas offtake.
Finally, safety and environmental workshops were held over July and August, while a UK government branch has appointed an Environmental Management Team manager to work with the Hartshead crew.
Next steps
Because Viking Wx is a past-producing asset, Xodus’ field model will now be used to construct a reservoir stimulation model that matches against the field's historical production.
Once history matched, this model will be used to optimise frac and well placement as well as generate production profiles and updated recoverable resource estimates.
In the meantime, a similar model is being prepared for Viking’s Phase I sibling, the Victoria gas field, with completion anticipated in the coming month.
Robust UK gas price
Because of LNG supply-side constraints and reduced capacity from energy giants like Norway and Russia, the UK Domestic and European gas markets continue to support a robust UK gas price.
Recently, the UK spot price reached 117 pence per therm, while a January 2022 contract includes a near-term natural gas future of around 120 pence per therm.
Promisingly, the UK gas futures curve also points to a long term price above 50 pence per therm over the winter of 2024/2025, meaning this strong trend is poised to continue.
Comparatively, when Hartshead first bought the UK-based gas projects in February this year, the UK spot price sat at roughly 47.5 pence per therm.
Hartshead’s own economic evaluation of the Phase I development uses a gas price assumption of 45 pence per therm, which demonstrates the potential for economic upside if market conditions persist.
HHR Price at posting:
2.4¢ Sentiment: Buy Disclosure: Held
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