7 - Review of Operations: 7- Highlights - Disscusion of farm outs; 8 - Kenya; 19 - Namibia; 25 - Australia
Below is the Chairman's Review which I believe is complete (had to reformat for readability)
Pancontinental Oil & Gas NL has had an exciting and eventful 2014 financial year.
Commencing in September 2013, the company announced the successful farmout of the EL 0037 licence in the Walvis Basin offshore northern Namibia to Tullow Kudu Limited (“Tullow”) and in March 2014 the company made the historic Sunbird-1 oil discovery, the first ever oil found offshore Kenya. We also farmed out the onshore portion of Kenyan licence L6 during the year and here we expect to be free-carried for seismic and one well.
Namibia
In Namibian licence EL 0037, Pancontinental originally held a strong 95% interest prior to farmout. Once the farmout terms were negotiated and all approvals met, Tullow was assigned a 65% operated interest with Pancontinental retaining a 30% free carried interest. Pancontinental has estimated that Tullow’s farmin programme expenditure could be in the vicinity of US $130 million on a 100% basis.
Terms of the Tullow farmin are as follows:
Operatorship
- Tullow to lead the forward programme as operator;
Work Programme
- 3D seismic survey of not less than 3,000 km2 prior to December 2014 – Pancontinental carried 100%;
- 2D seismic survey of not less than 1,000 km2 coincident or later than 3D – Pancontinental carried 100%;
- Exploration well subject to the identification of a suitable drilling prospect – Pancontinental carried 100%;
- Additional costs such as purchasing, interpreting and mapping seismic – Pancontinental carried 100%;
Note – there are no “caps” in place for any of the above expenditure which means that Pancontinental will have no financial exposure for the exploration work under farmout.
Past Costs
- Past costs incurred by Pancontinental in licence EL 0037 – Tullow to reimburse Pancontinental for 65%.
Tullow has now identified a number of geological leads and conducted the extensive 3D and 2D seismic acquisitions which were completed prior to the end of the financial year. The seismic acquisitions covered a number of strong leads and were carried out to prove-up these leads to prospect status for possible drilling.
In July 2014, Pancontinental announced that the 3D and 2D seismic surveys carried out earlier in 2014 were beginning to yield very encouraging results. Initial mapping confirmed at least four main prospects in the 3D area. The prospects appear to be large and robust and are in favourable geological settings. Additional prospects and leads are expected to be mapped within and outside the 3D area in due course.
One of the main prospects is the Albatross Prospect, with potential to contain 422 Million Barrels of Oil (gross unrisked mean) or 1.093 Billion Barrels of Oil (P10). Further prospects and leads have gross mean risked potential resources exceeding 150 Million Barrels of Oil.* It is expected that a number of additional large prospects will be identified and mapped in the course of seismic interpretation.
Current activity includes the ongoing processing of the 3D and 2D seismic data. It is anticipated that results of the complete mapping from the fully processed seismic data will be made available before the end of the 2014 calendar year.
Pancontinental is extremely pleased with the farmout and exploration activities achieved in Namibia over the past year. The company will continue to eagerly await results from each stage of Tullow’s aggressive exploration campaign and will look forward to informing our shareholders and stakeholders of the progress.
*Cautionary Statement: The estimated quantities of petroleum that may potentially be recovered by the application of a future development project(s) relate to undiscovered accumulations. These estimates have both an associated risk of discovery and a risk of development. Further exploration, appraisal and evaluation is required to determine the existence of a significant quantity of potentially moveable hydrocarbons.
Kenya
Moving to the Eastern side of Africa in Kenya, the company’s projects have seen continued activity throughout
the reporting year, including a farmout and the drilling of the highly significant Sunbird-1 oil discovery.
The company holds interests in the L10A and L10B exploration permits. In the June 2014 quarter, the company announced the historic Sunbird-1 first-ever oil discovery well offshore Kenya in area L10A. This is the first oil column ever penetrated offshore Kenya and the first ever oil column discovered offshore East Africa.
The Sunbird Prospect is one of more than 20 buried Miocene Reef and reef-like features in Pancontinental’s offshore Kenyan permits. The top of the Sunbird Reef contains an oil and gas bearing limestone reservoir and drilling intersected a gross 29.6m gas column overlying a gross 14m oil column.
The age and type of the oil source rocks, as well as other crucial data was uncovered by detailed oil and gas geochemical data. These data are confidential to Pancontinental and its L10A joint venture partners and may hold the key to unlocking important commercial oil reserves offshore Kenya.
Pancontinental believes the exciting results of the Sunbird-1 well are highly significant as they are the first proof of the presence of a prospective oil system in the Lamu Basin offshore Kenya. The company was pleased with the analyses received with regard to porosity, permeability and seal for the reservoir. In addition to finding significant oil, the presence of a thick and effective seal over the top of the Sunbird Reef is also a particularly good outcome for future exploration in the area.
The Sunbird-1 discovery is considered to be a “play opener”, bringing a major opportunity for exploration of larger volumes of oil, as well as gas, over Pancontinental’s extensive portfolio of prospects and leads offshore Kenya. This exciting new future work, in the light of the Sunbird oil discovery, is being pursued in all licence areas.
In the June 2014 quarter, the company reported that the Kenyan Government granted the extension of the L10B permit for a further 12 months to the current term. This will provide the joint venture with additional time to further assess the prospectivity and assess the impact of the Sunbird-1 oil discovery in the adjacent L10A area. Further, the company increased its interest in the L10B licence to 25%. This increased percentage places the company in a favourable position for the farmout of a portion of its interest in the permit and funding of future exploration work programmes.
In addition during the financial year, Pancontinental and its joint venture partner FAR Limited (“FAR”) signed a farmin agreement for the entry of Milio E&P Limited (“Milio”) and Milio International to the onshore portion of permit L6 in Kenya. Prior to the farmin Pancontinental held a 40% interest in both the onshore and the offshore areas of permit L6. After Milio has earned its interest, Pancontinental will hold a 16% interest onshore and will continue with a 40% interest available offshore. The offshore interest is also available for farmin.
Terms of the Milio farmin are as follows:
Operatorship
- Milio to lead the forward programme as operator of the onshore portion of the block; and
- FAR to remain operator of the offshore portion of L6.
Work Programme
- 2D seismic survey of not less than 1,000 km2, possibly late 2014 – Pancontinental carried 100%;
- Drilling and testing of an onshore exploration well post the 2D seismic – Pancontinental carried 100%;
- Additional costs such as processing and interpreting of the 2D seismic – Pancontinental carried 100%;
Note – as with the EL 0037 Namibian farmout, there are no “caps” in place for any of the above expenditure which means that Pancontinental will have no financial exposure for the exploration work under farmout in Kenya permit L6.
Milio’s farmin to the L6 joint venture will bring future exploration to the onshore portion of the block while concurrent attention will be paid to farming out the offshore portion for upcoming exploration programmes.
The company’s long-held exploration permit Kenya L8 expired in January 2014. Pancontinental has had initial discussions with the Kenyan Ministry of Energy and Petroleum with regard to the grant of a new PSC (Production Sharing Contract) in respect of Block L8 under a new joint venture.
While there is no guarantee that a new L8 PSC will be agreed, Pancontinental is encouraged by the initial work
and discussions carried out thus far.
In summary, the 2014 financial year has been a successful year of key achievements for the company. Pancontinental continues to deliver, and as such continues to enhance its worldwide industry recognition as an experienced and well managed junior explorer in Africa.
The company’s is focused on creating shareholder value and has achieved these key milestones during the
year:
- Effectively maintained the company’s financial stability;
- Strategically farmed out interests in permits in exchange for exploration programmes with no “caps”. This
is a crucial and notable achievement by the company as it leaves no financial exposure should the
licence activities experience cost overruns;
- Involvement in extensive 3D and 2D programmes; and
- Participated in the first-ever oil discovery offshore Kenya, with major ramifications for future commercial
oil exploration in the company’s extensive Kenyan acreage portfolio.
Pancontinental has strong in-house expertise in both technical and financial departments; this together with along history in Africa and working with local authorities has given the company the foundation to be able to work alongside some of the world’s largest and most successful petroleum companies.
The Pancontinental team is very enthusiastic in progressing the company projects further and the team is committed to providing the very best possible results.
HD Kennedy
Chairman
Pancontinental Oil & Gas NL
PCL Price at posting:
1.8¢ Sentiment: None Disclosure: Held
(20min delay)