flow test results due thursday, page-4

April 03, 2013

Jupiter Energy Surpasses Its Predicted Output Target With Four Of Its Kazakh Wells In Production

A few years ago the current CEO of Jupiter Energy, Geoff Gander, finding acreage too tightly held in his native Australia for the kind of growth oil and gas start up he was wanting to found, looked elsewhere and finally alighted on Kazakhstan in Central Asia. Here he managed, in 2008, to acquire 100 per cent of the Block 31 permit, located in the oil-rich Mangistau Basin, close to the port city of Aktau.

Starting up in this enormous former Soviet Union (FSU) country was never going to be straightforward. The ASX and AIM listed Jupiter’s share price has held up over the past eighteen months, but as Geoff told an Oilbarrel conference in February this year, it’s fair to say that political risk weighs heavily on many would-be investors. He said: “We are very simple company, we have one asset that we hold 100 per cent and we are very focused on that operation.” He added “What’s complicated is the jurisdiction, which is Kazakhstan.”

So far, Jupiter appears to be navigating its way through the Kazakh bureaucracy competently, securing the approvals it needs and making sure it has the local content to satisfy the authorities and smooth its way – there is only one expat in its Aktau office.

If it is difficult politically, however, geologically it is a good place to be, with proven reserves of 30 billion barrels (number 11 in the world) and daily production of 1.6 million barrels. It has some truly elephantine fields, like Tengiz, the sixth largest oilfield in the world and which accounts for around one third of Chevron’s revenues, and the massive Kashagan, which is one of the biggest oilfields to be discovered anywhere in the last 30 years. The Mangistau basin where Block 31 is located is reckoned to hold more than five billion barrels of oil.

But it is not only “Big Oil” which is active in Kazakhstan, small caps can also flourish. Jupiter is a case in point. The company is now six wells in and a seventh has just reached target depth. They are shallow, mostly in the Triassic, and so far Jupiter has not had a dry well. Recently the company was able to announce that thanks to a better than expected performance from the J-58 well (the most recently drilled) output is running at 2,700 bopd whereas at the Oilbarrel conference in February Geoff said the expectation was that output would be around 2,000 bopd at this stage.

The first discovery was Akkar East where three wells J-50, J-51 and J-52 are now producing 1,400 bopd between them on a “Trial Production basis”. The second discovery on the so far unnamed extension to Akkar East includes the J-58 well as well as the J-55 and the latest effort, the J-59 well. Output could soon increase further since the J-53 well on the Akkar East field and the J-55 on the extension have been shut in. The J-53 suffered from water cuts which were probably due to a poor primary cement job. At the J-55 well initial results indicated some downhole problems with an acid wash stimulation recovering 300 barrels of oil but failing to establish natural flow. Both wells have received remedial treatment and a statement about their condition is expected imminently. Also the J-59 well had oil shows. Wireline logs have been evaluated and it is likely the well be completed in the Triassic pay section ready for a flow test.

If everything is okay these wells will be like the others will be produced under the Kazakh trial production system, which gives the company two years of pilot production through simple production systems – gas flaring is allowed – but the output is limited to the domestic market. The capped domestic prices – before last Christmas--the oil was selling at something over US$40 a barrel, the net backs to Jupiter were something over US$20 a barrel, suggesting the company could make around US$20 million in revenue this year.

The real key to unlocking the value of Block 31, however, is to move into full field development so it can start exporting crude and achieve world prices (the current net back would easily double at this point). The company, which at the end of 2012 had A$4 million in cash, hopes to make this transition over the coming 18 months. As Geoff readily admits, this will require funding. To this end the company has just announced that it has entered into a second unsecured loan agreement with Mobile Energy.

The loan is for US$3million via 3 promissory notes each with exactly the same terms and each with a face value of US$1 million. This brings the total loan with Mobile Energy to US$6 million. The total loan is repayable on December 31 2013 or at such time that the company raises additional funding of a minimum of US$20 million via debt, equity or other funding. The loan has a coupon rate of 15 per annum, payable quarterly in arrears. The loan will be used to fund field operations, including the testing of the J-59 well.

Jupiter is currently in discussions with a number of parties about a range of long term funding options including convertible notes and/or bank debt and will update the market in due course on progress with these negotiations. One way and another there is going to be plenty of news flow from Jupiter over the coming months

http://oilbarrel.com/news/jupiter-energy-surpasses-its-predicted-output-target-with-four-of-its-kazakh-wells-in-productio