for old hdr holders

Hot oil frontier loses its charm

16th April 2007, 7:45 WST


The impoverished North African country of Mauritania — once a hotbed of excitement on the back of the Chinguetti oil discovery — has officially lost its lure as a frontier oil province of potential world-class significance in the wake of two years of dismal exploration results, difficult geology and political volatility.



The extent of Mauritania’s slide from grace was highlighted late last month when big UK independent Premier Oil announced it would sell its basket of Mauritanian interests, including its 8 per cent stake in the Woodside Petroleum-operated Chinguetti venture.

Premier’s decision to quit Mauritania makes it the second major company to exit the area since the start of the year, following the lead of its bigger compatriot BG Group which exited just three years after paying $US132 million ($158 million) for 12.5 per cent of Chinguetti from former Perth market darling Hardman Resources.

Speculation is now mounting that Woodside will soon look to offload its controlling 47 per cent stake in Chinguetti and other Mauritanian acreage.

A Woodside spokesman left the door open for a sale of its Mauritanian assets, telling WestBusiness that “we continue to examine all options to maximise the value of our Mauritanian holdings”. Hardman, which was snapped up through a $1.5 billion friendly takeover by London’s Tullow Oil in January, put Mauritania on the map in 2001 when the Chinguetti oilfield was discovered with the first well drilled by Woodside, which had been enticed into the project by Hardman in 1998.

After the first two wells at Chinguetti indicated a likely 100 million barrel oilfield, the Chinguetti partners quickly followed up with successful multi-million barrel discoveries at the nearby Banda, Tevet and Tiof prospects. Tiof alone is estimated to contain around one billion barrels of oil in place.

On the back of those discoveries, the Woodside partners accelerated work to develop Chinguetti with enthusiastic backing from the then government which was desperate to boost its flagging national economy.

But from that point the Mauritanian adventure ran into trouble. After an initial 90 per cent drilling success rate, the Chinguetti partners drilled a string of “dusters” at big oil and gas targets, with only the Labeidne and Tevet Deeps targets drilled last year generating significant results.

The Chinguetti project also struck early trouble due to runaway construction and input costs which ultimately pushed the final price tag from the initial $US625 million to more than $US750 million by the time it was completed in February last year.

In between, the then president of Mauritania was ousted in a bloodless coup, and the new regime immediately accused Woodside and its partners of securing its leases through improper dealings with the previous government. The matter was settled by the payment of an upfront $US100 million “profit oil bonus” and additional community and environmental management commitments.

But the wind was really taken from Mauritania’s sails when output at the 70,000 barrels a day Chinguetti project halved just two months after production began due to the failure of two key production wells and greaterthan-expected reservoir complexity.

The project’s reserves have since been slashed to just 53 million barrels with output running at just over 20,000bpd. In January Woodside started work on the first infill well in a $100 million-plus program to incrementally improve field recoveries.

The broader potential of Mauritania has also suffered with the failure of the vaunted Heron-1 well drilled onshore in the same basin as Chinguetti by fellow Perth explorer Baraka Petroleum and its heavyweight Chinese partner CNPC. Viewed as a potential 400 million barrel target, the well intersected a thin, uneconomic layer of oil at a depth of more than 3.8km.

StockAnalysis author Peter Strachan agreed that Woodside was a likely seller of its Mauritanian assets.

“Their experience at Chinguetti has been a pretty painful one — they spent over a $1 billion to get that up and probably another $1.5 billion on exploration drilling all these fantastic structures … but found zippo really,” Mr Strachan said.

He said Woodside was most likely to seek a buyer once it had shown the infill drilling program at Chinguetti could boost production, proving reservoir complexity could be overcome.

JOHN PHACEAS

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