Carnarvon Petroleum Limited BuyNew Oil Zone Flows at 1,245...

Carnarvon Petroleum Limited Buy
New Oil Zone Flows at 1,245 Barrels per Day
Brief Update Note
Stock: Carnarvon Petroleum Limited (CVN 55cps)
Valuation: 115cps (unchanged)
Market Cap (Full. Dil.): $370.1m ($375.6m)
Issued Capital (Full. Dil.): 672.9m shares (682.9m)
Cash (est. at 30 June 2008): $30m
Date: 18 July 2008
Oil and Gas Analyst: David Wall
Details:
• NSE-A1 Flows at 1,245 bopd from New Zone – Carnarvon Petroleum Limited (“Carnarvon”, “CVN”,
“Company”) has announced that its NSE-A1 well is flowing at a sustained, choked back rate of 1,245 bopd
with minimal water cut of 0.5%. The oil is flowing from a 17m thick zone, shallower and separate to the main
producing reservoir at the Na Sanun East field in Thailand (CVN 40%).
NSE-A1 was drilled as a vertical well designed to core the upper section of the main reservoir; however, whilst
drilling in a shallower zone, oil shows were recorded. Subsequently, a decision was made to core and flow
test this shallower zone in preference to drilling the main reservoir.
Initial analysis of the core taken has indicated good visible matrix porosity in addition to fractures. Analysis
also suggests that this zone may be prevalent across a large area of the field as it may have been
encountered in several other locations, including 7 km to the northeast, at Bo Rang, where it tested gas.
• NSE-A3 Horizontal Intersects Intense Fractures – The second development well at the field, NSE-A3, was
drilled as a horizontal well in order to maximise the intersection of fractures in the reservoir. A 60m horizontal
section was drilled at the top of the 180m thick main volcanic reservoir. Image logs taken in the well indicate
that intense fracturing has been encountered. Testing should be complete in 7-10 days.
• L44-C Drilling Up Dip to WB-1 “Deep” – The L44-C vertical appraisal well is currently drilling ahead,
targeting sandstone and volcanic reservoirs in the POE-6 and Wichian Buri fault compartments. A previous
well, WB-1 “Deep”, encountered strong oil shows and good reservoir in a thick volcanic section but was found
to be water bearing.
• L33-3 and NS9-H1 Dry – The high risk exploration well L33-3, located in the L33 concession, failed to
produce commercial hydrocarbons. The NS9-H1 appraisal well in the Na Sanun field (distinctly separate from
the Na Sanun East field) also failed to produce commercial hydrocarbons.
Impact
• The NSE-A1 result is very significant because it is the first oil recovered from a zone other than the main
reservoir within the central compartment at Na Sanun East. This indicates additional resource potential for the
rest of the field and increases confidence that a significant portion of the large 45.7 million barrel net 3P
reserve may be converted to 2P. The high (choked back) flow rate, low water cut and positive initial analysis
from the core taken provide strong support of our assumptions for Na Sanun East.
The production of oil from a zone additional to the main producing zone also bolsters our belief that further
discoveries will be made by the joint venture in fractured reservoirs existing in other areas of the region.
• The intense fracturing encountered in NSE-A3, and its horizontal drilling completion, provide a good chance
that flow rates significantly higher than the field average of ~1,000 barrels of oil per day may be achieved.
• 18 more development wells are planned in this phase of drilling. The third well, NSE-A4, will spud soon and is
expected to be completed and tested in 3-4 weeks. The joint venture remains on schedule to reach its target
of 15,000 barrels of oil per day by the end of the year. We remain confident that this target can be exceeded.
• The L44-C appraisal well could be very significant for the joint venture as it is located in a different tax
concession to Na Sanun East. We believe that this well has been significantly de-risked by historic well control
data and better understanding of the geology.
• The disappointments at L33-3 and NS9-H1 pale into insignificance next to the result from NSE-A1. The
anticipation of increased production from the full field development plan and potential success from the
continued exploration program indicate that this is just the beginning for Carnarvon in Thailand. We rate
Carnarvon Petroleum Limited as a Buy