information

FYI.

Most already know this info but I'm sure someone will appreciate.

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Amity Oil Ltd (“AYO”)
“Koreans Farming-In on Whicher Range”
Active Drilling Program Demonstrating Gold
As positive as the quarterly was, the subsequent
announcement of a farm-out of the Whicher
Range gas project to two Korean gas companies
has added more spice to the stock.
A Tight Reservoir with Clay
For those who need reminding, the 3.7 TCF
Whicher Range gas field was discovered in 1968
by BP, but it has not yet produced commercial
gas flows due to “tight” sandstone in the range of
0.5-1.5 mD. However, while this permeability is
low, it seems that the real obstacle to commercial
flows has been formation damage to the reservoir
rocks in all of the four wells drilled to date.
When AYO drilled the # 4 well with Penzoil in
1999, it was thought that formation damaged
could be remedied with water based fraccing; but
this actually made it worse due to the swelling of
clays in the formation.
After giving it further thought, AYO now
believes that the problem of the swelling clays
can be overcome by using an air-based drilling
method rather than one using conventional
drilling muds. The “underbalanced” air misting
system is a proven technique used in the USA.
This uses a rotating head which diverts any gas
flows directly to a flair pit rather than holding it
in with the weight of the drilling mud. Assuming
this works okay, AYO will be able to give the
formation its first true test.
In the event that it is still too tight there is a plan
to fracc the formation with liquefied CO2 rather
than water. A pilot fraccing of Whicher # 4,
which had already been damaged, resulted in
flow rates increasing from 1.1 to 2.8 mcfd. Thus
this method is believed to be suitable.
A Very Expensive Well
The test well is hoped to be drilled in the
September quarter, depending upon the
availability of one of the two rigs in the country
that are capable of drilling the 4,000m well. The
cost is estimated at $6.2m for barefoot
completion, but there is also a provision for $5m
to fracc the well if necessary.
It is understandable that AYO didn’t want to pay
for 73% of the well itself, so irrespective of the
upside, it is prudent for it to accept the 1.75:1
promote that takes it back to 47.9%. The Koreans
will contribute up to $6.7m between them.
Economic Upside is Enormous
If there is one thing that WA has in abundance it
is gas – courtesy of the NW Shelf. What is
needed for a potential new producer such as
AYO is a larger market. However, there are a
number of reasons why Whicher Range is in a
good position for rapid commercialisation.
The Perth market is about 600 mcfd, but 125
mcfd of contracts come up for renewal soon. The
Burrup Peninsular gas costs approximately
$2.80.mcf, including a pipeline tariff of about
$1.10 mcf. Whicher Range gas should be
deliverable at a much cheaper price given its
location in the Perth Basin.
Availability of cheaper gas could also generate
demand from new industrial projects e.g. an
aluminium smelter would require 250 mcfd.
Strategically, Perth is too dependent on one
primary gas source. A second source is a prime
political importance.
Whicher Range could be very valuable with gas
worth 40-70¢/mcf to AYO. The long life of the
project would also be an advantage.
AYO’s cash balance of $15m is sufficient for
Whicher Range and additional developments in
Turkey.
Contact OZEQUITIES NEWSLETTER “Australia’s
Most Comprehensive Daily Digest of Equities News”, at
[email protected]. Tel:+613-97485033
Warwick Grigor is a director of Far East Capital Ltd
and a consulting analyst. He and his associates have no
material interests in the securities of Amity Oil Ltd. This
report provides information of a general nature and it
does not contain a recommendation, express or implied,
to deal in the securities mentioned herein.
Copyright © Far East Capital Ltd 2003
.
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