Rx, The following extract from the Wise Owl report will give you some idea of the immediate development scenario assuming flow rates are commercial. Beyond this, expect more exploration drilling, pipe tie ins and the liklihood of a processing plant: (http://www.realenergy.com.au/images...RLE_Initiating_Coverage_14_Oct 2015_Final.pdf)
Since acquiring licenses underlying the Cooper Eromanga Project
in 2013, Real Energy has focused on resource identification and estimation. Investment has been directed to ATP927, which has not
previously been subject to exploration drilling.
Under exploration is characteristic of the Queensland section of the
Cooper Basin where Real Energy is operating. Whilst 73 per cent of
the Cooper Basin is located in Queensland, the state has hosted
less than 40 per cent of wells drilled, with most attributed to the
South Australian section2
.
In conjunction with this thematic, and the benign domestic gas price
regime prevailing at the time, previous operator of ATP927 and
ATP917 did not conduct any wells after procuring the permits as
part of a larger package via Government tender in 2007.
Real Energy commenced exploration on ATP927 in 2014. Two
exploration wells have been drilled, both of which generated free
flows of gas to surface. The discovery facilitated the Cooper
Eromanga Project’s first contingent resource estimate, which now
totals 276BCF in the 2C category and 672BCF in the 3C category.
Real Energy estimates the geological formation hosting these
resources extends throughout ATP927 and 60 per cent of ATP917,
however its current focus is appraising recoverability of the
resource.
The Company has interpreted the resource to be ‘Tight’ / ’Basin
Centered Gas’, which is generally hosted by sandstone, albeit with
lower porosity than conventional gas.
Real Energy is therefore preparing a well stimulation program
encompassing staged fracturing. Management estimates that initial
flow rates of 2-3mmcf/day to be the threshold required to expedite
further commercial development of the field.
Demonstrating flow rates of this magnitude at a reasonable cost
would allow the Company to simultaneously – execute a gas sales
agreement (“GSA”); upgrade existing contingent resources to the
reserve category; and accelerate exploration across the Project.
A Letter of Intent (“LOI”) has been executed with Incitec Pivot Ltd
(“Incitec Pivot”; IPL.ASX), which consumes approximately 40PJ gas
pa to support its domestic chemical and fertiliser processing
activities. The LOI represents a pre cursor to an official GSA, and to
a significant degree focuses the major development risks on
recoverability and funding.
DEVELOPMENT STRATEGY
Contingent resources of 276BCF in the 2C category and
672BCF in the 3C category have been defined following
drilling in 2014
LOI with Incitec
Pivot for gas
sales
Execution of the existing well stimulation program is expected to
cost $4million. If successful, Real Energy estimates commercial
field development would require an outlay of approximately
$4million - $5million per well, which includes fracturing and
completion. Additional capital expenditure in the order of $25million
is required to connect the field to existing pipelines.
The major risks surround each well’s initial flow rate, subsequent
rate of decline, and the potential for capital expenditures to exceed
budget. The Company estimates initial flow rates post stimulation of
2-3mmcf/day are required to achieve breakeven.
Exploration wells, Tamarama-1,and Queenscliff-1, witnessed initial
unstimulated flow rates in the order of 0.4mmcf/day and
0.2mmcf/day, respectively. Based on intelligence derived from the
300-400 wells fracture stimulated in the Cooper Basin to date, Real
Energy is targeting flow rate benefits in the order of ten fold.
Based on existing data and management projections, we estimate
individual well capital expenditures could be repaid within each
well’s first year of production, and that 95 per cent of well revenue is
generated during its first four years of production.
Assuming stimulation activities are successful, existing contingent
resources underlying Real Energy’s licenses have the potential to
host in the order of 100-300 wells. The Incitec LOI envisages
delivery of 11PJ gas per annum at market linked prices.
We understand expansion beyond this point would require Real
Energy to construct its own processing facility at a capital outlay in
the order of $75million.
RLE Price at posting:
8.0¢ Sentiment: Buy Disclosure: Held
