magnolia coming soon - time to boom

Article in EnergyReview Thu Sep 29 2005.
Magnolia in bloom could make juniors' fortunes.

A PETROLEUM discovery at the Magnolia-1 well in the Timor Sea could be a company-maker for three of the six joint venture partners. Perth-based oil and gas minnows Bounty, Norwest and Adelphi told EnergyReview.net that success at this well could transform their fortunes almost overnight.

Norwest Energy chief executive Joe Salomon described the Magnolia project in Timor Sea permit AC/P32 as a "well to watch". Analysts expect that success at Magnolia-1, to be drilled in October or November, could drive the company's share price up to the $1 mark, he said. Bounty Oil & Gas and Adelphi also said Magnolia could have similar impacts on their share prices.

Salomon said Norwest was very excited about Magnolia, but he admits that 12 months ago he didn't hold such high hopes for the project. A year ago Norwest held a 49% interest in the $US8 million well. It now has a 19.6% interest but is liable for just 1% of the well costs.

"When I started with the company a year ago, I looked at our Australian assets and noticed there were problems with the AC/P32 permit, because of our commitment with the government to drill one well and the lack of certainty that it would pay off," Salomon said. "So we invested a lot of effort into seismic data, which eventually confirmed that this was a major project, and helped to bring in farm-in partners."

Data interpretation now suggested the field could contain between 60 and 100 million barrels of oil reserves, said Bounty Oil & Gas managing director Laurence Roe. "The 3D seismic has been reprocessed and looks very good," Roe said "Magnolia is a very good prospect in an area surrounded by oil discoveries generated from hydrocarbon migration pathways. We're optimistic about it."

Roe rated the odds of success at somewhere between 20% and 35%.

Magnolia's potential has attracted other players, including Perth-based private company Coogee Resources (20%) and Chinese Petroleum Corporations unit OPIC Australia Pty Ltd (25%). The other partners, both ASX-listed, are Australian Worldwide Exploration (AWE), which has taken a 10% stake, and Arc Energy's recently launched affiliate, Adelphi Energy, which has bought a 15% interest in Magnolia, which will be its maiden project.

Adelphi executive director Chris Hodge said success at Magnolia would be a 'life-changing' event for his company. "We're rating Magnolia as one of our better prospects, because of its early growth components," said Hodge. "It comprises older faults, which means the hydrocarbons are less likely to have leaked out, as what tends to happen in newer areas."

3D seismic indicates a large elongated fault trap within the complex series of tilted horst, graben and basin margin terraces that abut the Londonderry High to the east-southeast and the Ashmore Platform to the west-northwest.

Magnolia is on trend and southwest of the Jabiru, Challis/Cassini, Skua and Montara oil finds, but far enough away to require a separate development if the drilling is successful. The primary target is the upper Jurassic Montara Sands, while a secondary target is likely to be the lower Jurassic Plover Formation deeper in the section.

The partners are confident of structural closure and they argue that as no amplitude variation with offset (AVO) anomaly is seen on the seismic profile, there is a reasonable chance that the structure will be oil-charged rather than gas-filled. AVOs are present in the region's gas finds, such as Tabilk, Bilyara and Padthaway.

The main risks are that the structure may be water-wet or that the fault has not formed an adequate seal. But if Magnolia does bloom, it could offer good follow up potential, with at least five other fault dependent structures so far identified. These include the large Azalea and Wisteria structures. But Adelphi was not as optimistic as Bounty about the odds of success, rating it at about 14 or 15%.

So what will happen if Magnolia flops?

"We've got two other big projects on our books, so it wouldn't mean a huge amount to us if it fails," said Hodge, alluding to the Texan Sugarloaf gas project in partnership with Aurora Oil & Gas, and the joint venture with Oil Search and Arc in the Yemen, due for drilling in 2007.

"But we consider that a 14 to 15% success rate is quite good, when you consider that means one in seven wells is a winner. Around the world, companies are doing well if they find commercial quantities of oil in one in 10." Hodge said the drilling start date had now been pushed from October into November, due to the commitments and availability of the Ocean Bounty semi-submersible drilling rig.

"Early November would be the most likely bet, providing there are no problems at the two wells drilling beforehand," he said, alluding to ConocoPhillips' Cadita-1 and Firebird-1 wells. "It's become something of a 'lucky' rig and we're hope it continue its good fortunes, having recovered oil on both its last two last projects.”

Mensa.