LAST week’s entry by Statoil to Australia’s exploration scene is a stunning win for a group of Canadian oilmen taking big risks on three of our wildest frontiers.
TSX-listed PetroFrontier Corporation and Statoil announced this week the Norwegian energy giant would spend up to $US210 million to earn a 65% interest in six PetroFrontier permits over half of the southern Georgina Basin.
It’s the biggest farm-in deal yet involving a big international company over unconventional targets in Australia.
The accompanying table shows Statoil has committed to spend more than Hess, Mitsubishi and ConocoPhillips in their respective farm-ins by a wide margin.
The gap is even bigger than it appears because the $152.4 million deal between Buru and Mitsubishi includes a $50 million towards Buru’s development costs. Statoil’s promised spend of up to $US210 million is purely for exploration.
The deal proves Statoil is a believer in the liquids-rich potential of the Georgina Basin, highlighted in a Ryder Scott report released by PetroFrontier in late 2010.
Ryder Scott found PetroFrontier’s four granted permits had strong similarities to the Bakken oil shale in North America. It estimated potential recoverable oil (P50 case) of 1.1 billion barrels from conventional targets and a whopping 26.4 billion barrels from shale oil horizons.
The new deal with Statoil locks in a big budget to test this potential, and quickly.
Under phase one, Statoil must spend $US50 million in just 18 months and commit to another $US80 million through 2014 and 2015. This will earn it a 25% interest and the right to become operator.
At the end of 2015, Statoil’s interest will climb from 25% to 50%, and a further 15% can be earned by spending another $US80 million in 2016.
For PetroFrontier, headed by former ExxonMobil geologist Paul Bennett, it has been a hugely successful exercise in adding value.
PetroFrontier’s two most valuable permits, EP 103 and EP 104, were awarded by the Northern Territory Government in 2006 to Rodinia Oil, another company headed by Bennett and based in Calgary, Alberta.
Rodinia Oil is well known in Australia for its big spending search for giant, conventional oil fields in the old rocks of the Officer Basin. Bennett and his technical team selected the Officer Basin from a global search for under-explored analogs to the rich onshore oil fields of Siberia.
At the same time, Bennett’s eye was caught by the geological similarities between the Georgina Basin and the prolific conventional and unconventional plays in the basins of western Canada.
The Georgina Basin opportunity was spun into a new company that would become PetroFrontier, which listed on the TSX in January 2011.
Petrofrontier also acquired a 75% interest in two other permits, EP 127 and 128, through a farm-in with ASX-listed Baraka Energy & Resources.
Under this deal, PetroFrontier earned 50% by funding the costs of a seismic survey, drilling a horizontal well and commissioning a resource evaluation report.
These commitments were completed last week when MacIntyre-2H in EP 127 reached a horizontal length of 500m. PetroFrontier is currently drilling on to 1000m.
Baraka retains a 25% interest in EP 127 and 128, and will share in the upside of Statoil’s huge exploration program. The timing is not so good, however, for Northern Territory Oil and Gas Pty Ltd, which sold a 25% interest in EP 127 and EP 128 to PetroFrontier in October 2010 for only $C2 million.
Half of this consideration was in PetroFrontier shares, which will bring some comfort.
The Statoil deal is a big win for Bennett and the associated group of executives and investors who have spent many tens of millions of dollars on a plunge into Australian oil frontiers in recent years.
Rodinia Oil has been less successful, with no commercial discoveries from its first two wells, and a major cost blow out on its first well, Mulyawara-1, sapping the company’s resources. However, it would be foolish to write off a frontier exploration effort after two wells.
The same group of Canadians is also behind unlisted Bight Petroleum, which last year picked up two exploration permits, EP 41 and 42, at the eastern end of the Bight Basin.
The company is headed by Matthew Philipchuk, who moved initially moved from Canada to Adelaide to get Rodinia Oil off the ground.
While Rodinia and PetroFrontier have each raised at least $50 million through the TSX to fund their exploration programs, unlisted Bight Petroleum has yet to tap into equity markets.
The company is seeking a joint venture partner to fund the cost of a 3D seismic program in the next 12 months to high-grade prospects identified from the reworking of 2D surveys by Woodside and Santos less than a decade ago.
While the Statoil deal seems a long way from the Bight Basin, it could have a halo effect for Bight Petroleum, and indeed Rodinia Oil.
The deal is a huge vote of confidence in the ability of Bennett and his technical team, including ex-PIRSA chief oil geologist Peter Boult, to pick winning frontier plays.
