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Carnarvon Petroleum CEO Adrian Cook wants to build a real mid-cap oil and gas player. Peter Braig
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by Angela Macdonald-Smith
It's the country's most exciting oil discovery for decades, but the head of junior exploration partner Carnarvon Petroleum puts the success down to "dogged persistence" rather than anything more glamorous.
Chief executive Adrian Cook said it probably took the unique combination of privately backed Quadrant – soon to be taken over by Santos – and the technically-driven, North West Shelf-focused Carnarvon to have drilled the Dorado-1 well off Western Australia
A combination of larger players may well have pulled the plug sooner on the exploration quest after results from earlier wells that, while positive, did not point to a find of significant scale. Smaller explorers may not have been able to foot the bill for another well, with each costing in the region of $50 million.
As it was, the pair ploughed ahead and their find at Dorado, with its estimated 171 million barrels of oil, as well as gas and condensates, goes down as the third-largest oil discovery on the North West Shelf, WA's premier petroleum province. It came 29 years after the second-biggest, Wanaea, which itself was 25 years after the largest, Barrow Island.
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Dorado is the third biggest oil find made on the North West Shelf. Carnarvon Petroleum
And there is likely more to come, with a number of other prospective targets lining up to be drilled over the next few years in this north-easterly fringe of the Carnarvon Basin, known as the Bedout sub-basin. Related Quotes
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"I seriously doubt whether this is the end of the story, it's just the start," said Mr Cook, who is looking forward to working with Carnarvon's incoming 80 per cent partner Santos, which agreed in August to acquire Quadrant for at least $US2.15 billion.
Mr Cook sees a "very clear logic" in Quadrant's ownership being assumed by an oil and gas developer now that the Dorado venture is moving into a phase that will require substantial investment to bring it into production. Quadrant is currently mostly owned by Brookfield and Macquarie Capital.
The Dorado oil project is expected to be a major talking point at Santos' investor briefing in Sydney on Wednesday, alongside plans for existing assets in the Cooper Basin and at GLNG in Queensland. Santos chief executive Kevin Gallagher has signalled 2020 for a potential final investment decision on an oil production project at the field, with the focus to turn later to the gas resources. Two appraisal wells are pencilled in at Dorado for 2019 in advance of the go-ahead.
Together with the earlier Roc find, the volume of gas at Dorado is put at 884 billion cubic feet, also with 36 million barrels of condensates.
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Several more exploration targets lie near the Dorado and Roc finds. Carnarvon Petroleum Emerging oil province
Mr Cook described the "once-in-a-generation" Dorado find as "the breakthrough we were looking for", justifying the installation of petroleum infrastructure in the area, about 150 kilometres from Port Hedland.
With that in place, "all of the satellites – whether big of small – become economic", he said.
The interest sparked by the find has meant exploration manager Stephen Molyneux's phone has been ringing off the hook since, as much larger companies take an interest in the emerging new oil province. It has also fuelled expectations that Carnarvon, which also owns the estimated 31 million-barrel Buffalo oil field in the Timor Sea, may become a takeover target for a new entrant looking for a foothold in oil in the region.
Carnarvon's shares, which shot up to a high of 63¢ on August 8 as the Dorado discovery firmed up, roughly halved over the next few weeks as more speculative investors cashed out. The stock is gradually building again, closing on Tuesday at 37.5¢, up more than fourfold in the past 12 months and giving the company a market value of $446 million.
Mr Cook is looking to the long term, voicing ambitions to develop Carnarvon into a real mid-cap explorer and producer in a part of the sector where Beach Energy is effectively the sole player. His vision is to retain stakes in both Dorado and Buffalo as the oil projects move into development, then look to the gas while also testing prospects in the rest of Carnarvon's narrowly focused North West Shelf acreage.
This year's drilling results have paved the way for what he describes as a "nice sequence of growth", based on a small but blue-chip selection of assets for reinvestment and a conveyor belt of new prospects to test.
"Our job now is to present the value case for investors," he said.
CVN Price at posting:
37.5¢ Sentiment: Buy Disclosure: Held
(20min delay)