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New Guinea Energy Weighs Its Options To Advance Its Huge Land Position In PNG
These are difficult times for small cap resources companies. Oil prices may be stubbornly high but equity and debt markets remain tight, prompting increasing numbers of companies to undertake soul-searching about how best to realize value from their under-worked portfolios. Australia’s New Guinea Energy is better placed than many, having in 2009 secured in Talisman Energy a generous farm-in partner for two of its licences in Papua New Guinea.
More recently the ASX-quoted company has received a number of unsolicited approaches for some of its assets – it also holds another four licences in the remote but resource-rich country – although no firm deals have, as yet, resulted from these discussions. However, after being hit by dud well in September 2011, the Board is now undertaking a broader Strategic review of its options.
The well in question was Siphon-1 well in PPL 269, the first to be drilled under the Talisman farm-out and highly anticipated after several years of extensive seismic work.
The well was targeting a wet gas prospect with a mean prospective resource estimate of 234 BCF of gas and 7 million barrels of condensate. Importantly the prospect was just 10 km from the Horizon Oil-operated Stanley Condensate Stripping Development, which is expected onstream in late 2012 and will put in place key infrastructure.
Siphon-1 found 23 metres of hydrocarbons in the Elevala Member and Toro Formation sandstones but this was confirmed as tight gas in a low porosity (six per cent) reservoir. Having failed to flow, the well was P&A and the results are now being analysed to see how they impact the understanding of nearby targets. The company admits this poor result was “clearly a disappointing and surprising outcome”, particularly given the success of recent wells in the nearby Stanley field.
Despite the disappointment, New Guinea Energy has decided to retain its 50 per cent interest in PPL 269. This, and PPL 268, the other licence held in partnership with Talisman, are thought to hold mean prospective resources of more than 9 TCF of gas and are part of the gas aggregation strategy in the Western Province of PNG that has attracted big hitters like Talisman and ExxonMobil. These licenses are, New Guinea believes, Strategic landholdings in the Western Province and it is keen to hang onto its interest alongside a credible and well-funded operator. Under the terms of the 2009 farm-in agreement, Talisman agreed to reimburse past costs, spend US$11 million on seismic work and fund up to US$90 million drilling six wells.
Now seismic work is planned for Q3 over the Champion lead in PPL 269 and the 268-1 lead in PPL 268 in order to mature targets for future drilling. The partners have another five years to explore these licences under an extension agreed with the Ministry of Petroleum & Energy, which will see New Guinea and Talisman commit to spend US$55.69 million on new seismic and drilling work and relinquish 50 per cent of the acreage.
On its 100 per cent owned licences, New Guinea Energy is making some progress, although it faces a scramble to meet its work commitments before the expiry of the exploration term. It has recently acquired new 2D seismic on PPL 265, adjacent to the Indonesian border in low-lying, grassland and forested terrain, with a view to drilling a well in H2 2012 – finances permitting – and is planning to shoot seismic in mid-2012 over the eastern Trapia structure in PPL 277. The company has applied to extend its licence periods for PPL 266 and 267 (home of the company’s unsuccessful well on the Panakawa oil seep in 2010). New Guinea has now brought in a part-owned drilling rig, which should help the company overcome regional rig shortages and drill its acreage on its own terms and timeline.
Despite excellent fiscal terms, the nature of the terrain means Papua New Guinea is not a cheap place to do business. New Guinea Energy’s latest quarterly report shows cash of almost A$29 million but this won’t support the extensive work required to meet its licence commitments. Investors are going to be keen for news on the discussions currently underway with the interested third parties as a means to accelerate work and unlock value from this extensive landholding.

http://oilbarrel.com/news/new-guinea-energy-weighs-its-options-to-advance-its-huge-land-position-in-png