Karoon strikes gas at Poseidon wellRoss Kelly From: Dow Jones...

Karoon strikes gas at Poseidon well
Ross Kelly From: Dow Jones Newswires December 29, 2009 12:00AM

KAROON Gas Australia has confirmed it has struck hydrocarbons at the latest well in its Browse Basin drilling campaign with partner ConocoPhillips.

The news comes two weeks after a person familiar with the drilling campaign told Dow Jones Newswires that the well had penetrated hydrocarbons in similar intervals to those in the successful Poseidon-1 well about 6km away.

A large gas pay at Poseidon-2 will provide further evidence that Karoon and ConocoPhillips are sitting on a resource off Western Australia big enough to support a multi-billion-dollar liquefied natural gas development.

Poseidon-2 is an appraisal well testing for the presence of gas in the Plover geological formation penetrated in the Poseidon-1 exploration well.

In a welcome development, Karoon said Poseidon-2 struck a 20m gas column in the Montara formation, which sits above the Plover formation.

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Karoon said early observations indicated that hydrocarbons were also penetrated in the Plover formation but their presence, and size of any hydrocarbon-bearing intervals, could not be confirmed until further testing was complete.

However, the chief executive of Melbourne-based Karoon, Robert Hosking, confirmed that Poseidon-2 had penetrated the same three sand intervals penetrated in the successful Poseidon-1 well.

Karoon Gas shares rose 33c to $9.83 in trading on Thursday.

Initial results from Poseidon-1 released earlier this year indicated that it had struck a 200m gas column, sending Karoon's shares flying. Technical issues, however, forced Poseidon-1 to be plugged before more extensive testing data could be obtained.

Karoon said more extensive testing of Poseidon-2 had been delayed by Cyclone Laurence. Wireline logs are expected to be gathered in the coming week, it said.

EL&C Baillieu analyst Ivor Ries said the early indications from the Poseidon-2 find were very encouraging for the joint venture because they appeared to confirm the thickness of the intervals encountered in the Poseidon-1 well.

"The real test will come when they do a production test," Mr Ries said.

"There is still a small risk that it doesn't flow at a good rate, but really the tone of what they're saying here today based on everything they've seen to date indicates they're going to get a pretty good flow rate from it."

Analysts have said that Karoon and ConocoPhillips could be sitting on one of Australia's biggest gas resources, noting the proximity of their initial Poseidon discovery to other major finds such as Inpex Holdings' Ichthys field.

Early-stage independent analysis has estimated they could be sitting on 7.6 trillion cubic feet of gas. At least 4.0tcf is required to support an onshore LNG facility.

Mr Ries said good flow rates from production testing at Poseidon-2 might indicate that the 7.6tcf estimate was "base case", with upside to about 10tcf.

Poseidon-2 is the third well in the JV's drilling campaign. The second well, Kontiki-1, was written off as a "duster".

Two more exploration wells, Lion-1 and Kronos-1, will follow Poseidon-2 and the venture has an option to drill a further four wells.

ConocoPhillips recently exercised an option to lift its interest in the JV to 60 per cent from 51 per cent, with Karoon owning the other 40 per cent.

Dow Jones Newswires