oilbarrel report

December 02, 2009

ASX-listed Oilex Ltd Is Forging Ahead With Its Highly Prospective Drilling Venture In The Timor Sea





ASX listed Junior Oilex has a wide geographical spread of interests with ventures in India, Indonesia and Oman. While some of these assets have performed indifferently during 2009 a project closer to home in the Timor Sea, which seemed the least advanced of the company’s schemes a few months ago, is now being fast tracked and could mean a huge step up for the group if it is successful
Oilex is involved in a joint venture in the Timor Sea contract area JPDA 06-103, which is highly prospective. Six months ago it looked as if it would remain just that, a good prospect. A rig had been found but the contractor Transocean unilaterally terminated the contract. Now, however, Oilex has farmed out some of its interest. Japan Energy E & P has taken 15 per cent of Oilex’s stake, leaving Oilex with 10 per cent.

For this, Japan Energy will pick up Oilex’s back costs and carry Oilex as operator through the first two wells. The cost of each well is put at around US$30 million. The two targets are the Lore prospect with mean prospective oil reserves of 195 million barrels (100 per cent basis) and the Lolotoe prospect which is looking at mean average reserves of 90 million, making 285 million barrels in all. This indicates a potential net resource of 28.5 million barrels to Oilex if both wells come good. Oilex managing director Bruce McCarthy told oilbarrel.com he reckoned there was a one in five or one in six drilling Chance of Success (CoS).

Drilling has already started. The Lore-1 well was spudded at 13.15 (WST) on November 20. The latest drilling report was on November 25 and said the “Songa Mercur” rig was drilling ahead in 17½ inch hole at 2,189 metres after the setting of 30” surface casing at 428 metres. The planned total depth of the well is approximately 3,670 metres and is anticipated to be completed by late December 2009. After drilling the Lore-1 well the rig will drill the Lolotoe prospect. Oilex’s next update on the Lore-1 well is scheduled to be released tomorrow December 3 and thereafter on a weekly basis.

As we write the other partners in the joint venture apart from Japan Energy E& P with its 15 per cent (JV) are Global Energy Limited (Videcon) ( 25 per cent), GSPC ( JPDA) (25 per cent), and Bharat PetroResources JPDA Pty (25 per cent). These figures could change since it seems Pan Pacific Petroleum (JPDA) has recently signed conditional farm-in deals with Global Energy, Bharat PetroResources and GSPC to acquire a 15 per cent interest in JPDA 06-103.

For Oilex its interests elsewhere have been becalmed a bit. In Oman the company has been involved in some successful drilling with three out of four wells in Block 56, where the company has a 25 per cent stake showing encouraging oil signs. The latest news here is that Oilex is reviewing options and priorities for the remainder of the commitment work programme, including a possible farm out.

In Indonesia Oilex is attempting to recover approximately US$4.1 million owed to it by the operator of the PSC, PT Sumatera Energi (SPE). This is secured by charge over 22.5 per cent of the interest held by (SPE). Oilex’s preferred option involves a sale to a third party whereby SPE repays its debt to Oilex and Oilex or the third party becomes the operator of the PSC. A number of third parties have expressed an interest. Timings remain uncertain, but whilst operations remain suspended Oilex has limited financial exposure.

At Oilex’s so-called cornerstone project in India, the redevelopment of the onshore Cambay field, production has been achieved from four wells, with two producing constantly and two intermittently. But out put in the summer was just 170 bopd net to Oilex. Although operations in India are said to be cash flow positive 170 bopd net to Oilex is a far cry to the 2,000 bopd net once predicted (not by Oilex but by its brokers). The company believes there is still significant potential in India and a work programme for 2010 is being put in place.

Oilex did raise around US$10 million in October through the issue of up to 44 million ordinary shares at an issue price of US$0.23 per share. The money is to be used for its exploration and development activities. There is the work programme in India. There could be opportunities in WA388P Australia to expedite further evaluation of this merging prospective gas block and in Indonesia once activities resume there. For the moment however, all eyes will be on the Timor Sea.