towner's search has now borne fruit

October 06, 2009

New Guinea Energy Bags Talisman Energy As Farm-In Partner In Papua New Guinea.

www.oilbarrel.com

The Australian oil patch lost one of its more colourful, enterprising and dynamic characters earlier this year following the untimely passing of Jeremy Towner. Towner was one of the founders of Sunshine Gas, which has been at the forefront of the country’s burgeoning coal seam gas industry, and a founding director of New Guinea Energy, which is starting to establish itself in Papua New Guinea.
When he appeared at an oilbarrel.com event in 2008, Towner was about to embark on a 40 city roadshow to drum up support for New Guinea Energy’s exploration campaign in PNG. He was keen for the ASX-listed company to bag farm-in partners to help with the costs and risks of exploring its 100 per cent owned and operated portfolio of six licences in the country, a jungle-clad tract of 52,000 sq km of highly prospective frontier acreage.

That search has now borne fruit, with the ASX-listed oil junior last month securing Canada’s Talisman Energy as a partner in licences PPL 269 – what Towner called the jewel in NGE’s crown – and PPL 268. Under the terms of the farm-out, Talisman will earn an initial 50 per cent interest in PPL 269 in return for reimbursing 75 per cent of NGE’s past costs on the licence (estimated at some A$6.2 million), spending up to US$6 million on seismic and up to US$15 million on an exploration well.

Talisman has the option to earn up to an additional 20 per cent in PPL 269 depending on whether it wants to participate in a second and third well, again reckoned to cost up to US$15 million each. This would see the Canadian independent earn up to 70 per cent in the licence by spending US$55 million. If NGE wishes to retain its 50 per cent share of the licence, it can do so by funding US$9 million of the second and third wells.

On PPL 268, Talisman will earn a 15 per cent interest by reimbursing 50 per cent of past costs (reckoned to come in at A$2.5 million) and spending up to US$5 million on seismic. Talisman will have the option to receive a further 35 per cent interest if it commits to funding 80 per cent of the costs of an exploration well, up to a maximum of US$15 million. Talisman will have the option to earn an additional 20 per cent by funding two further wells on the licence, up to a maximum of US$15 million per well. This means the company can spend US$50 million to earn up to 70 per cent of PPL 268.

Talisman is certainly committing some serious bucks to this little-explored but apparently resource rich part of the world. The deal with NGE builds on June’s acquisition of NGE’s neighbour in PNG, AIM-quoted explorer Rift Oil, for US$177 million. Talisman has also entered a joint venture worth US$60 million with nearby Horizon Oil, giving it 50 per cent of PRL4, home to the Stanley gas/condensate discovery, and 50 per cent of PRL5, home to the Elevela-Ketu field. Talisman holds two other blocks in the Foreland Basin of PNG and has working interests in two offshore blocks.

Now it has some serious exploration acreage to add to that portfolio. PPL 269 is on trend with multi-tcf gas discoveries in the region and has the potential for oil in the west of the licence. The block is home to the Tarim-1 well, drilled by Conoco in the 1990s, which logged oil pay. New Guinea Energy, now being led by executive chairman Michael Arnett, plans to drill an offset appraisal well and believes it could be a 50 million barrel target. It is also keen to drill the Sepalosiphon prospect, which is thought to share similarities with the Stanley-1 gas discovery in the adjoining licence PRL 4. PPL 268 is home to the Eulophia target, which has a potential P10 closure of 650 sq km and could be a possible 6 tcf resource

For Talisman, this adds up to a serious footprint in a country with major gas reserves, excellent fiscal terms and, importantly, the growing infrastructure investment to enable those reserves to reach energy hungry markets in the Pacific Rim. For NGE, it means a partnership with a company committed to the region and with the financial and technical resources to get things done. It also brings the credibility of an alliance with a major E&P force – Talisman is a C$18 billion market cap company listed in Toronto and New York – and provides some kind of benchmark to value NGE’s large acreage position.

Interestingly, PPL 267 in the South Foreland area is not included in Talisman farm-out, which means NGE is now committed to drilling a first exploration well on the Panakawa prospect before year-end. This area is home to 100 km long trend of oil seeps, with Panakawa producing around 5 barrels per day. The exciting thing here is not the confirmation of an active oil system but the fact that the oil is 35-degree API, different from the 55-degree API found in the Highlands region and therefore pointing to a possible new oil play. This theory, which obviously failed to score with Talisman, will be put to the test by the drillbit later this year.