Pancontinental Oil & Gas (PCL) has formalised a farm-in of its Namibian acreage with Tullow Oil in a multi-million dollar capless farm-in deal that could see the Australian junior participate in its first West African well before the end of 2015. The paperwork has been signed and stamped and 65% of EL 0037 has been assigned to Tullow, allowing Pancon to reduce to 30%. Namibia's Paragon Oil & Gas retains its 5% interest. Pancon and Tullow struck up a relationship within L8 in Kenya where they made the probably non-commercial Mbawa-1 gas discovery in Kenya last year, so the addition of the European-based independent oil company to Pancon's long-held Namibian licence makes sense, according to Pancon finance director Ernie Myers told Oil & Gas Insider. He expects that Tullow could carry the junior through a work program valued at US$130 million over the next two years. Program Pancon has put a lot of work into the licence since it was awarded in 2011, and will now be rewarded with Tullow pledged to collect at least 3,000 square kilometres of 3D seismic before the end of 2014, and a further 1,000 km of regional 2D. Pancon will also be reimbursed for 65% of past expenditure. If the work defines a drillable prospect Tullow will be required to cover the cost of a well that must be drilled to at least 3,500m below the sea floor, or it can opt out after fulfilling its seismic commitments by assigning its share back to Pancon. One well alone could cost around $80 million, Myers said. He explained that the seismic shoot would target just a fraction of the 17,000 sq km block. “It would be a big ask to cover the whole permit, but we have selected a program that will cover the most prospective areas that we have defined to date on historic 2D,” he said. “We think the amount of 3D we are getting will firm up some drillable targets and it will give us a pretty good look at some hot spots.” Pancon considers EL 0037 to be one of the best oil-prone areas in offshore Namibia given its location on the eastern margin of the Walvis Basin. Eleven oil leads in the licence area have estimated total prospective resources of 8.7 billion barrels of oil, with several of the leads having an attributed mean prospective resource in excess of 1.5 billion barrels of oil. The historic data shows potential reservoirs and traps in a number of large channel and turbidite leads at around the same stratigraphic level as the Wingat-1 oil that will be the focus on the 3D. Namibia is under-explored with only seven onshore and fourteen offshore wells drilled along a coastline of some 1,300 kilometres since exploration began in 1968. Almost half of those wells are clustered around the 1.4 trillion cubic feet Kudu gas field, Namibia's only commercial discovery made by Chevron Corporation in the Orange Basin in the mid-1970s. Tullow has an interest in the offshore gas field and was drawn to the Walvis Basin because of the oil recovery from HRT's Wingat-1 discovery in May. That well found two Cretaceous source rocks and several poorly developed reservoir sequences from which oil samples grading between 38° and 42° API were extracted. The follow-up well, Murombe-1, found poor reservoir development in the Barremian-age turbidite fan system, but Wingat-style source rock in the Aptian Formation was seen above the primary Murombe target. A secondary target, the Baobab reservoir, a shallower Santonian age channel complex, encountered a 242m gross section with more promising characteristics, but it was water wet. “Wingat-1 proved that the area is oil prone and there is an oil source there, so we think HRT have de-risked it quite a lot,” Myers said.
“When we were negotiating with Tullow they (HRT) were drilling the dry Murombe well, but Tullow obviously felt what they were seeing was enough to proceed with farming in.” Tullow's 3D survey is likely to be shot around the same time that wells are drilled by UK-based Tower Resources (30%) and Repsol (44%) north of EL 0037, while Chariot Oil & Gas will drill one well to the south. Chariot is focussed on Upper Cretaceous turbidite clastic reservoir potential. Prospect B, Chariot's principal drilling candidate, is a canyon-head trap in the shallower petroleum system that has an unrisked gross mean prospective resource of 469 mmbbl, with an estimated probability of geologic success of 22%. Arcadia Petroleum (26%), Repsol and Tower intend to drill Welwitschia-1 targeting up to 9.9 Billion boe in deep -water Palaeocene, Maastrichtian, Cenomanian turbidite sands and Albian carbonates proven in offset wells. Additional upside potential will also be tested in deeper previously untested syn-rift Barremian clastics. Any success would directly benefit Pancon. “It's hard to explain to shareholders who sometimes wish you were drilling that sometimes just letting other work happen in the meantime is very beneficial,” Myers said. Pancon was an early mover into Kenya in 2002 and moved into Namibia in 2007 when the nation moved to an open licensing round. In both nations it has been followed by a stampede of majors. “We had a reconnaissance license because (Pancon CEO) Barry Rushworth had a feeling that with what we were seeing in the Santos Basin (Brazil) you could expect that Namibia ought to be the conjugate,” Myers explained. “We had a fair bit under the RL, but it is such a big area and I think that people don't understand just how big the coastline is. Eventually we had to make the call and convert it to an exploration licence. “Things really hotted up in 2011. The 2D seismic that was available was pretty old and we had not made as much progress as we hoped, but what we had identified caused us to push the button because the Brazilians were on their way: Petrobras, and especially HRT. “It was a stampede that happened so quickly. “We were early, and suddenly all this acreage was being snapped up along the margins, really by the majors players apart from Chariot and Tower.” Whereas Pancon is powering ahead in Namibia, it has struck a bit of a problem – or an opportunity – in Kenya. As part of a worldwide $4 billion divestment program aimed at trimming costs around the world, although not in Australia, operator Apache Energy has announced it is planning to withdraw from L8, its only venture in Sub-Saharan Africa. By early 2013 the block will be owned by Pancon (30%), Tullow (30%) and Origin Energy (ORG 40%), who will double their holdings at no cost. Pancon and its partners would then be back on the farmout trail seeking to fund a pricey deepwater exploration well aiming to test a deep oil play that was not tested with Mbawa-1. Adversity It's not the first time the junior has faced adversity. In 2002 it was left high and dry when Woodside Petroleum (WPL) elected to drill in an adjacent block with Global Petroleum (GBP) and pulled out of a JV with Pancon. Pomboo-1 was a duster, Woodside left electing to focus on Australian LNG, and Pancon was pretty lonely in part of the world that had been downgraded in the eyes of many. “It was devastating for us as a junior,” Myers recalled. Pancon attracted an unexpected partner in Origin a few years later, and the resulting seismic attracted Apache and Tullow as the trend of discoveries from offshore Mozambique and Tanzania moved south towards Kenya. A follow-up well to Mbawa-1 is being considered to test the Lower Cretaceous channel and turbidite Tai Sands play in L8, most likely the 220 mmbbl (mean) potential Kipungu prospect. Pancon is also looking forward to drilling in its three other permits. Two wells will probably be drilled by operator BG in L10A and L10B next year. Pancon has earmarked its 15% share from its $33 million cash on hand. Myers said the first well was being approved by the JV for early 2014 to test a Miocene Reef play in the western part of the blocks. A second well, likely to be drilled later in the year, is likely to test the eastern section where there is an extension of the Mbawa trend. A farm-out of L6, north of L8, is also being sought. Pancon and operator FAR share the block where there is a potential 3.7 billion barrels of oil or 10.2 trillion cubic feet of gas prospective resources on a gross, un-risked, best-estimate basis. The 3D-defined Kifaru, Kifaru West and Tembo prospects have combined potential for some 630 mmbbl or 1.7 tcf of gas with chances of a discovery of around 20%. Earlier this year Anadarko found oil shows in Kubwa-1 well outside L7, and was more recently drilling a multiple deep Cretaceous sands in Kiboko-1 just east of L8 although no results have been announced. A farminee to help fund drilling next year is being sought, probably to test Kifaru which has potential to contain some 170 million barrels of recoverable oil.
PCL Price at posting:
6.8¢ Sentiment: LT Buy Disclosure: Held
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