oilbarrel article

As Cyclone Risks Abate, ARC Energy Gets Busy Onshore And Offshore Western Australia
The coming months will be a key test of ASX-listed ARC Energy’s exploration campaign. It has big wells underway in the offshore Perth Basin and in the frontier lands of the remote Canning Basin, both in Western Australia. In all, this adds up to a 20-well programme for 2008 ensuring plenty of drillbit activity for newsflow junkies. There have been some delays: recent weeks have seen disruption due to cyclonic activity; even the onshore Yulleroo-2 well needed to have all non-essential personnel evacuated from the rig site due to the proximity of Cyclone Nicholas off the coast of Broome.

Yulleroo-2, which spudded in January, is the fourth well in the company’s ambitious exploration campaign in the Canning Basin. The company made a strategic decision to enter the Canning Basin in 2006, acquiring a major acreage position in this under-explored and long-neglected region (neglected for good reason: it is remote and until recently there was neither the infrastructure nor the market demand to support exploration efforts that had previously yielded smallish oil pools and unusable gas). With US$90 oil and soaring demand for gas, however, those dynamics have changed and, importantly, ARC’s exploration efforts are underpinned by an innovative pre-sales agreement with gas firm Alcoa, including an A$40 million upfront exploration payment.

ARC has high hopes for this acreage - albeit with the usual caveats; this is, afterall, frontier drilling - and has bagged the dominant acreage position in what it calls the least-explored Paleozoic basin in the world and, more importantly, one which shows geological similarities with highly productive regions in Oman and the US. The ASX company is tackling this vast expanse of acreage in a logical sequence, with this first year of activity focusing on areas that have seen prior exploration success, namely the Fitzroy Graben margin. This tactic has also kept activities reasonably close to highways and other support infrastructure before heading out into more remote locations in the Great Sandy Desert.

The first well in the Canning Basin programme, Valentine-1, was disappointing but the second, Stokes Bay-1 had two zones of interest; a five metre net oil reservoir in the Anderson Formation and, more promisingly, a well-developed porous and permeable reservoir in the deeper Nullara Carbonate reefal level. The company plans to test both zones later in the drilling season. The third well, Valhalla-1, encountered three promising zones but testing had to be delayed due to wet weather and deteriorating hole conditions. Testing will get underway later this year and success could lead to a significant gas and oil discovery, with the bonus of de-risking a number of look-alikes in the vicinity.

Yulleroo-2 in EP 391, some 75 km east of Broome, lies 2.5 km east and updip of the 1967 Yulleroo-1 gas discovery. The new well is being drilled to 3,500 metres and the main objective is the Tournaisian gas sands, which could hold 474 to 928 billion cubic feet of gas. The key test will be reservoir deliverability as Yulleroo-1 flowed at low rates. Success could open up a major gas play and would justify the company’s plans to build a pipeline to deliver gas to Alcoa in the southwest of Western Australia.
ARC’s managing director Eric Streitberg said preliminary mapping of 2D seismic in the Yulleroo area has delineated nearby leads at Ungani, Big Red Roo, Jackeroo and Desperado. “These leads are large, and potential reservoir volumes could be substantial,” he said. This is starting to look exciting but, as Streitberg pointed out in an interview last month, even with all this activity (a further eight exploration wells are planned between April and December of this year) the company has barely scratched the surface of this huge project.

In the meantime, the company is getting busy in the offshore Perth Basin where it partners ROC Oil in a two firm, one optional well programme. Earlier this month, the first well, Lilac-1 in WA-286-P, was P&A after the primary reservoir was found to be water-bearing. This is a blow for the co-venturers as Lilac was believed to be fairly low risk due to its proximity and similarity to the “Cliff Head sized” Dunsborough oil discovery (ROC and ARC are partners at Cliff Head, which produces around 9,400 barrels per day): success at Lilac would have improved the development economics of Dunsborough. The partners are now drilling Frankland-2, also in WA-286-P, which lies 1 km northeast of the 2007 Frankland-1 gas discovery. This could be followed by a contingent appraisal well at Dunsborough. The partners are also shooting 3D over the Frankland/ Dunsborough/ Lilac trend to confirm additional targets in this area.

This busy drilling programme promises plenty of newsflow for investors in the coming months and should begin to offer some proof as to whether the Canning Basin (or at least the Fitzroy Graben sub-basin, the subject of the immediate drilling campaign) was worth this high profile gamble. The drillbit, as always, will tell...