NOEL "Ray-Bans" Newell is itching to get his junior 3D Oil into production from the West Seahorse oilfield, beneath the chilly waters of Bass Strait, by no later than the first quarter of 2015.
He is also getting excited about 3D's newly acquired exposure to the eastern states gas market, where prices are set to rise big time.
First, his excitement on West Seahorse, which is understandable at these sort of oil prices. Now a 49.9 per cent joint venture with Malaysia's Hibiscus Petroleum, West Seahorse is set to have a relatively short life of between four and six years.
Because of the known quality of reservoirs in Bass Strait - in terms of permeability, porosity and water-drive - it is set to flow in its early days at a thumping 12,000 barrels a day.
So a super quick pay-back on the $120 million-$150m needed to get the thing into production, using an already acquired jack-up drilling rig that will be converted to a more impressive sounding mobile offshore production (MOPU) unit, is on the cards.
Hibiscus has contributed $27m for the move to first production, the remainder to come from debt, a small sell-down of equity in the project and, in 3D's case, the smallest possible equity raising.
Given Newell owns 16 per cent of 3D, which he floated after leaving BHP Billiton as principal geologist for its Gippsland Basin (Bass Strait) interests in 2002, that point on the smallest possible equity raising is a given.
There are some ticks in boxes required before all that happens. As things stand, the joint venture should be in a position to make a final investment decision (FID) on a go-ahead late this year or, more likely, early next year.
A production licence is in the works and cannot be too far off now, clearing the path for the FID decision.
All that is very interesting for a company the size of 3D. It has been knocking around 8c a share for an all-up market capitalisation of $19m, which it has to be said looks to be on the mean side of things.
If West Seahorse - and the need to secure financing - was all there was in 3D's world, it could be considered a fair cop.
But 3D is much more than West Seahorse.
The beauty of using a MOPU (it will be sold and leased back) is as its name suggests: its mobility. And, because of its drilling heritage in the North Sea as the "Britannia" jack-up rig, the MOPU will have the twin abilities of being both a production and drilling unit.
As it is, the joint venture is hoping to squeeze in a test of the Sea Lion oil prospect ahead of the MOPU being committed to West Seahorse.
Ranked as having a prospective resource potential of 11 million barrels of oil, success at Sea Lion would massively increase the value of the joint venture's Bass Strait project, covered by permit area Vic/P57.
And there are at least another nine leads 3D has worked up in the area that the MOPU could theoretically go and hover over at later stages.
But, again, 3D with its tiddler market cap is much more than Vic/P57 and its near-term oil producer status. In a pick-up that the market appears to have over-looked, 3D was awarded permit T/49P in the Otway Basin off Tasmania in May.
As mentioned above, the low-commitment pick-up plugs 3D in to the fast emerging gas "crunch" in the eastern states, brought on by fears of gas shortages once the three Queensland LNG export projects get going.
They will suck up every spare molecule of gas to be had on the eastern seaboard, given their needs equate to three times the domestic market.
As the jockeying to help meet the demand -- no one thinks they can do it all from their coal-seam gas interests -- gets under way in earnest, prices on the eastern seaboard have started to move sharply higher.
What was generally a $3.50- $4-a-gigajoule (wholesale) market has become a $5-$7 market, most analysts tipping the possibility of spikes to $12 as the Queensland projects start up, ahead of an eventual settling in to an $8-$10 range. That's the reason why NSW - which only manages to produce 5 per cent of its own gas needs - last week called an energy summit.
The fact that prices are headed to levels comfortably ahead of where they need to be to encourage more exploration/production means the summit was a waste of time.
If its purpose was to try to limit the upside pressure on prices by getting farmers to unlock the gates and allow CSG exploration/production, well, that's another thing all together.
Anyway, the simple fact is that Otway Basin gas exploration was boring when gas was fetching $3.50. It gets very interesting when the price is headed off to $8 and more.
Newell has made no secret of the fact that 3D will be looking to bring in a big brother to help chase down the gas potential of permit T/49P.
Others are saying he will be getting plenty of interest.
Just to the northwest of the permit is the Otway's biggest gasfield, Origin's Thylacine (1.5 trillion cubic feet of gas-in-place).
The area has been tested with wells in the past, but none were considered valid tests in the context of the sort of opportunities that more up-to-date data crunching and qualitative interpretations can throw up.
There is nothing in 3D's share price for the Otway gas exposure. But there will be in a hurry if, as is likely, it lands a big fish to give the gas play some real oomph.
- See more at: http://www.theaustralian.com.au/business/opinion/newell-3d-vision-a-blinder/story-fnciil7d-1226730320643#sthash.LALjOLqd.dpuf
TDO Price at posting:
9.0¢ Sentiment: Buy Disclosure: Held
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