This was a surprise to me as this was the first time I had heard that any of the upper cretaceous had been counted in past volumes. Doing the math’s, that’s 3.3 billion barrels of STOIP that are still there however obtaining oil from this zone will take ERM to extract. This oil accumulation has not been included in the CPR. A previous post of mine documented how Steam flood schemes have been successfully applied to reservoirs in the Middle East that exhibit very low fracture porosity especially in fractured carbonates. These reservoirs have initially a minute recovery factor applied to them, as low as 0.3%. Shell transformed these prospects by the application of Enhanced Recovery Methods (steam flooding) to achieve a 30% RF. Such a strategy does not form any part of the ERC report. Indeed the upside potential has been stripped out of the report. BLENDING In the question and answer section we learnt that the blending station at the end of the yet to be built spur would mean that a 1:1 mix with the oil coming up from Taq Taq would result in exportable oil quality equivalent to Kirkuk sourced oil with a composite API of 31. The CPR report gave a figure of 18 API for the Jurassic, which is at the very top end of the heavy oil category, or at the lower end of the medium oil classification. MOL’S REACTION It was interesting to note that MOL immediately denounced the Equipoise assessment of Akri Bijeel and John G stated that the in house understanding of the block would have increased by 3 to 4 times the rock volume used by Equipoise. Certainly MOL was not impressed! I think the same degree of skepticism given by MOL could be applied to the whole report. So what do we draw from all this? 1. In my post put out before the CPR was issued I made the case that the report would be very conservative – they always are. The CPR firm Equipoise cannot be shown to be over egging the pudding in any way! They can’t even be seen to be ploughing a middle furrow. So as predicted we got a very conservative report, where each and every variable was minimized. 2. The DGA figures are in all probability more realistic – they had, quote “day to day access to the data” where ERC just took ‘snapshots’. The actual OIP numbers, fracture system and RF are more likely to be closer to the DGA and Rider Scott figures. IMO a major will understand this. Time will tell. For obvious reasons GKP need to prove up these figures as a matter of urgency. 3. The ERC case is a baseline on which to build. There is huge upside potential not addressed by Equipoise. 4. The CPR was needed to allow a) A FTSE listing and b) Resource base lending. As such I believe it will be proved to have done its job. 5. The SP got considerably clobbered because the CPR firm has been ultra conservative and people panic, who can blame them!. IMO clarity is urgently needed on the OWC issue. The SP is nowhere near a true representation o
John G then went onto say that with a little bit of research there were papers out there that document 0.7 to 0.8% fracture porosity. (0.7% was used as the high end case – page 26 of the CPR) He continued by saying that an additional 0.2% would yield a further 800 mbls He then said that in his extensive experience the fracture porosity at Shaikan was the highest that he had ever seen. Logic therefore says that an additional 1.6 billion barrels could have been missed out by Equipoise in this report. What would that have done to the figures? SHAIKAN 7 We then heard that Shaikan 7 had successfully drilled through the Cretaceous, the Jurassic and was now in the Triassic Kurre Chine B interval, almost at the point where the well becomes an exploration well! What is even more impressive is that GKP, while having had problems drilling this well, have been able to maintain a 17 inch casing at this deep level, allowing further reductions in casing size as we enter the lower Triassic and the Permian. Gibso will be able to fill in the technical details on why this is important but my interpretation is that by maintaining the large diameter casing into the Kurre Chine it gives GKP the ability to fully case and flow test the Permian. In addition, diagnostic tools will have plenty of room to operate at depth. THE CPR REPORT DOES NOT ADDRESS THE POTENTIAL OF THE LOWER TRIASSIC AND THE PERMIAN! John G also made the point that the API was high and the oil from the Triassic was very valuable. LOOKING FOR THE UPSIDE We were then told to look at the CPR as a baseline from which GKP can climb. John G reiterated the experience of Genel at Tawke and Taq Taq where the recovery factor has climbed into the 30% range, along with increased reserve figures as production data refines the knowledge of the fracture system and the matrix. The same will happen at Shaikan (A recovery factor of 12% was used by Equipoise at Shaikan) Genel has reported they expect a 35% RF to be achieved at Tawke to the north of Shaikan. Given this guidance the current share price is a complete joke. John G stated that GKP still believes in the DGA / Scott Rider 13.7 billion barrels at Shaikan and it is only the conservatism of Equipoise on the variables discussed above that has held back the valuation. ISOTHERM Finally John Stafford explained the significance of the isotherm line shown on slide 6. Basically this is the thermal limit above which, temperature (which increases with depth) no longer enhances the ability of the oil to flow freely. Temperature helps the oil to flow by increasing the viscosity. There is A LOT of movable oil in the Cretaceous that has not been included in the Equipoise case. Indeed John Stafford said that 70% of the difference between the 9.215 billion barrels and the 13.7 billion that have previously been announced by DGA was attributed to the Cretaceous above the isotherm. This was a surprise to me as this was the first time I had heard that
John G made the point that a water kick was experienced from a high-pressure high-energy water zone and he believes that this water flowed up between the casing and the well bore, exiting the void when the casing was finally perforated. To me this is the rational explanation! The core was bleeding oil, not bleeding water! He backed this up by referring to SH2 that came within 50m of the 1400 OWC put forwards by Equipoise. That oil was dry and he makes the comment that water, if it was present in the fractures would have been visible. Shaikan 4 flowed dry oil from the Butmah, which is below the Sargalu, Alan and the Mus reservoirs (Slide 6). We have been told repeatedly that these reservoirs are in communication so where is the water contact? Page 15 of the CPR :Data indicate that all the Jurassic reservoir intervals are in vertical communication. From page 33 of the CPR they state that Oil has been tested down to a depth estimated to be somewhere between 1,350 and 1,400 m TVDSS in the Jurassic, but no oil has been recovered in a successful flow test from the Jurassic below this. THE MOBILITY FACTOR We learn that the mobility factor between oil and water is 25:1, water therefore will flow much more readily than oil, so the water could have replaced and / or restricted the expected oil from flowing into the well bore, oil, which was proved to have been there, because it was clearly evident in the cores and on the shakers. It is the higher OWC that has negatively impacted our reserves figures. From the presentation every 10 m gives an additional 13 million RECOVERABLE barrels. There are hundreds of meters between the two OWC given by Equipoise. To remedy this GKP need to urgently prove up the lower OWC – you have to ask why they have not done so prior to the CPR? They obviously knew the problem. FRACTURE ORIENTATION John Stafford moved the discussion on to examine the dominant orientation of the fracture systems. He explained that the majority of these fractures were vertical. From page 15 of the CPR data indicate that all the Jurassic reservoir intervals are in vertical communication. All the wells drilled so far have been vertical wells. We know from Genel just what impact horizontal drilling can have on production. With some horizontal wells intercepting a greater number of vertical fractures the production figures will IMO, rise exponentially and with it the recovery factor as the fracture system is more fully understood. Perhaps a geologist could comment on this. We have already got 10,000+ bopd from vertical wells. FRACTURE POROSITY We now turn to the fracture porosity. I was aghast at what John G said on this point. He said that Equipoise chose 0.4% as this was the highest that they the CPR authors had come across in the past. Not that they had looked at the evidence before them. No, they Equipoise had applied 0.4% as the mid range case because that was the highest they had ever experienced. John G then went
dalesman Sunday 16 March 2014 .First of all lets all step back one pace and remember that friends and family along with your health is much more important than GKP! I know this from personal experience.Now I’ve got that off my chest I think it would be good to revisit the proceedings of the last few days. I’m on holiday at the moment so apologies if this has already been covered.Like many here I’m not a happy bunny and feel that the events could have been better stage-managed but that’s now in the past and perhaps it would be good to dissect some of the comments from the presentation and look to the future.This is a long post, you may need a coffee, but do stick with it! So here, FWIW, are my comments and observations. I have broken them down into manageable chunks. PRODUCTION Firstly I have calculated that the income net to GKP from barrels exported so far has reached $16.56 m that is a good starting point, we need official confirmation that we are getting paid. Secondly the CPR is a baseline report. If you have not read my previous post that set out my expectations pertaining to this report then can I suggest you do so – its available at http://dalesmann.com/dalesmann-where-should-our-focus-be/ So lets kick off by looking at some of the comments. LIMITS OF THE CPR REPORT The most startling admission from John G is that the CPR relates only to three of the four Jurassic reservoirs – the Sargalu, the Alan and the Mus (John G 14.56 min’s in to the presentation). These represent only 39% of the total reservoirs available at Shaikan. The bar shown on the Shaikan Oil in Place slide also illustrates that the CPR is only looking at the Sargalu, Alan and the Mus as these are the targeted reservoirs in Phase 1 of the Field Development Plan. THE OIL WATER CONTACT He then addressed the Oil Water Contact issue. Firstly there is the evidence from the core samples, which were quote: “OOZING oil” There was no evidence of water in the core samples; to the contrary, they only seem to have evidence of a reservoir filled with oil. As a layman, I think it is highly unlikely that the core samples showed only oil if water was indeed present. Perhaps Gramacho could comment on this. My understanding is that the core samples taken from the well before this HP zone was reached gave every indication of an oil rich zone, which was then sealed off by the casing. Drilling then continued down to circa 1975 m. (figs may be approximate due to memory loss) :0) So how did the well flow water after perforation of the casing at approximately 1450 m instead of the expected oil, given that the core samples from this depth were “oozing oil”? NO WATER! John G has put forward the scenario that the water was forced upwards from a highly pressurized lower zone, the water penetrating the void behind the casing that had not been cemented. John G made the point that a water kick was experienced from a high-pr
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