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Spot on Rev, great post.
Potential set back but not insurmountable. Will be bought out at a lower price than had been hoped for or will simply take longer. It’s not going to fail due to some water.
Rev,
Interim report, Sept 20th , 2019, Page 5
'We have gone to great lengths to explain why we do not expect to see coned aquifer water during the lifetime of the EPS, under our base case. This is our continuing expectation. The perched, or stranded, water we have experienced is consistent with our reservoir model and since our capital markets day presentation this interpretation has been reinforced by the Company’s technical work. Notwithstanding the increase in aggregate perched water production to a sustained rate of approximately 7.5%, water cut remains within expected ranges and is not impacting oil production levels or the cost of production. Now that both flowlines are in operation again, we can see that production from the -6 well continues to be of dry oil. Given the proximity of the wells and strong interference between them, this is supportive of a stranded pocket of water being intersected by the -7Z well. Hurricane’s analysis suggests that current production is only coming from a relatively short section of the borehole in the vicinity of the heel in each well. Over time, fractures further along each well bore are expected to contribute to production, reducing the impact of any individual water-bearing fracture.'
Let's say that there is an RNS saying that the formation water is coning up. What does that really mean for us in the short, medium and long term?
As I understand it the same happened to Bach Ho because they were 'sucking too hard'. We're not using our ESPs but it could be that the two wells in Lancaster are acting as one big well and drawing liquid (both oil and water) up through a massive, vertical fracture system to such an extent that water is also being drawn up as far as the wells.
If this is the case then my non-oily but slightly researched brain suggests the following (happy to be shot down, but I'd appreciate knowledgeable posters' opinions on this);
It doesn't mean game over, but rather is a case of well management - we need to suck a bit less hard, so instead of ramping up to 20kbopd we stick at 10kbopd. This has short-term implcations on how much we earn next year and medium term implications on how we plan the FFD, but it will also give us a wealth of data helping us to do that planning.
It also doesn't affect the tie-in plan for Lincoln but may mean we need to drill a further well (further out) on Lancaster next year to fully appraise the Lancaster fracture system and make use of the AM's full capacity.
Further out it may mean putting back FFD on GWA and GLA by a year each to give us time to better appraise each system, but doesn't, to me at least, negate the existence nor the retrievability of the oil in place.
So in short, IF the next RNS is as bad as the SP is suggesting, given what we definitely already know about the EPS, the fracture system it is drawing from (well fractured with mobile oil with a good API), and the Lincoln Crestal well, I still see many positives, albeit possibly further out along the timeline than I previously hoped (but isn't that the case with HUR right along!)
Rev.