Member Info for AGEOS

The recent (Aug 2nd) 32min interview by AC with Total Market Solutions provides a useful summary of ZEN's corporate strategy re it's Azer assets short to medium-term and a few further insights into the current drilling programme.

A recognition of failure in operational progress to date is implicit in the revised strategy, which will downgrade the previous priority of rehabilitating historic wells in favour of drilling new ones. AC was also specific in recognising this will require application of the most effective technologies and expertise for which the necessary finance must be forthcoming.

I am not in agreement with those who have been highly critical of the low budget workover programme attempted to date, even though in an early 2017 post I wrote, “In assessing the probabilities of workover success there should be no illusions about the technical challenges” and “the risk is one of engineering complexity.” The company justified the strategy in part on the basis of reassurance from SOCAR, that all soviet-era and later data would be available and it was only during implementation that the inadequacy of this historical data and the poor condition of well infrastructure became apparent. AC cannot be justifiably held responsible for implementing a strategy retrospectively adjudged to have been inappropriate.

Whatever ones views on that previous strategy we are now launched on a new one with different challenges and potentially very significant prospects. I have already posted, on 07.05.19. , 14.06.19 & 18.07.19., regarding the Jafarli U Cretaceous carbonate play, for which it was encouraging to hear AC confirm an intention to obtain drill-cores (20.02min into interview) as I had previously speculated. I anticipate this will be backed up with a comprehensive suite of nuclear (Quad Neutron and/or Pulsed Neutron) and resistivity logs to maximise the data set on what could be a major new resource-host not just at Jafarli but across the ZEN acreage. AC's reference at 20.4min to “increased production of up to 1000bopd from each of the two well deepenings” although speculative must also have some basis in geotechnical probabilities.

I can also add that the most recent edition of the journal, SOCAR Proceedings No 2, 2019, includes a significant study by Salmanov et al (Scientific Research Institute, SOCAR) into the lithological characteristics of Eocene oil-traps. Although relating to the N Kura basin this has similar characteristics to that of the Middle Kura and as Salmanov also produced the 2013 structural interpretation of ZEN's acreage, this latest study will further enhance understanding of the M Eocene oil-reservoir potential.
AGEOS.

Another possibility is that the Miton UK Microcap Trust is selling some of its holding. As at March 31st it held 13.84M shares ie 4.43%, ZEN being ranked as 70th in its portfolio of 100 companies. Mitons normal redemption date was moved from end of April to June 28th this year presumably in anticipation of a significant proportion of its share-holders wanting out, following "disappointing retyrns for the year.". The redemptions amounted to 9.4% of Trust capital and there were insufficient funds to cover this. Hence a possibility that they have been forced sellers of some of their holdings, of which Block has probably been one and maybe ZEN likewise.
AGEOS

Maestro 1
Sorry, I misunderstood your initial post and should have checked my own notes beforehand; C-37 reached TD at 3987m.
Doesn't alter the point of my response however.

Maestro 1, the reason C-37 was terminated at 4014m could simply have been due to an error in well-log interpretation. The lithostratigraphic data indicates a change from 'sandstone' to another unspecified lithology(rock-type) at that depth, which could have been incorrectly correlated with 'sandstones' encountered at the base of the M Eocene in adjacent wells, eg C-22.
I assume that real-time LWD (Logging While Drilling) technology and Cuttings Analysis would have been used by Azneft (the drilling company) to monitor drill progression relative to the anticipated lithostratigraphy and since the M Eocene is comprised of various lithologies which vary laterally, there is scope for errors in correlation. Depth from surface, cannot be utilised for inter-well correlations, except in approximations, even when the wells are only a few hundred metres apart as you have no certain knowledge of the intervening geological structure.
Whilst this is somewhat academic it does highlight what we are about to find out; what lies below 4014m?
AGEOS

Yes maestro1, the U Cretaceous C-37 target does justify your excitement but not for the reasons you appear to quote. Muradkhanli past and present production is from the U Cretaceous volcanic sequence, not from carbonates (limestones), which are missing due to post-Cretaceous erosion from that structural high.
C-37 will test an inferred carbonate capping overlying the Jafarli volcanic structural high, for which there is a c250m-downfaulted continuation on the SW flanks of the Muradkhanli Field scheduled for future exploratory drilling.
As I have posted previously, the theoretical pore-volume of the Jafarli Field carbonate capping is equivalent to 47.1MMbbl, an observation which appears to have eluded the understanding of most on this BB judging from the nil response. The U Cretaceous will be the first to be flow-tested at C-37.
AGEOS

Today's RNS provides further insight into the proposed deepening of C-37 and its potential both for increasing oil production and providing geotechnical data relating to possible Cretaceous carbonate reservoirs throughout the Azer acreage.

The initial deepening of c30-40m will penetrate the Middle Eocene volcanogenic clastic, marly limestone and sandstone sequence from the current TD of 3987m in the hope that the 700STB/d produced from equivalent volcanoclastics and sandstones in C-22, c500m to the S, can be replicated. Oil productivity and decline rate at C-37 will depend upon the extent of secondary porosity (eg fractures) in these rocks as primary porosity (eg pore-space) is relatively low. Jafarli Field production predictions by Chapman Petroleum Engineering Ltd are quoted in my 14.06.19 post.

The secondary deepening of C-37, by 250-300m, will penetrate the newly identified Upper Cretaceous carbonate prospect which as I concluded in paragraph 5 of my detailed 07.05.19 post, is the “structure” to which the 100m x 3sq km dimensions apply. I will not reiterate what I included in that and the 14.06.19 posts except to quote from the latter the 5% porosity volume equivalence as 47.1MMbbl, a measure of the theoretical maximum resource from such a structure.

Also on 14.06.19, I posted a response to SEA7 regarding a paper by Gadirov, head of the Geophysics unit at SOCAR, on a geophysical interpretation of the Jafarli Field. This prompts me to add that Gadirov has also produced interpretations of seismic and aeromagnetic profiles across the ZEN acreage which indicate Upper Cretaceous carbonates extending east of Muradkhanli in addition to those identified and to be drilled on the western basinal slopes. Hence the emphasis in today's RNS of the importance of the Cretaceous play in C-37 for “prospective activity....across the Azer assets.”
AGEOS

SEA7 thanks for the response. The 2012 Gadirov paper you cite does not have any direct relevance to the current and planned interventions at Jafarli. Correlations between magnetic and gravitational anomalies and hydrocarbon occurrences have been known since at least the 1970’s and are part of the array of indicators used in the industry to identify possible new prospects. What this paper does is confirm that at least some of the Azer onshore fields, including apparently both Jafarli and Muradkhanli, do demonstrate such a correlation thus implying that interaction between the hydrocarbon geochemistry and the lithological and structural context are such as to influence the two physical parameters. That may be of relevance in indicating as yet unidentified oil fields elsewhere in ZEN’s acreage eg the Kargali, Seyudlyar, Gishlag, Shakhsunli and Mamedli structural highs NE of Muradkhanli and Zardab.

Figure 4 in the paper appears to demonstrate a correlation between the physical anomalies and an oil occurrence within the P2 component (as identified by geophysical parameters) of the stratigraphic sequence. P2 equates to the Eocene and since the oil occurrence is represented diagrammatically in the centre I assume it equates to P2/2 ie the Middle Eocene, the main producing level at Jafarli.

Gadirov has published a number of papers mostly in Russian on ZEN’s acreage and being a senior SOCAR geophysicist no doubt works closely with ZEN’s geotechnical staff as part of the joint agreement.
AGEOS

continuation:
In my 07.05.2019 post I referred briefly to the 22.10.18 RNS comparison of Jafarli with “similar U Cretaceous reservoirs in the NW part of the Kura basin” and I cited those of Manavi, Samgori, Teleti and West Rustavi, in Georgia as examples. These are mostly within c300m of fine-grained, well-bedded chalk and chalky-limestones, subject to high density open fracturing, overlying Cretaceous age volcanics. None however have been comprehensively developed, due until recently, to investment constraints and the challenges of a complex structural geology. In contrast the lithologically similar U Cretaceous reservoirs in Chechnya and Dagestan provide very encouraging examples of production from these rocks with wells in the Karabulak-Achaluk, Khiancort and Malkobek-Veznesensk fields typically producing at rates of 3000 to 15,000 bopd and with recovery factors of up to 50%.

At Jafarli much will depend on replication of high secondary porosity in carbonates which ideally have been subject to sub-aerial erosion before deposition of the Palaeocene seal. Hopefully cores will be retrieved to assist in confirming this. Muradkhanli deep oil appears, from geochemical studies, to be generating from 6000-12000m depths in the Yevlakh-Ardzhabedi basin to the SW so assuming similar pathways and an appropriate oil/water interface, the probability of a positive outcome at Jafarli appears favourable. However, as with all drilling activities potential success can only be measured as probabilities, never as certainties.
AGEOS.

On 07.05.2019 I outlined some of the geological context and criteria relating to the forthcoming interventions at well C37 in the Jafarli Field. As this intervention is now imminent I thought I would add a few further observations for those interested.

The initial well deepening, of 15-20m further into the Middle Eocene is, as stated, to provide for a flow test from the stratigraphic unit which has been the main reservoir for all Jafarli production to date. In the 05.01.2017 Prospectus and CPR (table 2, pp 291) Chapman Petroleum Engineering Ltd assessed the cumulative production of crude from Jafarli as 3,411,000 STB (Stock Tank Barrel), all from the M Eocene. Gross proven reserves from the M Eocene were estimated with 90% probability at 792,000 STB comprised of 192,000 STB from 19 wells producing at a combined current rate of 70 STB/d and 600,000 STB from 3 as yet undeveloped wells predicted to produce at a combined 447 STB/d. Probable reserves based on 50% probability and a notional 12 new development wells were estimated as 3,000,000 STB. The C37 M Eocene flow test will be assessed within this context and that of the cumulative field data set.

Further well deepening, of 200-250m, will pass through the lower M Eocene and Palaeocene (Lower Eocene absent due to erosion or non-deposition) into the Upper Cretaceous, to test the fluid content of an inferred U Cretaceous limestone sequence capping the volcanic sub-basement high. If I am correct in my 07.05.2019 post of concluding, that it is this sequence to which the dimensions of a “3sq km x 100m max thickness” applies, then it is possible to assess the potential quantitative resource this could theoretically produce.

A 3sq km x 100m max thickness limestone capping, assuming it tapers to zero at the margins due to post-depositional erosion, would have a volume of approx. 3,000,000 x 50m = 150,000,000 cu m.
Assuming 10% porosity (low primary but high secondary porosity due to dolomitization and open fracture systems which locally can produce up to 30% porosity) and 50% recovery (based on data for N Caucasus U Cretaceous), that would produce a fluid volume of 5% ie 7,500,000 cu m..
1 cu m = 6.29 bbl
7,500,000 cu m x 6.29 = 47,175,000 bbl. (additional to current 2P reserves of 31.7Mbbl).

To be continued.

The AGM conforms to a legally constrained format which excludes ‘any other business’. As in previous years I assume the ‘Special Meeting’ is to authorise AC’s receipt of shares in lieu of salary.

Thanks AJW, your response much appreciated.
Inference appears to be that VIII is still with GOG if the 2011 license issuance info in the 2018 Athens Workshop report is current, having been dropped by Tethys (Project Tamar 2014) in favour of its Iberia Blocks Project.
As you imply, absence of VIII from the recent tender round, suggests it might be the subject of a private tender in progress. An interesting prospect.
AGEOS

One of the stated “use of proceeds” from the recent fund raise is “within the next 24 months….to secure additional licences in Georgia and the wider region.”

It may therefore be of relevance that the AIM Admission Document of 04.06.2018 includes the following :

“Other prospective investments”
“Pursuant to the Norio SPA, the Company was granted an option (with current 100% owner GOG) to acquire a 70% working interest in Block VIII. The option expired on 31st May 2017. However the Directors believe the opportunity remains available for the Company to resurrect the opportunity, ….” Ref pp 25

Perhaps the placing provides the opportunity to resurrect that option.
Block VIII is 4800sq km and includes part of the East Kavtiskhevi Prospect, a 36.9 MMbbl contingent resource with potential for 100 MMBOE to the west (adjacent to Schlumberger Block IX), plus the South Akhalkalaki (131 Bm.cu gas) and South Borjomi (214 Bm.cu gas) Prospects. For details see Georgia Oil & Gas Ltd. Presentation “GOG Licenses in Georgia & their HC Potentials “ April 2018 slides 14, 17-26 etc of 109.

Block VIII appears to be still available for option and would certainly assist in propelling BLOE to mid-tier status. AJW, one for you to develop further if you wish.
AGEOS

continuation:

I described the Muradkhanli equivalent on 10.05.18. as a possible remnant of a fringing maritime reef which if so for the Jafarli Field also, would have significant potential as a hydrocarbon reservoir as dolomitized fore-reef carbonates often have high porosity. However back-reef limestones are often not so potentially productive so only the drill-bit will reveal what this has to yield.

The 22.10.18 RNS also speculates on the potential of the Cretaceous carbonate play by referring to comparison with “similar Cretaceous reservoirs in the NW part of the Kura basin” which presumably refers to those of the NW extension into Georgia discovered within the last 20 years but largely unexploited, including the Manavi, Samgori, Teleti and West Rustavi fields, the latter under development by Block Energy currently at shallower depths. These fields are in c300m thick, fine-grained, well-bedded limestones with high-density open fracturing, overlying Cretaceous age volcanics. They are considered comparable with the highly productive fields of the N Caucasus.

So C37 is a two-part investigative play.
The first, requiring an extra 15-20m of drilling, to test for a possible lateral extension of the M Eocene ‘sandstones’ which in 1986 produced 700bod (570,000STB total production) from a 112m section of C22, c500m to the S. The Jafarli M Eocene lithologies are of volcanoclastics, sandstones and marly limestones, which have variable lateral extension and hydrocarbon shows not necessarily restricted to sandstones.
The second, requiring a further 200-250m of drilling, to test the inferred existence of a Cretaceous carbonate play with, I assume, an area of c3sqkm and c100m max thickness, sealed by overlying Palaeocene marls. This play is presumably a capping to the Cretaceous sub-topographic Jafarli high and will have been subject to the same subaerial erosion which contributed to the Cretaceous volcanics being such prolific hydrocarbon reservoirs in the Muradkhanli Field. Jafarli is separated from the inferred Muradkhanli Cretaceous carbonate play by the c250m vertical displacement fault shown on the slide 10 section and the Salmanov map. The level of the oil/water interface is, according to the 13.08.18 RNS, anticipated to be within the Lower Eocene/Upper Cretaceous horizon across all the oilfields.
As with all investigative drilling only the drill-bit can reveal what this prospect has to offer.
AGEOS/INTHENO

continuation:

The 25.01.2018 Presentation seismic sections appear to be no longer available. However, slide 10 of the current ‘Presentation’ accessible as a pdf from the company website, provides a diagrammatic section based in part on one of those seismic sections. Thus, with ref to slide 10, this shows a vertical section from the Chokrak (note: not ground level) down to the Upper Cretaceous sub-basement, along a line from M38 (see Salmanov map, 5100m depth contour) on the western edge of the Muradkhanli Field, SW to just beyond M205 (a distance of approx. 10km), from where the line of section turns abruptly E or NE (direction uncertain due to conflicting well location data) through the Jafarli Field, a further c4km. Note that the text highlighted in red on slide 10 refers to “a previously unexplored Mesozoic carbonate prospect” in both oilfields but the section does not differentiate any carbonates in the Jafarli Field. I assume therefore that since both M23 (TD 4503m) and M24 (TD 4510m) penetrated c200m into the Upper Cretaceous, the well-log data from these wells has been reinterpreted as indicating carbonates overlying volcanics and that it is this reinterpretation which is being extended to C37 and C30 a few km further south. Confirmation that the interpretation of seismic and well-log data indicates Cretaceous carbonates extending from Muradkhanli to Zafarli is included in RNS’s dated 13.08.18, 15 & 22.10.18. from which more detail is available as follows.

The 22.10.18 RNS describes a “new structure in the Middle Eocene and Upper Cretaceous formations of the Jafarli Field” as a “dip-closed anticline”, which conforms with the diagrammatic representation depicted in slide 10 of a fault-bounded anticlinal structure conducive to hydrocarbon accumulation. That RNS further describes the Middle Eocene productive source as “volcanogenic clastic layers and fractured marly limestones draping and lapping the Mesozoic (ie U Cretaceous) underlying structure”, which for the Eocene is consistent with it being part of the “dip-closed anticline”. There is however additional description of “The identified structure measuring approx. 3 square km with a significant degree of closure indicated by a thickness of approx. 100m.” This cannot refer to a structure encompassing both the Middle Eocene and a Cretaceous carbonate sequence since the combined thickness is in excess of 200m so I assume it must describe the proportions of the inferred carbonate target capping the Cretaceous sub-basement high. The section shown in slide 9 of the current website ‘Presentation’ entitled “Well deepening activities in C-37”, shows only a fault-bounded wedge as the target in the U Cretaceous so does not enlighten the issue.

To be continued.

LTH’s may recall that I posted considerable detailed geotechnical comment prior to May 2018 when, without explanation, LSE decided to ‘archive’ and thus render that information inaccessible. Since some of those postings provided an interpretation of the context within which the impending developments in the Zafarli Field might be better understood I thought I would revisit some of that content for anyone interested.

On 25.01.2018 AC gave a presentation at an investor conference which included two seismic sections through the Azer fields. As these were high resolution digital images, I copied and enlarged these sufficient to provide a detailed interpretation in a series of posts on 31.01.2018 and in doing so emphasised that this provided the first indication of a large untapped potential reservoir in the Upper Cretaceous along the western flank of the Muradkhanli structural high (as defined by the 2013 Salmanov/Yusifov map. See ref below). This conclusion was confirmed in an RNS of 08.05.18 which stated that the structure, interpreted as a “carbonate prospect”, extends SE to include the Jafarli Field.

NB Salmanov 2013 map. http://proceedings.socar.az/uploads/pdf/21/Salmanov_6-13.pdf
Ref Salmanov A M & Yusifov Kh M SOCAR Proceedings 2013 Pt 2. In Russian.
The subsurface contour map on page 7 is invaluable for envisaging the topography at the Upper Cretaceous/Palaeocene interface and consequently for understanding the structure and interrelationships of the various prospects which constitute ZEN’s interests. I can elucidate further if required. It is also the base-map used for the well-location maps on pages 283 and 292-297 of the Prospectus & CPR dated 05.01.2017.

To be continued

Ezhik
Your dream has firm geotechnical foundations. WR38 has indicative production potential from level P2/2 comparable to that of WR16aZ and is 3km to the W on crest of same anticlinal structure, and within same fault block. Porosity and permeability are also mapped as comparable.
I have a stake here too.
Best of luck.
AGEOS

Dubliner thanks for your response and for your prompt to comment on the Oct 30th and Feb 21st AGM updates. The possible competition from Geofortis is what could be described as a ‘known unknown’ as we have no way of assessing its potential, so it just needs to be kept in mind as part of the market context in which SRES seeks to operate. PC has been keen to emphasise that products in this market are very niche-specific and that consequently both perlite and pozzolan compositional output will be adjusted to meet the requirements of individual customers, so with the possible exception of ‘paving’ ie road construction in Nevada, competition with Geofortis may not be an issue.

The SRES updates in Oct and Feb are largely statements of fact, with production projections which we have to take at ‘face-value’ as we have no access to the evidence on which they are based, but which clearly are very encouraging. There would be no value in my reiterating all the details of those updates but in general, all test and trial results for both perlite and pozzolan are reported as positive, we appear to have several potential customers which are not necessarily Nevada-centric, and the mine permitting process appears to be on target for Q3 or earlier completion. I therefore see high probability of a positive outcome for the CS Project, the only major ‘known unknown’ at this stage being the CapEx requirement for initial mine operation. If initial product demand is strong that will assist in underwriting any capital raise for fixed plant; if less so it will favour the cautious low cost option of contract mining. Hope that clarifies my stance.
AGEOS

The pending Navajo Generating Station closure and resulting reduction in supply of Class F & C fly-ash for use as a pozzolan in the SW States, is not just a positive development for SRES, potential competitors stand to benefit too. I am reliably informed that construction of the long delayed Geofortis natural pozzolan production plant at Reno Nevada is due to commence Q3 this year with first product due Q1 2021.

On 14.09.2018 I posted details of Geofortis patents for pozzolanic formulations based on Lassenite for use in concrete and mortar, which appear to produce superior qualities in the resulting products, especially where rapid, eg 7-day curing, is required. Geofortis has exclusive rights to a 150MT Lassenite resource and is targeting 600,000TPA of refined product sale throughout the SW. Note this is double the combined annual production of raw-ground product from Nevada Cement, CR Minerals and Hess Pumice, the current major producers of natural pozzolans in the SW and comparable to the 500,000TPA of raw product anticipated from the Kirkland mine in adjacent Arizona.

On 02.09.2018 I also posted details of the 3-phase NDOT (Nevada Dept of Transport) Evaluation of Paving (ie road) Mixtures, to which Thomas Adams (SRES Consultant) is a contributor, Phase 3, still in progress, entails a Reformulation of Concrete Paving Mixtures, for which it seems reasonable to assume the Geofortis formulations will be a significant contender. As I emphasised in the concluding paragraph of my 02.09.2018 post, historically the only natural pozzolan used in concrete paving mixtures in Nevada has been that supplied by the Nevada Cement Co from its Fernley mine but due to changes in source rock composition alternative sources are now required. Whilst this may present an opportunity for SRES, it appears that Geofortis may now be a significant competitor and not just for this but also throughout the natural pozzolan market in the SW.

Within the expanded-perlite market however, Lassenite-based Geofortis products are unlikely to have any relevance, so I anticipate that it is this aspect of the CS Project resource which will spearhead initial SRES exploitation phase developments, news of which is awaited.
AGEOS.

Ezhik - thanks for the contact. Still here and will resume posts end of month.

Bhargav:

The AGM confirmation you quote, that “all environmental permission for ANZA are in place” was and is misleading. It would be correct if appended with the words “in so far as is required at that stage in project development.” There are a variety of ‘environmental permits’ relating to hydrology, ecology and community required at different stages in the progress from initial field reconnaissance through exploration and drilling to exploitation, all requiring differing degrees of compliance. The forest protection issue I highlighted is just one and is of significance in relation to the time scale for project development at ANZA.

Regarding possible forward selling of shares allotted to creditors. The 11.01.2019 MD & A page 3 and Financial Statement for six months to 30.11.2018 Section 20 states that issuance of the 10M shares which form part of the Loryser Agreement is subject to approval of the Toronto Stock Exchange and to final approval of the Agreement by the Court and the Intervenor. Both of those approvals are, as far as I am aware, still to be confirmed so there is no legal or practical basis on which the 10M shares could have been issued or forward sold. Shares in issue on 23.10.18 totalled 146,800,091 (including 29,213,186 Newmont), on 11 01.2019, 150,277,672 and that remains unchanged.
AGEOS