31 Mar 2015 07:00
Northern Petroleum Plc
("Northern Petroleum" or "the Company")
Corporate update
Board change
Northern Petroleum, the AIM quoted oil company focusing on production led growth, provides the following corporate update.
Highlights
Canada
§ Current production capacity from existing wells of 500 barrels of oil per day ("bopd")
§ Operating cost efficiencies being realised to increase economic production to this level in 2015
§ Technical review ongoing to understand Keg River reef connectivity and remaining oil distribution
Italy
§ Work programme on Cascina Alberto to start following completion of farm out to Shell
§ Work has started on a joint technical study with Schlumberger and GEPlan offshore in the Sicily Channel
§ Southern Adriatic environmental impact assessment authorisation process progressing with final approval pending
Corporate activity and board change
§ Stewart Gibson stepping down as Non-executive Director
§ Significant reduction in general and administrative corporate overhead
§ Planned office move next month
Keith Bush, Chief Executive Officer, commented:
"The first quarter of 2015 has been spent reorganising the Company and its operations in Canada in response to the prevailing industry environment. With this exercise completed, the focus for 2015 is to increase economic production in Canada and advance all our assets in Italy. In addition, the Company is now positioned to take advantage of the opportunities that will arise because of the change in oil price. "
Jon Murphy, Chairman, commented:
"Stewart has agreed to step down from the board to support the Company-wide cost reduction efforts recently undertaken. The Company will miss his extensive experience and expertise and we thank him for his efforts. Management have taken some difficult but responsible decisions to significantly reduce the group cash burn. With ongoing efforts to build economic production, the ability to cover costs from our Canadian production should be achievable, even in this oil price environment."
Canada
The redevelopment project in Virgo, north west Alberta, is currently the Company's primary development and production asset. The existing wells have a production capacity of approximately 500 bopd, half of which will be back on production during the second quarter of this year and the Company is working to bring the remainder on, subject to the realisation of operating cost efficiencies.
The drilling, completion and testing of the most recent well, 102/11-30, in Virgo finished in early February. During testing, the well flowed at nearly 100 bopd from an upper zone, with a high water cut of around 85%. The water cut, combined with the prevailing oil price, means that the production from the well is currently uneconomic and therefore the well is suspended pending a technical and operational review.
Initial findings indicate that the water production from the upper zone may have flowed from the lower test zone behind the liner, giving rise to a higher than expected water cut. This view is supported by the cement bond log and the data from the liner cementing process. As part of the technical review, this will be investigated along with analysis of the connectivity between individual reefs through the underlying Keg River platform, which may influence remaining oil distribution within reefs.
The review has also been widened to cover the full redevelopment project with the aim of enabling the Company to redevelop the Virgo acreage economically even at low oil prices. This will be conducted through to the third quarter of 2015.
Production in Canada during January was 360 bopd during a full production day, from four wells. Production up time for the wells was poor during the month as a result of interruptions at the local third party operated production facility and waxing within the prolific 102/15-23 well that caused a flow restriction in the well.
At the end of January production was shut in to allow the return of the expensive rental production units being used on three wells and to complete the planned installation of a pump in the 102/15-23 well, which will also remove the waxing problem from the well. During February, the infrastructure operator conducted an inspection of the pipeline that the 102/15-23 well is tied into and has concluded that remedial work is required. This work is expected to take between two to three months and as a result, the 102/15-23 well will be shut in until it is completed.
Well 100/16-19 is expected to be back on production following the purchase of a low cost production package, removing the high cost rental unit previously used to produce the well. This unit, combined with a near 50% reduction in the price of other rental equipment, allows the well to be produced economically even in the current low oil price environment.
When both of these wells are back on production, which is expected to be towards the end of the second quarter, combined production is forecast to be between 200 to 250 bopd. At a US$50 WTI oil price, the Company forecasts an average netback from these wells during this year of US$20 per barrel, which includes the deduction of all royalties and production costs.
The restart of production from 100/16-19 is due to the continuing review of the field operations and working closely with local suppliers to reduce costs. The Company has a further 250 bopd production potential behind pipe that is currently shut in due to the cost of water disposal. Opportunities to reduce operating cost, primarily water disposal, are being investigated with a view to re-establishing economic production from these wells. This includes possible asset and liquid transportation arrangements with other local operators to enable production synergies.
Italy
Italy provides the Company with exploration and appraisal assets which can provide significant returns. Recent efforts have been focused on three areas: the Cascina Alberto permit onshore in the north of the country, the offshore permits in the Sicily channel, and the offshore permits in the southern Adriatic.
The recently announced farm out of Cascina Alberto to Shell was the result of a concentrated farm out effort following the award of the permit last year, demonstrating the inherent value in the Company's Italian applications and permits.
In the Sicily Channel, following the award of permit C.R149 last year, the Company has joined forces with Schlumberger and GEPlan Consulting, an Italian petroleum consultancy group, to undertake a joint study. The study will cover a large area of the Streppanosa Basin, which includes the Company's contiguous exploration permits, C.R146 and C.R149. Northern Petroleum and GEPlan will provide technical data and support to a petroleum system modelling study to be carried out by Schlumberger, with the objective of promoting and high grading the area for geophysical exploration.
There has been limited opportunity to discuss ongoing activities in the southern Adriatic without tangible evidence of progress, primarily in relation to the application to undertake a 3D seismic survey across the Giove oil field and Cygnus exploration prospect. However, continuous communication and regular meetings have been held with regulatory and political representatives to further this application. Progress has been made through the process and the final approval is currently being reviewed by the regulator. This approval process is being considered at a time when the Italian parliament is approving new environmental legislation, a process which is likely to have a bearing on the timing of the final approval of the Company's applications.
Given the positive change in business sentiment in Italy, the increasing industry interest in the region and the material exploration and production opportunities that exist in the country, the Company continues to look for new ventures in Italy, primarily onshore and with a focus on discovered hydrocarbons.
Other
The Company's two other licence interests, offshore French Guiana and onshore southern Australia, are both non-core to the future of the business. The Company is in discussion with other industry parties with regard to the best way to monetise these interests.
Corporate and board change
The Company has undertaken a significant cost reduction programme in light of the changed industry environment. Key measures include a reduction in staff and contractors, a pay reduction for board and senior staff and a planned relocation of the office next month. The total general and administrative run rate for the group following this exercise and excluding the one off costs associated with the reorganisation will be approximately US$3 million per year. At this level of expenditure, the Company still maintains an operating team in Calgary, a subsurface capability in London and a part time contractor presence in Rome.
As part of the reduction in cost, it has been agreed that Stewart Gibson, a Non-executive Director of the Company, will step down from the Board with immediate effect. Stewart's wealth of technical skill and industry experience will be missed.
-Ends-
For further information please contact:
Northern Petroleum Plc Tel: +44 (0)20 7469 2900
Keith Bush, Chief Executive Officer
Nick Morgan, Finance Director
Westhouse Securities Limited (Nomad and Joint Broker) Tel: +44 (0)20 7601 6100
Alastair Stratton
Robert Finlay
FirstEnergy Capital LLP (Joint Broker) Tel: +44 (0)20 7448 0200
Jonathan Wright
David van Erp
Camarco Tel: +44 (0)20 3757 4980
Billy Clegg
Georgia Mann
Note to Editors:
Northern Petroleum is an oil and gas company focused on production led growth. The Company is undertaking a redevelopment and production project in north west Alberta and has a broader portfolio of exploration and appraisal opportunities in countries of relatively low political risk, primarily Italy. Comprehensive information on Northern Petroleum and its oil and gas operations, including press releases, annual reports and interim reports are available from Northern Petroleum's website: www.northernpetroleum.com