Rockpool Acqui Regulatory News (ROC)

27 Sep 2005 07:03

Roc Oil Company Limited27 September 2005 Roc Oil Company LimitedLevel 141 Market StSydney NSW 2000 Date of lodgement: 27-Sept-2005 Title: Open Briefing. Roc Oil. Operations & Exploration Update Record of interview: corporatefile.com.auRoc Oil Company Limited is currently developing four fields, appraising anotherfour fields and exploring aggressively. In the context of higher oil prices and higher industry costs, what is the current budget situation at the Cliff Head Oil Field Development Project offshore Western Australia? CEO John DoranCliff Head development costs are still on track to meet the budget of A$227 million. ROC and its co-venturers took their cost medicine relatively early when we announced that the development budget had increased to A$227 million atthe beginning of the year. Since then there has been no change in the firm cost estimate. The reasons for the increase in early 2005 were broadly similarto those that have subsequently caused an increase in the cost of other development projects around the world, including Chinguetti: mainly the cost ofservices and materials has increased. Perhaps, the only other thing to mention in relation to Cliff Head is that theJoint Venture is actively considering expanding the scope of the project in a manner which would allow it to recover more oil from the field than was previously anticipated. If this scenario makes economic sense we will collectively choose to increase the gross budget by around A$13 million in order to extract about one million more barrels of oil than would otherwise be recovered; currently those barrels are not included in the field's proved and probable reserves. Obviously this increase in scope and budget would only occur if it provided the Joint Venture with a net economic gain. corporatefile.com.auWoodside recently announced a cost increase at the Chinguetti Oil Field Development project, offshore Mauritania. How serious is this? CEO John DoranIt's not material to ROC. Given the hypothetical choice, ROC would prefer to be dealing with Chinguetti's current budget expectation and today's oil price rather than the original budget estimate and the oil price that prevailed at the time the Joint Venture approved the development The project is now estimated to cost up to US$750 million including various contingencies. That compares to the most recent previous estimate of about US$687 million: a 9% increase or US$2 million net to ROC. It's not that we're blase about cost overruns. Like every other company we hate cost overruns. Atthe moment, however, the reality of the oil business is that most field development projects around the world are coming in higher than their original budget forecast as the cost of materials and services increase due to a somewhat delayed response to the rise in oil prices. In our opinion the biggest problem facing the industry is not, as many might claim, a shortage ofskilled people, as much as rising costs. When viewed within a global context,including world oil prices, the latest cost increase at Chinguetti, although regrettable, is not serious. corporatefile.com.auAnd what about the other fields that the Woodside-led Mauritanian Joint Venturehas talked about developing? CEO John DoranTiof, the largest field discovered in the region to date, in terms of in-placeoil, is geologically more complex than Chinguetti and is spread out over a muchbigger area. These two factors mean that before any serious thought can be given to developing Tiof more appraisal studies need to be done. ROC doesn't carry any reserves for the field nor a forecast for when first production mightbe achieved. The bottom line with Tiof is that the Operator is actively studying the data and we don't expect to have a better view of the commercial potential of the field for another month or two. Any comment on the potential development and production of Tiof before this current study has been completedwould be premature. The other fields in Mauritania are very different in detail from Tiof, but theyare all at a broadly similar stage: they are being actively appraised and their commercial potential is being reviewed. Banda is certainly a large gas field with commercial potential, albeit in the medium to longer term. Tevet isa smaller oil field, but could perhaps be tied into Chinguetti subject to the final results of the exploration appraisal well that is currently being drilled.At the moment, the Pelican Gas Field in Dana Petroleum-operated Block 7, in thenorthern part of offshore Mauritania, is not considered to be commercial, but it certainly sends the signal that significant hydrocarbons are to be found in areas that are far removed from Chinguetti. corporatefile.com.auHow are Chinguetti and Cliff Head travelling in a timeline sense? CEO John DoranBoth are progressing reasonably well. Both are still currently on schedule todeliver first oil during the first quarter 2006, consistent with our forecasts.At the moment it's impossible to say exactly when first oil will flow becausealthough Chinguetti is approximately 90% complete and Cliff Head about 55% complete in terms of the non-drilling components of the development project, risk does not diminish in proportion to a project's progress. When you are developing offshore oil fields the development risk never goes away until the oil flows - and then you move straight into the world of production risk but, of course, you also produce a large amount of cash flow in the process! corporatefile.com.auCliff Head has emerged from your exploration portfolio as an important projectfor ROC. What do you now consider as ROC's core assets? Can you summarise theproduction potential from these areas? CEO John DoranROC has four core areas: UK, West Africa, Australasia and China. Our continuedaim is to high grade the most prospective parts of these areas in order to addvalue to the portfolio. This is a decidedly organic process. In the last coupleof years the results of our exploration and/or appraisal efforts and studieshave moved four fields to the top of the development agenda: Chinguetti, CliffHead, Blane and Enoch - the last two are North Sea fields scheduled to come ontoproduction during the second half of 2006. These are key areas for ROC's futureproduction potential. Beyond those four fields, and without reference to the high risk - high rewardwells referred to earlier, the area which currently seems to have the potentialto emerge as a very significant part of ROC's global portfolio is Angola wherewe are currently acquiring seismic in order to define prospects in the LowerCongo Basin which is, widely acknowledged as one of the great oil provinces ofthe world. corporatefile.com.auCan you summarise ROC's planned exploration and appraisal drilling programmeover the next few months? CEO John DoranROC expects to drill up to 11 exploration and appraisal wells during the next six months, subject to rig availability which is becoming an increasing challenge for virtually every oil company in the world. ROC's identified key wells include : Jacala-1 (January 2005) in the deep waterCarnarvon Basin, offshore Western Australia; Willows-1 (January-February 2005),onshore UK and Aleta-1, which ROC will operate in deep water offshore EquatorialGuinea as soon as a suitable rig is identified. All these wells fit into the high risk - very high reward category; success with any one of them would substantially increase the value of the Company. The balance of the drilling programme will target more modest, but potentiallysignificant prospects. Offshore Mauritania we're currently drilling the Tevet-2exploration/appraisal well which will be followed by at least three more exploration wells in that region. We also have several exploration wells scheduled for the offshore Perth Basin starting with Flying Foam (October-November 2005) some 230 km north of the Cliff Head Oil Field. That should be followed immediately by either Thornhill-1 or Franklin-1 with the exact choicebeing subject to an imminent Joint Venture decision. Thornhill-1 is 2 kmnortheast of the Cliff Head Field and would test a culmination up dip from the Mentelle-1 well which was drilled in 2003 and had oil shows in tight sands. Franklin-1 is 25 km north of Cliff Head and has a potential reserve capacity inthe order of 20 to 40 MMBO. The second phase of the offshore Perth Basin exploration drilling programme will be woven around the development drilling activities at Cliff Head which are expected to start in November 2005 and run through until March 2006. This later exploration phase will probably see three additional exploration/appraisal wells drilled in the area starting in March 2006 and continuing into the second quarter. Elsewhere, in early 2006, ROC is planning to drill an exploration well in the Beibu Gulf offshore China and a well in the onshore Taranaki Basin in New Zealand, although, in both these cases, it's proving difficult to contract a suitable rig at a reasonable rate. corporatefile.com.auHow will ROC fund this drilling programme? CEO John DoranThe entire exploration drilling programme - along with the Cliff Head and Chinguetti development projects - can be funded internally. This is primarily because of the sale of the Saltfleetby Gas Field in December 2004 and the proceeds of a Rights Issue in April-May 2004 undertaken at A$1.40/share. Although numerous wells are planned for the drilling programme, the overall netcost to ROC is less than might be expected. This is due to a combination of farmout and the small to modest equity positions ROC has in the deep water wellsoffshore Africa. The total net cost to ROC of the programme over the next six months may range up towards A$30 million if all 11 wells are drilled. We recently announced that we are in discussions with regard to the establishment of a US$60 million loan facility. Although we don't expect to significantly draw down on the facility in the immediate future, we see it as asensible way of managing our balance sheet. The single most expensive exploration well in terms of gross costs is likely tobe the Aleta-1 wildcat in deep water offshore Equatorial Guinea which will testa deep Cretaceous play. Fortunately, ROC is only required to contribute 3.75% to the cost of that well because out of our 18.75% interest in the permit 15% is free carried through the well as a result of a 2004 farmout. We won't know the exact cost of the Aleta well until we contract a rig, but its free carry means that ROC's share of the cost will be easily managed. In a more general sense, the gross cost of exploration wells offshore Mauritaniausually range from US$5 million to US$15 million. Because ROC's interest in these wells is between 2% and 5% they too can be readily funded from our cash balance. In the offshore Perth Basin exploration wells are less expensive, generally ranging from A$3 million to A$7 million. Therefore, although ROC's equity in these wells is usually in the 20% to 37.5% range, the net cost to ROC is still quite palatable. The mid to higher end of this cost range is roughly equivalentto the cost of a well offshore China where ROC has a 40% contributing interest. Even when you own the rig, drilling onshore UK can be relatively expensive - particularly when you also own 100% of the permit. Therefore, Willows-1 is likely to be the most expensive exploration well in terms of ROC's net expenditure at around US$5 million. corporatefile.com.auHow does the Willows prospect onshore UK compare with the Saltfleetby Gas Field? CEO John DoranWe're targeting a trap which has the capacity to contain 50 to 100 BCF of gas.In that sense, the prospect could be compared broadly to Saltfleetby which started out with a reserve estimate of 43 BCF, but ended up with reserves of 90 BCF. Geologically, Willows is quite different from Saltfleetby; because it's apartial stratigraphic trap involving very high quality reservoir sands in the Rotliegendes, a well established reservoir in the southern North Sea. Willows has been on our books for quite some time, but we couldn't advance it in the drilling sequence until we had secured access to the surface rights. We've nowdone that and we're preparing to start the well early next year. corporatefile.com.auYou previously raised the possibility of using fracture stimulation on some tight gas fields onshore UK. What's the status with that evaluation? CEO John DoranOver the last six months we've been taking a closer look at our onshore assetsin the UK, particularly in the light of progress we're making elsewhere in ourportfolio, including places such as Angola. As a result, the most we would expect to consider doing, apart from drilling Willows-1 in the foreseeable uture - and this isn't definite yet - is fraccing the Cloughton-1 gas discovery,which is in the same permit as Willows. Even if we do that it will probably not be until the middle or later part of next year at the earliest because Willow-1 will satisfy the relevant permit work commitment for some considerabletime. The basic trend is that our potential tight gas activity onshore UK is becoming subordinate to our pure exploration activities in, for example, Angola.It's all a matter of priorities and where best to deploy discretionary expenditure as we keep upgrading our portfolio. corporatefile.com.auOver in China you're undertaking a pre-development study of the offshore Wei-12-8 West Field. Can you reiterate your exploration strategy in China? Why are you continuing to explore when several discoveries have been made, butnone have been clearly commercial? CEO John DoranROC's situation offshore China is simple - what happens depends on getting a commercially satisfactory result from our discussions with the regional subsidiary of the China National Offshore Oil Corporation ("CNOOC"), one of thethree large oil companies owned by the Chinese Government. These discussions relate to the potential development of the Wei-12-8 West Field via existing facilities owned by CNOOC's subsidiary. If we can agree terms that will allow us to access the infrastructure on a commercially acceptable basis we would moveto develop the field. If we can't agree acceptable access terms then there really is no way that we can develop the Wei-12-8 West field unless we have moreexploration success in the block. ROC's exploration strategy in China has remained unchanged since we first wentinto that country in 2002. We want to identify and hopefully develop individualfields that, although perhaps modest in size, could be collectively significantto ROC. So far, results have been mixed. We've discovered one small field andconfirmed a significant amount of viscous in-place oil in another field which isbeing actively reviewed in the light of the strong oil prices. More recentlywe've identified some additional exploration plays near our 2002 oil discovery,one of which was originally scheduled for drilling in October, but has slippedto first quarter 2006 because we've had difficulties contracting a suitable rigat a reasonable price. corporatefile.com.auJust on Angola - it has a relatively low profile within your portfolio at the moment, but it seems you're increasingly optimistic about your activities there.Could you bring us up to date? CEO John DoranPrior to activating the pre-agreed Production Sharing Contract we deliberately took some time to get to know our onshore block in Angola where we have a 60% interest and Operatorship. In June 2005, we started a large 2D and 3D seismic programme which is scheduledto be completed in October or November this year, subject to the onset of the wet season. At the moment, we're satisfied with the survey's progress and if itcontinues like this we should end up with about 550 km of 2D data and 160 sq kmof 3D data, the quality of which, as far as we can tell from the early test results, will be good to excellent. Not only is this seismic activity a very important corporate milestone for ROC,but it also represents the return of exploration activity to onshore Angola after an absence of more than 30 years. We're the only publicly-listed companyactively exploring on the ground in Angola and we consider ourselves privilegedto be there. corporatefile.com.auThank you John.--------------------------------------------------------------------------------For further information on ROC please visit www.rocoil.com.au or call John Doranon +61 (0)2 8356 2000. 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