Borders & Southern (AIM: BOR), a London based independent oil and gas exploration company, provides an update on its activities in the South Falkland Basin.
Since the completion of its 2012 drilling campaign the Company has undertaken a number of technical and commercial studies. Whilst a number of these studies are still in progress, some of the initial key findings are summarised below. Particular emphasis is placed on the Darwin discovery.
In April last year, Borders & Southern announced that it had made a significant gas condensate discovery with its first well in the South Falkland Basin. The Darwin structure comprises two adjacent tilted fault blocks: Darwin East (which contains the discovery well 61/17-1) and Darwin West (untested). The fault blocks are clearly defined by high quality 3D seismic data. Fluid analysis has revealed that the discovery contains a relatively high liquid content. Initial reservoir engineering studies, suggested that 130 to 250 million barrels of liquid could be recovered, with a mid case of 190 million barrels (split almost equally between the two fault blocks). Subsequent studies have shown that, if there is strong aquifer support, the mid case could be as high as 210 million barrels. The reservoir engineering study has also demonstrated that more liquid could be recovered by gas recycling than by gas depletion.
As previously reported, Darwin has a good quality, quartz rich, sandstone reservoir. Net pay in the discovery well was determined as 67.8m, with porosity up to 30%, averaging 22%. The reservoir consists of one major sand unit that extends across the two fault blocks and is clearly represented by amplitude anomalies on 3D seismic. Whilst the discovery well was not tested, analysis of the reservoir parameters suggests that individual sustained well flow rates of up to 70 MMscf/d (gas) and 9,500 stb/d (condensate) could be achieved. Furthermore, the modelling suggests that each of the fault blocks, Darwin East and West, could be produced using 3 production wells and 2 gas reinjection wells (10 wells in total).
A geochemical analysis of the condensate liquid has been undertaken along with a screening level marketing study. Whilst the quantity of condensate available for analysis was limited, and further analysis will be required, preliminary observations indicate that the liquid is typical of an ultra-light crude oil and somewhat heavier than most condensates (API gravity of 44.5 to 49°). A comparison product, albeit slightly lighter, would be Alba condensate, produced in Equatorial Guinea. Closest potential markets for the condensate would be South America, the Caribbean and South Africa. Based on this initial study, the Company believes that the condensate might trade at a slight discount to the Brent crude oil benchmark price ($1 to $6 per barrel).
In Q4, 2012 the Company commissioned E & P, part of the ThyssenKrupp Group, to undertake a screening feasibility study. The objectives were to determine if the development of Darwin East and West would be technically viable and to provide some high level cost estimates for an economic model. The conclusion of the study was that Darwin East and Darwin West are technically viable as stand alone developments, phased developments or combined in parallel development. Despite a relatively harsh environment and lack of local infrastructure, there is sufficient confidence in current proven technology to develop the discovery. The study concluded that the most likely development option would be subsea wells tied back to an FPSO for processing and storage of the condensate whilst re-injecting gas back into the reservoir to maximise liquids recovery. The integral storage offered by an FPSO allows condensate to be offloaded to shuttle tankers for export. It has been estimated that a development of this type would take three years from project sanction to first production.
Numerous production profiles and cases have been considered, including Darwin East as a stand-alone development (with production levels up to 28,300 barrels per day) and Darwin East and West as a combined development (with up to 56,600 barrels per day). Facilities capital expenditure estimates for a Darwin East stand-alone development, including a 40% contingency, are $2.73 billion if the FPSO is purchased or $1.585 billion if the FPSO is leased. Capital expenditure estimates for a combined Darwin East and West development, again with 40% contingency, are $3.77 billion (FPSO purchased) and $2.435 billion (FPSO leased).
Economic modelling, undertaken by an independent consultant, has shown that a 200 million barrel development project would be commercial at an oil price as low as $65/barrel. It has also shown that a 100 million barrel development project could be commercial, but requires an oil price of at least $85/barrel. Leasing the FPSO delivers a higher economic return. Using an oil price of $100/barrel with a $1/barrel discount and including a 40% capital expenditure and operating expenditure contingency, a 200 million barrel development could yield a net present value (at a 10% discount rate) of $1.7 billion.
Having determined that a gas condensate development to the south of the Falkland Islands is both technically and commercially feasible, the next step for the Company is to prove up the recoverable volumes in its discovery with appraisal drilling and to confirm the predicted well flow rates with a well test. Due to the high confidence levels in the geophysical attributes, the appraisal drilling is considered to be relatively low risk. The Company is currently reviewing the rig market for the next drilling campaign.
Biomarker analysis of the condensate indicates that it was derived from marine source rocks of Cretaceous or younger age. Stable carbon isotope analysis of the gas has shown that it is an oil-associated gas, which has been derived from a source interval that is more mature than the source for the condensate liquid.
Source rock quality was assessed for all stratigraphic intervals encountered in well 61/17-1. Source rocks of fair quality were noted in the Tertiary and good quality in the Aptian. Total organic carbon (TOC) increased towards the base of the well, with the richest source rocks occurring directly above and below the Darwin reservoir. Organic matter is described as type II and type III, indicating a mixed potential for oil and gas generation.
Vitrinite reflectance data indicates that the source rocks encountered in the well are immature. It suggests that oil-prone source rocks would be mature approximately 320m below the base of the well (3,200m below seabed). This is in line with the Company's pre-drill understanding of source rock maturity. Based on the Company's regional evaluation, Early Cretaceous (and possibly Late Jurassic) oil prone source rocks are thought to be present in the undrilled section below the base of the Darwin well. This hypothesis can be tested on future exploration wells.
The impact of all this new geochemical information is that there is likely to be a range of source rock types, quality and maturity levels in Borders & Southern's acreage and we might expect oil, gas and condensate in future discoveries.
The reservoir encountered in the Darwin discovery well is interpreted to be shallow marine sandstone comprising predominantly quartz, but with some feldspar, lithic fragments and clays. Biostratigraphy indicates that it is Aptian (Early Cretaceous) in age. Regional mapping of this sand rich sequence suggests that it is best developed towards the south / south-east of the Falkland Islands. Borders & Southern's acreage is ideally positioned to exploit this reservoir fairway. The Company's prospect inventory contains nine prospects within this fairway (prospect sizes in the range 120-720 million barrels recoverable) along with several other leads. Many of the prospects are considered to be low to moderate risk and are located close (3 to 10 km) to the Darwin discovery. In addition to these Early Cretaceous prospects, the Company's prospect inventory contains numerous Late Cretaceous and Tertiary prospects.
Current and Future Activity
With a focus on Early Cretaceous plays, two major projects will shortly be initiated: reprocessing of the entire 2008 3D seismic survey and the acquisition of approximately 1100 sq.km. of new 3D seismic. Acquisition is anticipated to commence in mid February. The two surveys will be merged to assist with the interpretation of the key play fairways and the maturation of the prospect portfolio.
Borders & Southern is currently inviting interested companies to a data room with the aim of gaining a partner prior to the next drilling campaign. An update will be provided later in the year.
Chief Executive Howard Obee commented:
"I am delighted with the Company's progress to date and extremely grateful to all those that have contributed to our success. We have a portfolio containing a very attractive discovery along with an exploration prospect inventory of quality and depth. The Company is now moving into an exciting new phase, as we look to appraise the discovery and add to the discovered resources through further exploration".