estseon - 27 Jan'09 - 20:21 - 49757 of 49757
The Sugarkane Field was discovered with the Kunde-1 well which started producing in September 2006 and is a unique Austin Chalk formation that lies some 20 km south of the main Texas Austin Chalk trend. In the early stages of appraisal the field is exhibiting many characteristics that are superior to the classic Austin Chalk fields such as the nearby Giddings and Pearsall fields that have produced over 5 tcf of gas and 600 million barrels of oil. Notably, the Sugarkane field is over pressured, has a higher porosity and a higher condensate to gas ratio to the classic Austin Chalk fields.
The Sugarkane Field covers an identified area exceeding 200,000, acres with potential gross reserves estimated at greater than 3 tcf of gas and 700 million barrels of condensate making it potentially one of the largest undeveloped gas and condensate fields within North America.
That said, it would be wrong to walk away with the idea that a company or consortium is going to hit a gusher or huge elephant field which will immediately be company- making. These are “tight” fields which often need special techniques like fracture stimulation or underbalanced drilling to get the gas or condensate up. The work isn’t easy. Operators must drill long horizontal sections through the fractured chalk fields to deliver best production rates, and as evidenced by the recent Kowalik-1H there needs to be not just stimulation but also laborious clean up operations to get the best results.
The point about this kind of operation is that a successful well can yield upwards of 1 million cubic feet of gas. This is more than enough to keep the lights on, as the saying goes in the industry. The name of the game is the number of wells -- drill enough successful wells and you build up a very successful cash flow business. The operation is suitable for small groups as well as mid caps because it is low risk. Some joint venturers have talked of drilling between 60 and 100 wells to spread this risk.
Aussie group Aurora, which holds interests in three separate project (AMI) areas within the Sugarkane Field, including the Sugarloaf Area, with a combined gross land position of 52,189 acres ( 20,561 acres net to Aurora before royalty interests), is the most recent company to give an operations update. Before we move on to that though, it is perhaps important to point out that not only are the fields fractured; so are the holdings in them.
Take Empyrean’s involvement in the Sugarloaf prospect. This is complex and you need to be bright eyed and bushy tailed, with not too much drink taken, easily to follow it. The prospect is divided into Block A and Block B. Empyrean has a 6 per cent interest in Block B, and an extra 12 per cent interest in a series of 16 wells that end up on Block B. A yet- to- be-determined number of these 16 wells will be drilled on Block A and Empyrean has a 7.5 interest in Block A, but it is not clear that this 7.5 interest will be continued after the 16 well series is drilled, even though Empyrean has talked of at least 44 wells on the prospect. Still with me? Good. It gets more convoluted.
Empyrean works with Texas Crude Energy (TCEI) as operator. Last November the operator gave us news of the Kennedy # 1 well on Block B and the Kowalik #2 well on Block A. Here it gets a bit confusing because there was at the time a Kowalik #1H well extant on Block A. So not only are the holdings fractured you have to think in terms of different wells for different zones maybe, and zones running across the blocks.
Cutting through the zones and revenue holdings, the situation looks like this: Empyrean and its partners had two successful wells on Sugarloaf A-1 and A-3 . A-3 last April saw the company’s shares surge 90 per cent because the TCEI JV Block A-3 well flowed at 1.9 million cubic feet of gas a day and over 460 barrels of condensate a day. At 6000 cubic feet to a barrel of oil this means over 4 million cubic feet a day, about 4.3 million cubic feet a day in fact.
The Kennedy #1H well on B flowed at 200,000 cubic feet a day and 60 barrels of condensate giving 560,000 cubic feet in all. In November 2008 TCEI advised the Kowalik 1H well produced over a 24 hour period 937,000 cubic feet of gas, 321 barrels of oil and 14 barrels of water , namely some 1.8 million cubic feet of gas equivalent a day. This would mean a total of 6.6 million cubic feet a day of gas equivalent; a substantial volume which could easily be tied into the local infrastructure and presumably be quickly monestised. Of course not all of this would be net to Empyrean.
When those of us interested in trying to work out what it all meant broker Blue Oar came galloping to the rescue, with some back-of -the envelope calculations. Blue Oar reckoned that on the data available last November the recoverable amount of hydrocarbons net to Empyrean from Sugarloaf was 32 billion cfe.
Assume a ten year life of the field ( this may not be correct) and divide by the number of days in a year and you get output in the region of 8 million cfe/d, assuming Empyrean continued to have drilling success, and worked the field for all it was worth.. These are crude figures but add in some more guesstimates and assume a price of US$ 10 per 1000 cubic feet for the gas at that time, the cash flow began to look very appealing for a small company; something like US$ 80,000 a day or over US$2.4 million a month give or take.
So we come to Aurora. With its three separate project (AMI) areas within the Sugarloaf Field, there is a 50 per cent stake in the Longhorn Area, a 80 per cent interest in the Ipanema Area and the 20 per cent holding in Sugarloaf. There have been nine exploration and appraisal wells drilled into the targeted Austin Chalk formation since discovery. Three of these wells are within Aurora’s area of interest and six wells have been drilled in an area adjacent to Aurora’s. There are more wells underway. We know what the three wells in Aurora’s areas have done, for it is they, the Kennedy #1H, the Sugarloaf #1 well and the Kowalik #1H well.
We now have a report on a new well the Weston #1H well. Its partners here include Eureka Energy with 12.5 per cent and Adelphi Energy with 20 per cent. Aurora says it has been advised by the operator TCEI that as of January 20 the well had reached a depth of 14,978 ft. Gas readings increased since entering the chalk with a maximum daily average reading of 3100 gas units. Minor flares have been observed. To put t in perspective this gas unit reading was in excess at that shown in the Kennedy #1 well. So Aurora looks as if it is on the way to another successful well. All in all it seems as if it is in for a 20 per cent stake in 3 to 4 million cubic feet of gas equivalent a day. It is some way behind Empyrean, but, it too, plans dozens of wells. It too should be able to build a substantial cash cow business even if gas prices are not quite what they were.