ASX Companies Announcement Office
11 October 2012
KENYA L8 - MBAWA DISCOVERY PRELIMINARY UPDATE
· Natural gas discovery - first ever hydrocarbon discovery offshore Kenya
· Gas recovered from the discovery zone is interpreted to be thermogenic and derived from a possible Type II mixed gas / oil source rock
· Traces of dull fluorescence remain to be analysed and interpreted
· Mbawa 1 drilled ahead of schedule and left in a condition allowing re-entry at a later date
· Analysis of samples and data from drilling is ongoing
· The forward work programme is being considered in the light of the Mbawa results
Pancontinental Oil & Gas NL (“Pancontinental”) ispleased to provide a summary of the interim results from the Mbawa 1 discovery well drilled offshore Kenya. The extensive collection of data and samples from the well is undergoing detailed analysis and this will continue into 2013. The volumetric parameters and commercial aspects of the discovery have yet to be definitively ascertained.
The Mbawa Prospect is one of various prospects in the L8 licence area and the first to be drilled out of numerous prospects and leads in Pancontinental’s four licence areas offshore Kenya.
Mbawa 1 Well - Operations
The Mbawa 1 exploration well was spudded by the drillship Deepsea Metro 1 on 10 August 2012 and drilled to a TD of 3,150m MD. This is the first well on the large Mbawa Prospect in area L8 offshore Kenya (Apache Corporation 50%, Origin Energy 20%, Pancontinental 15%, Tullow Oil 15%). The well was plugged and abandoned according to the drilling programme and has been left in a state that allows re-entry.
Operator Apache Corporation (“Apache”) completed well operations in 47 days, being 13 days ahead of schedule.
Interim Results & Preliminary Interpretation
Preliminary interpretation of the Mbawa 1 results has been given tothe L8 joint venture by the operator Apache.
Mbawa 1 tested a faulted four- way dip closure at the southern end of the larger north-south trending four-way closed sub-regional Mbawa Prospect of 160 sq km(40,000 acre). The primary target was the Upper Cretaceous turbidite sandstone interval. Secondary objectives were Eocene and Middle Cretaceous turbidite reservoirs.
At the primary target level, 51.8 net metres (~170 feet) of natural gas pay were encountered in three zones of Upper Cretaceous channel and turbidite sandstones. Porosities were very favourable at an average ofapproximately 24%. The discovery was on a single localised structural culmination on the southern extremity of the overall Mbawa Prospect and the potential of the remainder of the structure remains to be assessed in the light of the Mbawa results.
The well was designed to optimallytest the shallower Upper Cretaceous discovery target, however it was not possible toalso optimally test the deeper secondary Middle Cretaceous target. The deeper target remains to be properly tested and Pancontinental believes that this, as well as other prospects of this play type, and the Mbawa discovery play type itself still hold considerable potential in the Mbawa vicinity, elsewhere in the L8 area, and regionally.
Fluid samples, pressure measurements, electronic logs and sidewalls cores were taken while drilling and these continue to be analysed and interpreted.
The significance of traces of dull fluorescence seen while drilling will be further interpreted once samples have been fully analysed.
Gas recovered from the discovery zone is interpreted to be thermogenic and derived from a possible Type II mixed gas / oil source rock. The extent and age of this source rock is subject to further analysis. Pancontinental believes that this very encouraging finding means that the potential for oil discoveries remains open and there may also be further extensive hydrocarbon resources both locally and regionally.
What Has Been Achieved
The Mbawa 1 discovery well has:
·Proven a working hydrocarbon system offshore Kenya in the Cretaceous; this has opened a new hydrocarbon region offshore East Africa.
·Made an important gas discovery. The volume of gas discovered and the follow-up potential remain to be determined by ongoing work.
·Provided evidence supporting a thermogenic origin of the gas from an interpreted mature Type II (gas / oil) source. Traces of fluorescence was seen, and the importance of this remains to be determined.
·Reversed the earlier perception created by the results of the Pombo 1 well drilled by Woodside Energy in 2007 that there was no source rock offshore Kenya.
·In Pancontinental’s opinion, upgraded major regional play types for further exploration and highlighted the potential of all of Pancontinental’s Kenyan acreage.
Size and Potential Commerciality of the Mbawa 1 Gas Discovery
Volumetric estimates of the Mbawa discovery remain within a considerable range and are subject to ongoing evaluation.
The size of the gas discovery onthe southern culmination of the Mbawa structure continues to be evaluated, as well as the follow - up potential in other culminations on the Mbawa structure and the potential in nearby structures. The commercial potential (if any) of the overall structure at the discovery depth also continues to be evaluated.
Commerciality is rarely defined from the outcome ofone discovery well in isolation in a frontier basin. Revised technical studies and, if warranted, further drilling andappraisal work are required to define a resource and to determine the commercial potential (if any) of that resource with confidence.
L8 - Forward Exploration Programme
The large amount of technical data gathered during Mbawa drilling is now being processed and assessed. It will be integrated into previous exploration models.
Although no firm decision to drill a second well has yet been made, the Mbawa 3D seismic survey and the more recent Nanaa 3D surveyareas are currently the prime areas of consideration.
The Tai Prospect is one of the main prospects under consideration. The Tai Sands of interpreted Middle Cretaceous age are deeper than the sands at the discovery level in Mbawa 1 and are considered to potentially be in a separate petroleum system.
The Bigger Picture Offshore Kenya
The Mbawa Prospect is one of a number of prospects at differentgeological levels in the L8 area and the first to be drilled out of numerous prospects and leads in Pancontinental’s four licence areas offshore Kenya.
The Mbawa gas discovery establishes the existence of a working hydrocarbon system offshore Kenya. The source material of the gas is interpreted to be a thermally mature mixed gas and oil-prone source and this means that oil may also have been generated at some time from the same source rock. With the Mbawa 1 gas discovery and the proving of a working hydrocarbon system, Pancontinental believes that the next 12-18 months will be a defining period of oil and gas exploration offshore Kenya.
Pancontinental has participated in four 3D surveys offshore Kenyan and these have generated numerous Prospects and Leads. Another 3D surveyis planned in the L10 Blocks in November 2012.
Pancontinental is well funded for exposure to up to4 offshore Kenya wells directly (1 well depends on the completion of farmout in Block L6)and up to 4 wells offshore Kenya indirectly (wells by other companies) over the coming 12-18 months.
The above timetable is indicative only. More accurate timing of activities will be determined when government approvals, availability of rigsand seismic vessels are confirmed (where necessary). Regional activity has been estimated using company announcements and is not intended to provide a comprehensive review of all regional activity.
Mr Barry Rushworth, CEO and Director of Pancontinental commented:
“The Mbawa discovery is a great start to our Kenya drilling and we are extremely pleased to have made the historic first-ever discovery offshore Kenya. The opportunity to discover oil has by no means been dispelled by finding gas at Mbawa. Trace fluorescence seen in Mbawa may be a significant clue and it is being closely examined.
Much work has commenced on evaluating the Mbawa discovery and determining what it means for future exploration. We believethat we have only just seen the beginning of the first wave of discoveries offshore Kenya.
We are in an exciting stage for oil and gas exploration in Kenya, particularlyconsidering that we are operating in East Africa where success rates are as high as 80%. The string of world class discoveries further south offshore Mozambique and Tanzania started ina similar way to our first Kenyan discovery and we have good reason to be extremely enthusiastic aboutthe future here.
As in virtually all frontier areas, the first discovery paves the way for much better informed, and often more successful, future exploration. We see Mbawa, the numerous other prospects and the diversity of play types as a multi-layered series of opportunities in both L8 and our three other Kenyan areas and we are confident these will grow and mature as exploration continues.
Oil remains our prime focus offshore Kenya and this has not been diminished by discovering gas in Mbawa.
Pancontinental holds a unique position in two of the newest oil and gas frontiers globally [Kenya and Namibia], where both regions are on the cusp of game-changing drilling programmes. With approximately $40 million in cash Pancontinental is well positioned for an exciting 12-18 months ahead”.
See Pancontinental's website for more details;
http://www.pancon.com.au/