Predator Oil & Gas Holdings Plc (LON:PRD), the Jersey-based Oil and Gas Company, today provided the following update on its progress onshore Trinidad and offshore Ireland.
Highlights
· Amended Well Participation Agreement defers Predator’s participation in infill drilling for 12 months, subject to regulatory approval, in Inniss-Trinity to focus on accelerating commercially more attractive C02 EOR;
· C02 EOR to assess several areas of Inniss-Trinity including one with approximately 3.1 million barrels of undeveloped oil, identified by the previous operator Texaco;
· Heads of Agreement executed with C02 Supplier giving exclusivity to the Company until 31 August 2018 to negotiate Gas Sales Agreement for minimum daily delivery of 60 metric tonnes of C02;
· Up to 150,000 barrels oil is the target for the first year of full EOR production compared to 9,125 barrels of oil for one infill development well;
· C02 EOR operations to be carried out over the next 9 months with regular monitoring and reporting of any incremental production;
· Agreed to extend the option for PREDATOR to acquire FRAM until 30 June 2019;
· Initial planning has commenced for the 18/25-3 Corrib South exploration well in 2020, subject to the award of the Frontier Exploration Licence that has, as previously announced, been applied for;
· Confidentiality Agreements executed with several potential 18/25-3 drilling partners;
· The 18/25-3 well will target High Estimate Prospective Resources Case of 904 bcf recoverable (452 bcf net to Predator) with a 30% Chance of Success.
Onshore Trinidad – Inniss-Trinity oil field
Rationale for Deferring the Infill Development Drilling Programme
The operator of the Inniss-Trinity Incremental Production Services Contract, FRAM Exploration (Trinidad) Ltd. (“FRAM”), a subsidiary of Steeldrum Oil Company Inc. and Predator have amended their Well Participation Agreement dated 17 November 2017 to defer Predator’s participation, subject to regulatory approval, in the infill development drilling operations in the Inniss-Trinity oil field by 12 months to focus on Enhanced Oil Recovery assisted by carbon dioxide injection (“C02 EOR”).
CO2 EOR operations are considered by all stakeholders to potentially be commercially more attractive and to offer the possibility of higher returns for investors for approximately the same amount of existing Predator capital as would have been deployed for executing the infill drilling programme.
Accelerating a C02 EOR Pilot was always the primary objective of the Company as a means of uplifting production rates compared to the expensive deployment of capital for limited production potential from low pressure, “exhausted”, reservoirs in the mature Inniss-Trinity oil field.
Main Terms of Amended Well Participation Agreement Dated 30 July 2018
The main terms of the amended Well Participation Agreement are as follows:
· Extension of Option to Acquire FRAM
The Option for Predator to acquire FRAM under the Well Participation Agreement, subject to regulatory approvals, dated 17 November 2017 has been extended as a result of the amended Well Participation Agreement to 30 June 2019. This reflects the mutually agreed preferred focus on acceleration of C02 EOR operations and takes into account Columbus Energy’s proposed acquisition of Steeldrum Oil Company Inc.., the owners of FRAM, as previously announced by Columbus on 13 July 2018
· Predator will no longer have an option to acquire Cory Moruga Holdings Ltd.;
· On or before 31 August 2018 the Company to commence planning, preparation and execution of a Pilot Enhanced Oil Recovery Project using injected carbon dioxide (“Pilot CO2 EOR”);
· Pilot C02 EOR is subject to the following Conditions Precedent:
1. Receipt of any necessary permits and authorisations for CO2 EOR
2. Extension of the current expiry date of the Incremental Production Services Contract (“IPSC”) to 31 January 2022;
3. Regulatory approval to defer by one year FRAM’s current drilling obligations to allow for the CO2 EOR Pilot to be executed and a minimum of 3 months of C02 to be injected;
· Subject to receipt of any necessary permits, authorisations and approvals, Pilot CO2 EOR operations to commence on or before 31 October 2018 but in no event later than 31 January 2019;
· An AFE for the re-entry of two existing wells for CO2 injection and incremental oil production off-take has been approved by the Company and FRAM;
· Predator shall fund the cost of acquiring and upgrading surface facilities for Pilot C02 EOR operations and the supply of a minimum of 5,400 metric tonnes of C02 to the C02 injector well;
· Predator shall fund all costs associated with the initial phase of Pilot C02 EOR operations up to a maximum Consideration Cap of USD 800,000;
· Subject to a successful Pilot C02 EOR, the extension of the IPSC to 31 January 2022 and the Company’s Pilot C02 EOR economics, Predator shall fund the cost of expanding C02 EOR operations up to a maximum Consideration Cap of USD 700,000;
· Predator shall have an Exclusive Option for a minimum period of 6 months from 30 August 2018, and to be renewed each and every year thereafter at Predator’s sole discretion, whereby Predator can increased the Consideration Cap to fund the cost of any form of EOR operations in Inniss-Trinity, depending on the results of the C02 EOR Pilot, the availability of sufficient volumes of C02, the extension of the IPSC and project economics;
· The commercial terms under the amended Well Participation Agreement remain as defined in the Well Participation Agreement dated 17 November 2017.
Rationale for Pilot C02 EOR
Predator has over the last two months completed its analysis of the currently available C02 supply in Trinidad and determined that gas composition, deliverable volumes and required logistics are sufficient to support the execution of Pilot C02 EOR operations. Potential C02 supply characteristics have been matched to several areas of the Inniss-Trinity oil field that are considered to be geologically suited to C02 EOR operations and to have had a previous production history that is interpreted as offering greater potential for higher production rates compared to other parts of the oil field.
Since the execution of the Well Participation Agreement dated 17 November 2017 West Texas Oil price has increased from US$56.55 to 68.26/brl (24 July 2018). This has helped to improve C02 EOR economics given the higher operating costs involved in purchasing and injecting C02.
One of several areas identified for Pilot C02 EOR operations, according to Texaco, the previous operator, identified approximately 3.1 million barrels of undeveloped oil and forecast 653,000 barrels of potential incremental recovery by applying secondary EOR techniques.
Texaco previously forecast an initial yearly production rate of greater than 150,000 barrels of oil for EOR operations in this area, but this assumed no benefit whatsoever from also injecting C02, as is currently proposed by Predator.
By comparison FRAM now estimate just 9,125 barrels of oil in the first year of production for drilling the first new infill development well in the previously proposed drilling programme.
Whilst infill development drilling can provide accelerated cash flow from immediate production, cash flow from C02 EOR operations can be significantly delayed as injection into existing wells of C02 can take a significant amount of time before incremental production from the reservoir can be achieved as a consequence of the gradual displacement of oil by C02 towards the offset production wells. The Pilot C02 EOR is therefore designed to determine the response time, following C02 injection into the reservoir, for incremental oil production to commence in offtake production wells.
Pilot C02 EOR operations will be carried out over the next 9 months by injecting approximately 5,400 metric tonnes at a higher injection pressure than the current reservoir pressure. During this period injection parameters will be varied and any corresponding increase in incremental oil production will be regularly assessed and reported via an operational update. The commercial model for C02 EOR will be updated based on the periodic monitoring of incremental production rates.
C02 Supply Contract
The Company has entered into a Heads of Agreement (“HOA”) with a local C02 Supplier to enter into a Gas Sales Agreement by 31 August 2018 on commercial terms mutually acceptable to the Company and the C02 Supplier.
The main terms of the HOA are as follows:
· Minimum daily delivery of C02 of 60 metric tonnes;
· Start-up date for first C02 deliveries to Inniss Trinity field 1 November 2018;
· Initial Term 12 months;
· The Company has a right to extend initial term by 12 months (“Subsequent Term”);
· The Company has a right to extend Subsequent Term by 12 months;
· The Company has an option to take all or any part of C02 supply greater than the minimum daily delivery rate of 60 metric tonnes;
· C02 purity not less than 99%;
· Exclusivity Period to 31 August 2018 to negotiate commercial terms.
Offshore Ireland
Licensing Option 16/26 Corrib South Gas Prospect
As previously announced an application has been made by Predator for a Frontier Exploration Licence, a Successor Authorisation to Licensing Option 16/26.
Confidentiality Agreements have been executed with several potential 18/25-3 drilling partners based on the Company’s selection strategy of targeting only those companies where the commercial rational for a subsea tie-back to the Corrib gas field in the event of a gas discovery at Corrib South is clearly understood and appreciated. Sufficient progress is being made to warrant the Company commencing initial planning for the 18/25-3 Corrib South exploration well to ensure that all regulatory consents and approvals are in place for drilling to start in 2020, subject to the award of the Frontier Exploration Licence.
The Corrib South gas prospect lies just 18 kilometres from the Corrib gas field subsea infrastructure.
The 18/25-3 well would target the Triassic Sherwood sandstone, the Corrib gas field reservoir that was delivering an average of 345 mm cfgpd through Q1 to Q3 2017. Corrib South is interpreted by the Company to be located in a geological structure that has strong similarities with that hosting the gas in the Corrib field.
In the Best Estimate (equivalent to 2P) and High Estimate Cases the Prospective Gas Resources are 424 bcf recoverable (212 bcf net to Predator) and 904 bcf recoverable (452 bcf net to Predator) with a 30% Chance of Success, based on Predator’s Competent Person’s Report by SLR Consulting in the Predator Admission Prospectus. In the High Estimate Case Corrib South is considered by the Company to be similar in size to the Corrib gas field structure.
Future work will be focussed on potentially de-risking the High Estimate Prospective Gas Resources and updating the Competent Person’s Report to reflect the results of this work.
Paul Griffiths, Chief Executive of Predator Oil & Gas Holdings Plc, commented: “We are pleased to confirm steady, step-by-step, progress towards developing our growth strategy in Trinidad using a rational and carefully calculated approach to optimise production potential in line with prudently investing our existing working capital for maximum benefit. Offshore Ireland we are excited about the potential of the Corrib South gas prospect which, rather uniquely for the Atlantic margin of Ireland, has the potential for early monetisation in a success case. We continue to liaise with interested potential co-venture partners and are optimistic regarding the formation of a drilling consortium to drill, subject to all required regulatory approvals and the award of a Frontier Exploration Licence, in 2020.”
Geoffrey Leid, Executive Chairman of Steeldrum Oil Company Inc., commented: “We are delighted to be working with Predator to develop C02 EOR operations in the Inniss-Trinity oil field. This will be the first C02 EOR pilot project to target lighter oil. Upscaling a successful result would have significant implications for further developing onshore Trinidad’s remaining oil reserves in its mature producing fields.”
