In the past 12 months, Central Petroleum Limited (formerly Merlin Petroleum) has undergone major changes in the last year. In addition to the name change, made to reflect the company’s area of focus, there have been changes to the board. New board members include Chairman Dr Henry Askin, who was exploration manager for Shell Development (Australia) from 1990 to 1997 and also headed the Shell International seismic analysis unit in the Hague for three years, as well as Bill Dunmore, a production-based reservoir engineering specialist who has spent a considerable time as a consultant to banks in merger and acquisition analysis.

The company has also pulled out of all of the farm-in deals it had in the Cooper Basin. “We spent a lot of money in attempting to list the combined farm-in deals that we had last year in the Pedirka and Cooper basins as Merlin [Petroleum]”, said Mr Heugh adding they were stymied due to timing issues centred around the farmin deals as well as the London market as a dual listing was attempted. “We felt that we could do better and have negotiated a package deal over practically the entire Amadeus Basin, which surrounds the producing Palm Valley and Mereenie fields … once Australia’s biggest onshore mainland reserves. Subject to the listing of the company, we will be acquiring the whole of the issued shares of two other companies that have the rights over about 85% of the Amadeus Basin, so we’re picking up a package, subject to listing, of about 80,000 km2 with two appraisal prospects which have been previously drilled and returned gas to surface as well as a large number of other prospects and leads including the Johnstone oil prospect, targeting Pacoota Sandstone with recoverable numbers of 112 MMbbl upside potential .”

“At this stage we are primarily an exploration company but want to get into production as soon as we can,” he stated about the company’s current acreage, adding that Central is also open to picking up a producing reserve-based asset by acquisition as well as appraisal and exploration. “We would have preferred to have done that before we got to the prospectus stage, but there’s a lot of competition out there for producing assets – they don’t come cheap … With the previous board we were restricted in vision for the acquisition of a reserve-based asset in Australia. They felt that it wasn’t appropriate for the company to get involved in overseas operations, but now with the board we’ve got, although focussed on central Australia, we would no longer restrict ourselves to the Australian scenario if an appropriate reserve based asset became available at the right price.” Mr Heugh said Central would consider acquiring such an asset anywhere in the world provided the price is right and the sovereign risk is low, listing Australia, Europe, North America and Canada as potential areas of interest.
Central intends to raise enough funds (around $20 million Q3 calendar 2005) to drill no less than six wells over the next two years. The company has a capital raising planned for imminent release, and a strategy to initially drill three large oil prospects to help develop an early cash-flow.

Acreage

Amadeus Basin

”The Amadeus Basin is one of the most underexplored [producing] basins in Australia”, stated Mr Heugh. “On our web site we have a comparison of the Cooper, Surat, Perth, Carnarvon and Amadeus basins, which shows that the Amadeus is second in average success rate for hydrocarbons discovered per exploration wells. The Carnarvon leads with 10 MMboe; the Amadeus follows on 4 MMboe; while the Cooper, Perth and Surat Basins are on 2 MMboe, 2 MMboe and 0.1 MMboe, respectively. Another statistic shows that the average total depth of wells in the Amadeus Basin is 1900 m, which is quite shallow compared to other onshore producing basins.”

The basin has had three major petroleum field discoveries – the Dingo field, the Mereenie field and the Palm Valley field – while another 13 wells could be regarded as technical successes, but were not optimised due to poor or non-existent seismic.

“The acquisition of the Amadeus Basin acreage gives Central Petroleum access to four already known prospects which the company will spend a fair bit of money reappraising – including Ooraminna, Waterhouse, Johnson and Mount Kitty , formerly known as Murphy South.”

“We see Ooraminna and Waterhouse as basically 1 Tcf upside prospects and we regard them as appraisal prospects because they have returned gas to surface before”, explained Mr Heugh. “They’re not ranked grass root exploration wells to see if there’s something there, and we know there is, it’s a matter of how much and whether it’s commercial.”

“While Ooraminna was last drilled as far back as in 1963, and has thus not seen the benefits of more advanced and modern technologies, what is regarded as Waterhouse’s primary reservoir has not yet been penetrated – suggesting that both prospects might have larger potential than what previous drilling has indicated.”

The Johnston prospect has got an upside potential P10 of more than 100 MMbbl of recoverable oil but, unlike Ooraminna and Waterhouse, hasn’t been drilled before. Mount Kitty has not been drilled before either. The main targets of this prospect are in the Bitter Springs Formation, sealed very effectively by salt, which has been drilled only once before in the basin. The drilling of Magee-1 50-60 km away from the Mount Kitty prospect returned gas to surface with a high nitrogen content and 6.2% Helium.

“These days, Helium is of course a very valuable commodity on the world stage, it commands a price of US$60-65 per thousand cf versus ordinary sales gas around A$2-3 per thousand cf”, he said. “So if we have a discovery with significant Helium content, it has the potential to add an enormous amount of income to the bottom line of the company.”

Central is in the final stages of negotiating a Memorandum of Understanding with one of the biggest suppliers of Helium on the world stage, BOC International, who recently commissioned the construction of a Helium extraction plant in Darwin. “They’re working with about 0.01% Helium in that gas, were working with 6% in the gas that we hope to find in the Amadeus Basin.”

Pedirka Basin

The other two oil prospects of the three (Johnston is the other) Central Petroleum plans to drill as early as possible, are located in the Pedirka Basin. These prospects are Avalon and Blamore, which are to be drilled back to back. “Existing data has been reprocessed with the assistance of Dr Askin who has identified abundant possible DHIs (direct hydrocarbon indicators). If any of the wells are discoveries we can monetise very quickly by trucking oil across to Alice Springs and then railing it up to Darwin”, explained Mr Heugh. “Avalon and Blamore have been assessed independently as having upside P10 potential recoverable numbers of over 200 MMbbl, so are a priority for the company.

Gas

Although monetising gas in central Australia could be difficult due to a lack of markets, one option could be to take over after Santos and Magellan (the Palm Valley and Mereenie prospect partners who are exporting gas via the Alice to Darwin pipeline) run out of gas. “They’ve got enough gas to supply the current contract until about 2009”, he said. “There are limited amounts of gas drilled reserves in the Amadeus that they can tap into and, subject to listing, shortly Central will control all of the most prospective Amadeus Basin acreage … subject to the listing we’ll acquire about 80-90% of the total acreage in the Amadeus Basin, so there’s no other gas exploration of real substance that Santos and Magellan can move into.” However, this could be as late as 2009 or 2010 and by then some of the offshore discoveries might have been brought on stream to supply Darwin with sales gas.

Central is therefore considering two approaches. The company could “discover a gas reserve of sufficient size to warrant connecting it to the pipeline to Moomba” – this discovery would have to be in the order of 200 Bcf to justify a connection. The other option outlined in a pre-feasibility study by Holt Campbell and Payton, based upon notional gas discovery and conversion by GTL (gas to liquids technology) into syn-fuel of two main types: Low sulphur, low pollution synthetic diesel and jet fuel; with naphtha as a co-product. “All three products could be produced in situ in the Amadeus Basin or anywhere in central Australia close to a rail facility and railed out to either Darwin or Adelaide”, explained Mr Heugh. “Our independent report on this indicates that probably most, if not all, of that product would be absorbed by the domestic market, particularly now that Australia is forecast to be only 40% self-sufficient in oil by the year 2010.”

“There have been a lot of developments in GTL technology and there’s a huge demand for low sulphur diesel throughout the world … and this trend is coming here.” This particular type of diesel is very environmentally friendly and can be mixed with conventional diesel to make reduce pollution at an economical price: “About 20% of syn-fuel diesel will get you inside all of the environmental legislations that are planned until at least the year 2010. We think that is a very positive development.” Central has also lodged a provisional patent application for the novel application of GTL in central Australia on specific gas reserves.

Seismic

The existing data for the Pedirka and Amadeus Basins was reprocessed and re-mapped by Troy Ikoda, and Young Geoconsultants. Dr Askin has examined some of the data in detail for DHIs. Approximately 150 to 200 km of seismic was reprocessed over Avalon and Blamore, whereas all the available seismic in the Amadeus Basin was reprocessed in two stages – the first stage was undertaken by the NTGS) as part of an initiative by Young Geoconsultants. “Then we asked Young Geoconsultants to take those results and remap the four prospects that we’re interested in”, he said. “In fact, they remapped half a dozen prospects that we brought down to four prospects that we wanted to drill in the Amadeus.”

In addition to reprocessing existing data, the company wants to acquire additional seismic over the Amadeus acreage. “One of the keys to success in the Amadeus is fracture prediction, so we need more accurate data over the four prospects we’d like to drill”, he explained”, not only to be able to identify the biggest concentration of fractures in the structures, but also because of the enormity of the structures – Mount Kitty is 500 km2 of potential closure, Ooraminna and Waterhouse are up to 300 km2 and Johnston is 180 km2.

“Whereas our Amadeus Basin acreage requires additional seismic before deciding where to drill, in the case of the Avalon and Blamore prospects in the Pedirka Basin, we believe we are ready to drill.” Central is hoping to drill all three oil prospects before July/August next year: “By then we also hope to be gathering more seismic over some of the larger gas prospects in the Amadeus Basin.”

Joint Ventures

Central Petroleum has entered into a Joint Venture with White Sands Petroleum which Mr Heugh said would give the company access to their high-tech, highly mobile hydraulic top-drive rig, in return for an interest in the permit. ”It is capable of drilling to depths of over 3000 m and only takes about 12 truckloads of equipment to get in and set up, thereby saving money on mobilisation and de-mobilisation. The rig also only requires about half the crew of a conventional rig. Of course, the main advantage is … the ability to access a drilling rig at all, which is becoming increasingly difficult”, stated Mr Heugh.

Central was at one stage considering perhaps acquiring a rig of its own, but will continue with the White Sands deal as long as it works to the company’s satisfaction. “These are the sorts of deals we want to do to give us some sort of strategic advantage rather than just simply saving money on exploration, which is good, but it’s not the only reason why we want to do a farm-out deal”.

Under the terms of the farm-out deal White Sands will fund 22.5% of the costs of drilling two wells in EP93 (Avalon and Blamore) to win a 15% interest in the permit, as well as funding 22.5% of one well in EP92 and PLA77 to win 15% of the permits.

Central also has a letter of agreement with Perth-based Terrex Seismic Pty Ltd, who will have a crew available for the company in March or April 2006. “The Alice Springs-based environmental consulting group (Low Consultants ) that know the area and the local people very well, something which is beneficial when it comes to remote acreage such as this will be available around September or October of this year to do the reconnaissance environmental survey”, he said.

Timing is everything

The paper Petroleum Resource Potential of the Amadeus Basin by John Warburton, Titus Murray and Torey Marshall will be presented at the Central Australian Basins Symposium in Alice Springs, August 16th – 18th. “So it’s good timing for us”, claimed Mr Heugh. “It’s certainly going to open a lot of people’s eyes about the Amadeus Basin.”

Central Petroleum has to list by a certain date to acquire the acreage in the Amadeus Basin. In addition to the Amadeus acreage, the company also has two applications in the Lander Trough, one in the Georgina Basin and three in the Pedirka Basin, one of which has been granted. Each of the permits has an individual work program, which increases in expenditure from $100-150,000 in the first year to perhaps
$400-500,000 in the second year, and is a contingent commitment.

“If all the permits are granted at the same time on the day of a succesful float, we have enough money to enable us to evaluate data, drill those six wells and acquire additional seismic.”

Central would then make the decisions on which permits to keep, which to farm out and perhaps which to get rid of. “The first two years of activity will be a major screening process for us to delineate where we’re likely to have the most success and to bring in other joint venture partners.”