Interview with German commodity website www.dyor.de:
Interview with John Heugh – Central Petroleum Limited
On the way to become an oil- and gas-major
The Australian Oil- and Gas-Company Central Petroleum Limited owns the biggest acreage package within Australia and aims to develop into Australia’s largest onshore petroleum company. We took the opportunity to speak with Central Petroleum Limited’s Director John Heugh about his goals, and to discuss the question how Central Petroleum Limited could profit from two German chemists from the early to mid 19th century.
Mr. Heugh, your company Central Petroleum Limited aims to develop into Australia’s largest onshore petroleum company. How do you want to reach this goal?
First of all we will have an extensive drill programme in 2008. In the first instance we plan to do four conventional and three Coal Bed Methane wells within our largest licence areas, the Amadeus Basin and the Pedirka Basin. The three last-mentioned ones will build the beginning of a flow test programme, to address potentially recoverable gas resources of around 34 to 70 trillion cubic feet, which have been estimated by independent experts. Two of the conventional wells – Blamore 1 and Simpson 1 – shall address – at first step – a resource of 260 million barrels or undiscovered oil initially in place, which have also been estimated by an independent source. Two more wells at Mt. Kitty and Ooraminna shall allow us to address potentially recoverable resources of 2.5 trillion cubic feet of gas, helium and condensate. We are the first company for 30 years that is making a significant onshore drilling programme within the Northern Territory. The drill campaign plus major seismic work will be continued in 2009. Altogether we have identified 200 potential drill targets, so we have much work to do.
For 2008‘s programme we have negotiated farm-out-agreements within which our partners have to pay 40 to 50% of the exporation-costs to get a 20 to 25% interest in the explored projects. The operationship for all these projects remains with us.
Another important point in our plan to develop into Australia’s largest onshore petroleum company is our excellent cash-situation. We have 15 million AU$ at the bank at the moment. We have been able to generate six million AU$ by using convertible bonds, 74 million AU$ more could still be generated, according to requirements. And we also have raised a futher AU$ 6 million via a rights issue to existing shareholders recently.
Central Petroleum Limited searches for oil, gas and helium and owns the exploration and development rights for over 230.000 km² in Central Australia. What overall potential do you expect for your licences?
Several independent reports have estimated resources of up to six billion barrels of oil-equivalent for the Amadeus Basin alone. For the Pedirka Basin, where we are the largest licence-holder, one may expect up to 70 trillion cubic feet of gas. For the Amadeus Basin, where we are holding most of the licences, the estimates vary from 12 to 90 tcbf and up to 10 billion barrel of oil-equivalent in two new plays, the Horn Valley Siltsone tight gas shale play and the Horn Valley Siltstone fractured shale oil play. Every new estimation of new play types we are developing improves the potential resources of the estimation before. Alltogether, the ultimate potential of the areas where we are operating in, is very huge.
Your main „project“ is the Amadeus Basin Area, where you have 6 prospects with initial resources. What exploration plans do you have for the Amadeus Basin?
At the Amadeus Basin, where Santos produces at the Mereenie oil-field and the Palm Valley gas-field, we’ve secured the licences for the surrounding grounds. There were on discovery initial reserves of 25 million barrels of oil and 75 billion cubic feet of gas for the two mentioned Santos Santos/Magellan projects. At the Amadeus Basin we will drill first wells at Mt. Kitty and Ooraminna.
At which depth are these reserves situated and could these be developed economically?
There will be several generations of drill campaigns at several depths at the Amadeus Basin. First we will focus to a depth of 2,000 to 2,500 meters. In approximately 3 to 6 years we will survey deeper sediments up to 5,000 meters and in 10 to 15 years up to more than 5,000 meters. Extraction from the last-mentioned depths can be economic – depending on market prices and costs. In the United States you can find economic production from depths of 6,000 to 7,000 meters and deeper.
Your second main „project“ is the Pedirka Basin Area. What plans do you have for the Pedirka?
Our first drill programme will start between June 26th and July 1st 2008. Although we will drill a first well at Blamore, where we assume undiscovered resources initially in place of around 70 million barrels. Ensuing, we will drill three Coal Bed Methan wells and one more conventional oil well addressing about 190 million barrels of undiscovered oil initially in place at the Simpson Project. The conventional wells will be drilled to a depth of 1,800 to 3,000 meters, the Coal Bed Methane wells to a depth of around 300 to 1,200 meters. We anticipate exploring for oil- and gas-resources at a relatively shallow basis. During the subsequent progress we would like to test as many shallow drill targets as possible. Potential discoveries will be transported to Australian refineries and maybe to Singapore. Gas resources discovered may ultimately be channelled through a Fischer-Tropsch Gas to Liquids plant at Alice Springs to produce diesel, jet fuel and naphtha.
What advantages do you get from your 4 farm-in agreements?
With the farm-in-agreements we swap out a large amount of our exploration- and development-costs to our partners and in return we have to transfer them only minor interests. In plain language that means, that our farm-in-partners like He Nuclear Ltd. and Petroleum Exploration Australia Ltd. have to pay 40 to 50% of the exploration- and development-costs at the pertained projects to earn 20 to 25% of the project-interests. Although, Central Petroleum retains operationship of all projects and a 75-80% participating interest.
This procedure reduces our own expenses and with it also a large portion of the exploration risks. On the other hand we maintain a major interest in all potential production revenues, if the respective exploration campaigns will be successful.
How advanced are your plans to develop a GTL plant?
If we will discover large reserves of gas, we will transport these to an own GTL-plant and transform the gas to fuel by using the Fischer-Tropsch-Method (the Fischer-Tropsch Process (or Fischer-Tropsch Synthesis) is a catalyzed chemical reaction in which synthesis gas, a mixture of carbon monoxide and hydrogen, is converted into liquid hydrocarbons of various forms (editor’s note)), which was developed by the Germans from the 1920s to 1940s. To operate such a GTL-plant economically, you have to produce a minimum of 20,000 barrels a day. For that purpose you should have a reserve base of around one trillion cubic feet of gas.
The construction of a GTL-plant takes about 5 years from the discovery of a major reserve to the point of the definitive start-up. A GTL-plant should be constructed in a way that allows to expand it in a relatively easy way, in case that the reserve base justifies it.
What are your next planned milestones for Central Petroleum Limited?
The first goal is to identify oil-discoveries as soon as possible to generate early cashflow. The next step is to prove a reserve of one trillion cubic feet of gas to be able to prepare a bankable feasibility-study, to be able to start the construction of a GTL-facility. The more gas we will find and the more reserves we will have as a basis, the more we will be able to expand the planned GTL-plant.
What do you think about the current oil and gas prices? What do you expect for the future development of the price for oil and gas at the corresponding markets?
An answer to this question is more difficult than one expects, because I am not an oil analyst. In my personal opinion, we may see a decrease of the oil price to about 80-100 US$ a barrel in the short term. After that it will increase slowly to about 150 US$. Within a period of around 3 to 5 years I anticipate an oil price of around 200 US$. Whether the gas price will increase in the same degree depends on, whether a link-up of both gas and oil prices – as it is practised in many countries worldwide – will become widely accepted or not.
Why should potential investors invest in Central Petroleum right now?
Due to statutory specifications of the ASX, I am not allowed to give any advice for or against an acquisition of shares of my own company.
Therefore I can only give a few notes that will give the readers a summing up of Central Petroleum:
Central Petroleum owns the largest acreage package within Australia. We’ve put all this together since 1998, when oil-and gas-prices marked all-time-lows. Our licences are situated in the most underexplored areas of Australia and worldwide. The recovery-rate of the few exploration campaigns, which have been made in the neighbourhood of our licences, is – by a way of comparison – twice as much as in other oil-rich areas within Australia. For instance – there are existing discovery-rates of 4.2 million barrels of oil equivalent discovered per in the Amadeus Basin generally, while there are only 2.1 million barrels of oil equivalent per well discovered at the Cooper Basin Area.
Another important point, that says something about Central Petroleum is our very experienced management-team:
Dr. Henry Askin has over 30 years of experience in the oil exploration industry, of which some 25 years were with the Shell Group of Companies, most recently as Exploration Manager Australia. He has worked with Shell in Australia, Oman, Norway, The Netherlands and India in senior management and technical roles and for three years managed the International Seismic Analysis Centre in the Hague.
Mr. Richard Faull is a director of a firm of Certified Practising Accountants and Registered Tax Agents. He has over 20 years experience as a director, executive and company secretary in mining and petroleum exploration companies.
Mr. William Dunmore is an experienced reservoir and production engineer with significant transaction, analysis and financial modelling experience gained by consultancies and employment with a number of banks, financial institutions and petroleum companies including HBOS, Rothschilds, Gaffney Cline and Associates, BHP Petroleum, Schlumberger, Hardman, Mobil, Lasmo, Petrobras, CSX, Total, Nippon Oil, Powergen, Mosbacher, Unocal and Svenska Petroleum. He has over 30 years of direct relevant experience internationally.
Mr. Mark Di Silvio previously managed Woodside's Mauritanian Joint Ventures as Finance Manager and has had significant experience with resource companies including Goldfields Limited where he was a commercial manager and with Coolgardie Gold NL where he was an accountant.
Mr. Randy Frazier previously managed the development and commissioning of the giant Shah Deniz oil field for BP as well as the BP Alaska joint venture. He has owned and operated a small drilling contracting company rig in remote areas prior to his experience with BP and was a workover engineer in the Hugoton Gas Field (North America's biggest gas and helium field) where he had reservoir oversight of 1.000 gas wells. For BP, Mr Frazier, as Western Onshore US Production Manager had oversight of all of BP's production in Texas, New Mexico, Colorado, Wyoming, Montana, Utah and California as well as extensive exposure to drilling, fracture stimulation, dewatering and production of Coal Bed Methane (CBM) in the San Juan Basin, one of the world's most recognised and longest producing CBM provinces.
I for myself have over 25 years experience in petroleum and mineral exploration and have worked in a consulting or subcontracting role for Esso, Wapet, Pancontinental Petroleum, Santos, Western Mining Corporation, Bridge Oil, Ampol, Kuwaiti Foreign Petroleum Corporation (IEDC subsidiary), Arco and Chevron-Texaco. I have undertaken studies in oilfield drilling technology and development from the University of Texas and was a founding Director of Labrador Petro-Management Pty Ltd..
All of the mentioned points, together with excellent farm-in agreements and our good cash-situation will, we hope, help us on our way to develop into Australia’s largest onshore petroleum company.
More information incl. Pics can be found at www.dyor.de .
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