Joint Development Zone – Block 2
History
Equator held a 9% participating interest in JDZ Block 2.
The Joint Development Zone (‘JDZ’) lies between the Republic of Nigeria and the Republic of São Tomé & Príncipe and is administered by the Joint Development Authority (‘JDA’) staffed by officials from both countries. Following the bidding round in 2005, Equator and its main bidding partner, ONGC Videsh Limited, were jointly awarded a 15% interest in Block 2, of which Equator received a 6% interest.
Equator subsequently increased its participating interest to 9% by purchasing an additional 3% interest from one of the other participants in the block, A & Hatman Limited, in exchange for carrying a 1% portion of its remaining interest. The Company also granted a minor bidding partner an economic interest equivalent to a 0.25% carried interest in the block. The result was that Equator acquired a net economic interest of 8.75% in Block 2 for a total entry cost of US$9.05 million, with an obligation to carry a total interest of 1.25% during the initial exploration phase.
The PSC was signed with the JDA on 17 March 2006. At the same time, the JOA was also signed with the participants, namely Sinopec (28.67%), ERHC (22.00%), Addax (14.33%), ONGC Videsh (13.5%), Amber Petroleum (5%), Foby Engineering (5%) and A & Hatman (2.5%). EHRC was carried by Sinopec and Addax while A & Hatman was carried by Equator and ONGC Videsh. In 2009, Foby and Amber went into default on the payment of cash calls. ONGC resigned from the block in June 2010.
Operations
Sinopec, the operator, engaged Sino Geophysical Co. Limited to reprocess the 3D seismic survey using state-of-art algorithms. The operator then proceeded to interpret the reprocessed data, evaluate the prospects and rank them for drilling. From the top 10 prospects, the participants jointly selected the ‘Bomu’ prospect to drill the one commitment well required under the PSC.
In early 2009, an assignment was taken from Shell for the use of the Transocean Sedco 702 drilling rig. The Bomu 1 exploration well was spudded on 29 August 2009 and completed on 3 October 2009. The well, drilled in 1655 metres of water, reached a total depth of 3543 metres below sea level achieving all of its geological objectives. It was completed under budget by approximately US$10 million. Analysis of the wireline logs and of fluid samples collected by wireline tester indicated the presence of gas in a number of sand intervals. The well fulfilled the work obligation of Phase I of the Exploration Period in the PSC.
Evaluation
JDZ Block 2 lies at the end of the toe thrust of the deep water Niger basin. It is adjacent to Nigerian Block OML 130, which hosts the large Akpo Field with reserves of 600 million barrels of oil and 1 TCF of gas (Total 2007) and a number of other significant discoveries. In adjoining JDZ Block 1, the Obo-1 well discovery proved the existence of a hydrocarbon source and the presence of excellent reservoir sands in the region of Block 2.
While the discovery in the Bomu 1 well of gas rather than oil was disappointing, the reservoir sands and traps were, by and large, encountered as expected. The JDA extended the Phase 1 Exploration Period by two six month periods to allow Sinopec to complete the technical and commercial evaluation of the discovery and also the other prospects on Block 2. Four other wells had been drilled in the JDZ, three in Block 4 and one in Block 3, simultaneously with Bomu 1. The JDA granted extensions on these blocks as well, allowing the common operator, Sinopec, to integrate the studies to the benefit of the JDA and participants.
Decision to Exit
The studies confirmed that Bomu is a small gas discovery, which under current conditions is sub-commercial. While an adequate source of oil is believed to exist, the absence of faulting between the source and reservoir sands prevents the oil from migrating into the reservoirs. The studies also concluded that the best remaining prospect is more likely to contain gas than oil, in quantities not very much larger than those discovered in Bomu. This did not justify commitment to a second exploration well, as required for entry into Phase II of the PSC. The JDA granted a further one year extension to Phase 1 ending March 2012. In this period, no new information was acquired to change the evaluation.
With the exception of ERHC, all of the remaining participants, including Equator, have elected to exit the block. The drilling and evaluation costs relating to the well, amounting to US$9.4 million, were already impaired and now a similar amount of geophysical and administration costs are treated in the same way.
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