GCA Completes Reserves Assessment for West Seahorse Oil Field

Australia's 3D Oil Limited announced Tuesday that independent expert Gaffney, Cline & Associates (GCA) has completed its Reserves and Contingent Resources Statement for the West Seahorse (WSH) oil field in the offshore Gippsland Basin, Australia. The main highlights of GCA’s report are:

• Proved plus Probable (2P) Oil Reserves of 6.5 million barrels for the West Seahorse Field as at Dec. 31, 2013
• Independent assessment of WSH reserves provides certainty for project financing and major contracts
• WSH project Development Plan and economics reviewed as part of GCA assessment
• Mid Case Stock Tank Oil Initially In-Place (STOIIP) of 10.3 million barrels with estimated un-risked 2C Contingent Resources of 1.5 million barrels in secondary ‘Gurnard’ reservoirs

WSH is being developed for production in early 2015 by a joint venture (JV) comprised of 3D Oil 49.9 percent and Carnarvon Hibiscus Pty Ltd (Hibiscus), a wholly owned subsidiary of Hibiscus Petroleum Berhad, as operator with 50.1 percent.

GCA’s assessment is an update of its 2011 report on WSH which established Contingent Resources for the field. The 2013 update was based on a combination of probabilistic and deterministic methods and incorporated revised field mapping by 3D Oil based on reprocessed 3D seismic. GCA also reviewed the JV’s progress on the WSH development project, including economics, and recognized the recent environmental and regulatory approvals, plus the VIC/L31 Production License for the field which was granted Dec. 5, 2013. Consequently, GCA has upgraded its assessment of the main WSH reservoirs from Contingent Resources to Reserves.

3D Oil has also performed extensive reservoir simulations studies, which were reviewed by GCA and used to define a set of oil production profiles that formed the basis for the economic analysis tests to determine Reserves.

The assessment of Reserves provides the foundation for finalizing the WSH financing plan and the JV will now move as quickly as possible towards Final Investment Decision which is anticipated in early 2014.

The full range of undeveloped Oil Reserves for WSH as at Dec. 31, 2013 are:

Gross 100 percent Field (in million barrels)

• Main Reservoirs N1u/N1/N2-6: 4.0 (1P); 6.5 (2P); 11.5 (3P)

3D Oil’s Share within VIC/L31:

• Main Reservoirs N1u/N1/N2-6: 1.9 (1P); 2.9 (2P); 4.9 (3P)

Four wells have been drilled in WSH and its near vicinity. The discovery well, WSH-1, was drilled in 1981 and encountered hydrocarbon indications in three layers in the Eocence fluvio-deltaic Latrobe Group. The N1 layer was tested and produced 1,800 barrels of oil per day (bopd) from a 9.8 foot (3 meter) interval. Oil was recovered by RFT sampling in the N2.6 layer. Well WSH-2 was drilled in 1982 down dip from WSH-1 to appraise the flank of the accumulation; however, the N1 and N2.6 zones were found to be water bearing in this well. WSH-3 was drilled in 2008. The well encountered oil in the N1 layer. Well Wardie-1 was also drilled in 2008 to test a structural culmination 0.62 miles (1 kilometer) south-west of the West Seahorse structure. Oil was encountered in the shallower Gurnard and N1u reservoirs, but the deeper reservoirs were water bearing.

3D Oil intends to develop the field using a mobile offshore production unit (MOPU). A modular drilling rig will be mounted on the MOPU and two new development wells will be drilled. Produced oil will be measured and transferred to a floating storage and offloading facility and a shuttle tanker will be used to export the oil.

The design of the production wells, processing facilities, export system and other aspects of the project development plan is based on the 2P Reserves estimate. On this basis WSH is forecast to produce at an initial rate of approximately 12,000 bopd and to have an economic field life of between 5 and 6 years.

The cash flow analyses were modelled under the Australian Petroleum Resource Rent Tax (PRRT) regime and Australian income tax using nominal dollars to assess project commerciality and to determine field economic limits. West Seahorse oil price was based on the Brent crude oil price scenario shown below. Prices were escalated at 2.0 percent per annum after 2018.

• 2015: $97.76 per barrel
• 2016: $94.82 per barrel
• 2017: $97.26 per barrel
• 2018: $101.61 per barrel

Capital costs are estimated at around $140 million and annual operating costs estimated at $46 million per annum decreasing to $37 million per annum after 5 years, based on 3D Oil estimates and results of tenders for facilities, drilling and operational services. In undertaking the cash flow analyses at exchange rate of AUD = $0.90 was used and all costs were escalated at 2 percent per annum from 2014 onwards for the duration of the project.

Actual field life will vary with economic conditions (e.g. oil price) and reservoir performance. The Joint Venture partners intend to drill the nearby Sea Lion prospect which, if successful and tied back to WSH, would likely further extend production from the WSH reservoirs while potentially increasing the Net Present Value of the total project.

Likewise, additional STOIIP of 10.3 million barrels (GCA Mid Case estimate – Refer Table below) is mapped in the shallower secondary Gurnard and Lower Gurnard reservoirs at WSH. Oil has been recovered from these sands, but they have not undergone a flow test. GCA has updated its STOIIP estimates for these reservoirs using a deterministic method based on the revised depth structure mapping and maintaining the 2011 reservoir description parameters. While no development plan has been finalized for this oil, both development wells are planned to penetrate these two reservoirs intervals at locations that will allow their later development should appraisal tests prove successful. If it proved to be economic and was developed, it would also contribute to extending production from the main WSH reservoirs. This volume is classified as Contingent Resources and is not included in the Reserves estimates.

The full range of un-risked Contingent Resources for the Gurnard and Lower Gurnard reservoirs in million barrels within WSH as at Dec. 31, 2013 are:

Gross 100 percent Field (in million barrels)

Gunard

• STOIIP: 4.2 (Low Case); 6.7 (Mid Case); 18.6 (High Case)
• EUR Oil*: 0.0 (1C); 1.0 (2C); 3.7 (3C)

Lower Gunard

• STOIIP: 2.4 (Low Case); 3.6 (Mid Case); 14.8 (High Case)
• EUR Oil: 0.0 (1C); 0.5 (2C); 3.0 (3C)

Total

• STOIIP: 6.6 (Low Case); 10.3 (Mid Case); 33.4 (High Case)
• EUR Oil: 0.0 (1C); 1.5 (2C); 6.7 (3C)

3D Oil’s Share within VIC/L31

Gurnard

• STOIIP: 1.8 (Low Case); 2.9 (Mid Case); 7.8 (High Case)
• EUR Oil: 0.0 (1C); 0.4 (2C); 1.6 (3C)

Lower Gunard

• STOIIP: 1.1 (Low Case); 1.6 (Mid Case); 6.7 (High Case)
• EUR Oil: 0.0 (1C); 0.2 (2C); 1.3 (3C)

Total

• STOIIP: 2.9 (Low Case); 4.5 (Mid Case); 14.5 (High Case)
• EUR Oil: 0.0 (1C); 0.7 (2C); 2.9 (3C)

*Estimated Ultimate Recovery of Oil