Just ten months after first announcing its plans to undertake an exploration-led entry into developed countries, Novus has now acquired interests in drilling leases totaling approximately 75,000 acres on and around Padre Island and elsewhere in onshore Texas. All of this acreage covers essentially the same play: established, generally shut-in, shallow oil- or gas-fields underlain by large, un-drilled gas prospects which have only become evident through modern seismic technology.
The Padre Island joint venture spent approximately US$1.7 million at the Texas state waters lease sale on January 15, 2002. Next month the joint venture will exercise options over adjacent areas onshore Padre Island which will complete its main phase of permitting following interpretation of the new 3D seismic dataset. Novus believes that success with any of the six or more wells it expects to drill at Padre Island this year would have a major effect on the company. At current gas prices, a 100 bcfe (billion cubic feet of gas equivalent) net discovery is estimated to be worth A$153 million to Novus, or 84 cents per share. (This represents the low end of the range of prices that have been paid in recent industry transactions, and is similar to values that can be calculated using NPV analysis.) Padre Island provides Novus with an opportunity to access the dual benefit of entry into the lucrative US gas market and an early cash flow as well as low onshore production costs.
Managing Director, Dr Bob Williams, said now that the main drilling leases have been acquired, Novus and the operator, BNP, will concentrate on getting ahead with an aggressive drilling program. "The program to unlock a potentially significant amount of gas from Padre Island is now in place," Dr Williams said. "Last week we announced that our first well in the Padre Island area La Playa-1 had discovered gas, which we expect to have on production within the next few weeks. This is irrespective of the outcome of the main target, which should be intersected within the next week or so. "The second well in the program, to be drilled on the stacked Tomato and Murdock prospects, will commence drilling in February.
"Tomato is relatively small, similar to La Playa, targeting attic gas at a depth of around 8,500 ft which we believe was missed during earlier production life. "But the real prize is Murdock, which is the first of the deeper, large untested prospects we shall drill. It is at a depth of approximately 12,000 ft, but being onshore, the exploration well will cost around US$3 million. It is in many ways analogous to the large prospects being drilled in the deep water Gulf of Mexico but onshore, at much lower cost." Murdock has been defined by modern 3D seismic (and direct hydrocarbon indicators have been identified) and the structure could contain significant gas reserves. "Of course there are many uncertainties remaining before we drill the well, but we believe Murdock could deliver 100 bcfe net to Novus, or even substantially more," Dr Williams said.
"The Padre Island Exploration Project is an important part of Novus' strategy of identifying commercial investment opportunities in countries with developed gas markets. "The United States is the world's largest gas market, and consumption is forecast to grow markedly over the coming years. We believe that the net effect of the supply/demand fundamentals will ultimately lead to sustained, higher gas prices. "In Padre Island, we now have a substantial acreage position, which the 3D seismic indicates to be very prospective. While it is still very early days in the interpretation, already literally dozens of prospects have been recognized. This all augurs very well for our growth aspirations in the US, and the addition of shareholder value."
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