Guinea is significant for several reasons. Elixir will have exposure to a high impact exploration well within a proven North Sea area at no cost to the Company. Second our principal farminee, the large Canadian independent Nexen Inc., brings a drilling rig. This is of enormous benefit given the tightness of the offshore rig market that is reflected in a three-fold increase in rig day rates since mid-2005.
We are also pushing ahead with the farmout of two of our other 22nd Round licenses which should lead to more drilling activity in 2007. Block 14/14b, which hosts the Anglesey prospect, is the most advanced of these and we hope to firm-up a farmout deal shortly.
Likewise progress is also being made in farming-out our major Leopard prospect in the Northern North Sea.
Despite its name, it is a different animal geologically to Jaguar which is located about 15 km to the southwest of Leopard. We are currently acquiring more seismic across Leopard to further de-risk this high potential prospect.
So, although some deals are not yet concluded, we are confident that Elixir should participate in another 3-4 wells over the next 18 months.
Our efforts to diversify our asset base continue, with production or near-term development opportunities being targeted. However we have no intention of abandoning high impact North Sea exploration. Production from the North Sea or elsewhere would counterbalance this activity and provide cashflow to fund further exploration.
Elixir holds interests in five 22nd Round UK North Sea licenses awarded for an initial two-year promote period in December 2004. These license interests are held in partnership with Granby Oil & Gas plc. Since early this year, we have been jointly marketing these licenses to prospective farm-in partners with the aim of securing drilling activity on some of them into the next two year license extension term.
We are happy to report good progress in this endeavour. The first of the licenses, Block 15/13b which contains the Guinea prospect, has been successfully farmed-out to a consortium led by Nexen Petroleum UK Limited (Nexen), a wholly-owned subsidiary of Nexen Inc. Guinea is a robust four-way dip-closed Palaeocene structure on trend with producing oil fields and immediately north of Nexen's 2005 Yeoman oil discovery.
Elixir will be free-carried through the drilling of the Guinea well retaining a 13.125% interest. The prospect is estimated to contain unrisked prospective resources of about 91 million barrels under a mid-case scenario, if hydrocarbons are present.
All preparatory work has been done including choosing the final well location. We expect the well should be drilled during the fourth quarter, perhaps as early as October. Given that rig availability remains tight in the North Sea, partnering with Nexen, who have two rigs on contract, is an added bonus.
We are eagerly awaiting our return to drilling activity as success at Guinea would have a very material impact on your Company's value.
Other Drilling Plans
Good progress is also being made with our farmout campaign on at least two other 22nd Round licenses. One of these farm-in deals is close to finalization and, if executed, will see Elixir free-carried through another exploration well to be drilled possibly in the first half of 2007. Although our current interest is reduced by half in such a 2-for-1 deal, Elixir will still retain a 25% interest post-farmout. Since the prospect being farmed-out is of comparable size to Guinea but Elixir retains a higher interest, this well offers twice the leverage to Guinea should it prove successful.
A farmout program on our Northern North Sea 23rd Round licenses is also progressing. The failure of the Jaguar well in Block 211/22b undoubtedly affected sentiment towards the Leopard prospect in Block 211/18b. However, there are important differences between these two Upper Jurassic plays and Leopard is generating tangible farm-in interest.
In summary, we shall participate in one well in the second half of this year and potentially another 2-3 wells in 2007. Of course we are always looking for farm-in opportunities but they must meet our strict technical criteria. It must also be borne in mind that farm-ins do not allow us to conserve our cash funds as is the case in a free-carried farmout deal of our own acreage.
24th UKCS Licensing Round
Submissions for the current 24th UKCS licensing round closed in mid-June. We made a number of applications in partnership with two experienced North Sea companies after an exhaustive screening process from the record number of blocks on offer. However, competition is stiff with 121 companies making applications, of which 25 are new entrants to the North Sea. We expect the DTI to make offers to the successful applicants sometime after mid-September.
In late May your Company successfully raised A$2.6 million (£1.1 million) in new equity funds through a share placement. This effectively replenished funds expensed in drilling the Jaguar well earlier this year.
With over A$11 million (£4.5 million) of cash at the end of the June quarter, we are well-positioned to fund our future exploration program, particularly if we continue to farmout wells on a fully-carried basis.
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