Elixir Petroleum Limited has issued a quarterly activities report for the period ended June 30, 2008.
Gulf of Mexico
Wells A-1 and A-2 at High Island discovered gas and condensate pay in two separate accumulations, with each well currently only producing from the lower of the two reservoir zones.
There were just over 4 days downtime during this period, giving an average uptime of 95.4%. There were no safety incidents reported in the period.
Production of gas and condensate from Well A-2 remains relatively stable, although the well is exhibiting a slow, natural decline in production over time, which is in accordance with expectations.
Production from Well A-1 continues with small volumes of gas and steady water and condensate rates. An intervention in late May carried out a series of wireline logs and also opened the shallower sleeves on the same sand. Following the activity, there was little change in production. The logs indicated that the reservoir was in vertical communication and that it had already been largely drained by the production to date.
A further program of investigation was devised and a second intervention took place in late June. The objective was to close the lower sleeve in order to reduce the amount of water being produced, which would assist in maximising the recovery and rate of production of the remaining reserves at the crest of the reservoir.
Unfortunately, difficulties were encountered during the wireline run to close the sleeve and the operation was postponed. A further intervention is being planned and will take place in the near term.
Ultimately, Well A-1 will be recompleted and produced from the shallower 6,000ft sand that is presently cased off, but was fully logged when the well was originally drilled.
In the normal course, a lag of two months is experienced from the month of production to receipt of sales proceeds. Accordingly, receipts in the quarter were for production in the months of February 2008 to April 2008. Sales receipts for these months totalled US$1,804,195. The average price realized for the sale of gas produced in these months was US$9.01/Mcf, and for oil was US$104.57/Bbl.
Pompano Gas Field
The Pompano gas field lies in the Gulf of Mexico, in Brazos Block 446-L SE/4, which is approximately 90 miles southwest of Houston, Texas. The first well on Pompano, SL103229#1 ("Well #1"), was directionally drilled from a new caisson installed adjacent to the field's existing "B" satellite platform. The second well, SL 103320#1 ("Well #2") was drilled during the quarter from a caisson adjacent to the existing main processing facility, the "A" platform.
Well #2 was drilled in a southerly direction from the "A" platform. The well penetrated a number of proved reserve targets and tested some upside potential in deeper overpressured horizons. The well was eventually completed over two horizons and commenced production on May 1, 2008. The well is now contributing 70% of the total field output which at the end of the reporting period was approximately 14 MMscf/d. The well was deepened to encounter two deeper exploration targets in the F and G sands. The penetration of these sands at this location was sub-optimal, being significantly down-dip of the interpreted structural crest, however Well #2 provided a low cost opportunity to encounter these sands for the first time within the Pompano lease area.
Unfortunately the two sands were found to have poor sand development and to be water wet in this location.
There were approximately five and a half days downtime during this period, giving an average uptime of 94%. There were no safety incidents reported in the period. First receipts from sales of gas and condensate were received in May 2008. Total receipts in the quarter from sales were approximately US$188,027. The average price realised for the sale of gas produced in these months from Pompano was US$8.66/Mcf, and for oil was US$104.19/Bbl.
Red Fish Prospect
Together with the other Pompano joint venture partners, Elixir participated in an offshore Lease Round in early April 2008. The Pompano joint venture submitted the highest apparent bid for the lease containing the Red Fish prospect which lies directly south of Pompano on the western side of the main fault bisecting the Pompano field.
The joint venture purchased additional 3D seismic data over the prospect in the quarter and the operator has undertaken further interpretation in the period. It is expected that the Red Fish prospect will contribute additional low risk drilling targets in the near future.
During the drilling of the Jaguar well in early 2006 significant hydrocarbon shows were encountered in the Brent Formation. Subsequent technical work has indicated the potential for oil entrapment up-dip of the Jaguar well location. This up-dip accumulation, which was penetrated by a discovery well drilled in the 1970's, has been named Mulle by the joint venture.
The Mulle accumulation lies on the south-western extension of the Osprey ridge and is adjacent to the proposed Causeway oil field development which has achieved flow rates from an appraisal well of up to 14,500 barrels of oil per day on test.
On a most likely outcome basis, this equates to almost 7 million barrels of contingent recoverable oil resource net to Elixir, given its current 40% interest in Block 211/22b.
An appraisal well and testing program for the Mulle accumulation was designed during the quarter. The objective of the appraisal program is to further define the areal extent of the reservoir, to identify oil/water contacts and to test reservoir deliverability. The joint venture has agreed to invite partners into the project to participate in the proposed appraisal program. To this end, an online data room is being prepared which will be opened shortly for a select group of invitees. Synergies are being considered with respect to the Causeway development, planning for which is at an advanced stage.
Block 211/18b (License P1381) is a traditional license awarded in the 23rd Seaward Licensing Round in December 2005. The interest holders in P1381 are Elixir (56%), RWE Dea UK SNS Limited (30%) and Sosina Exploration Ltd (14%). Under the terms of a farm-in agreement finalised with RWE in August 2007, RWE will be contributing on a promoted basis to the cost of drilling an exploration well on the Leopard prospect which lies within the block.
Efforts to secure another farminee in order to largely cover Elixir's and Sosina's cost exposures in the proposed Leopard well are ongoing with several companies currently assessing the opportunity.
Testing of 3D seismic data relating to a site survey was initiated during the quarter, a requirement prior to drilling operations commencing. In the event a full site survey is required, discussions have also been initiated with contractors on the availability of survey boats for the second half of 2008. The availability of suitable drilling rigs has tightened over recent months with now limited availability for opportunistic wells slots in late 2008.
Block 13/25 (License P1404) is a promote license that was awarded in the 23rd Seaward Licensing Round in December 2005. The initial approval of the merger of Block 13/25 with the adjacent Block 13/24d was achieved in late 2007, with Petro-Canada assuming operatorship of the merged block. The relinquishment of part of the northern section of 13/25 was also approved at the same time.
At the conclusion of the quarter the licensees of the two blocks received the Deed of Variation from the UK Regulator, which confirms the change in the terms of the two merged licenses and approves the forward work program. The Deed is currently being signed by all parties and will be lodged with the Regulator shortly.
In the meantime, high resolution 2D data has been acquired over Blocks 13/25 and 13/24 by Petro-Canada and the 2D seismic data has been processed. The operator is finalising its preliminary interpretation of the data set, with the results scheduled to be discussed by the joint venture in August.
In late May, Elixir submitted three licence applications in the 25th Seaward Licensing Round in respect of blocks located in the Northern sector of the UK North Sea. These applications represent a further progression of the company's exploration strategy which is designed to obtain access to high quality exploration prospect on a low cost basis and to mature and realize the potential of these prospects quickly.
It is anticipated that the UK Regulator will announce licence awards late in Q4, 2008.
West Africa - Sierra Leone
An interest in Block SL-4 was assigned to Elixir on 20 February 2008. At that time, Elixir was also approved as operator of the licence. Block SL-4 comprises an area of 4,429 km2 lying in water depths from 100m to over 3,500m offshore Sierra Leone, West Africa.
As the operator of Block SL-4, Elixir engaged a leading seismic acquisition contractor in late March to undertake a 1,222 km2 3D seismic survey of the Block on behalf of the joint venture. The 3D survey was designed to better define and mature the large number of significant leads and play types identified from 2D seismic data acquired over Block SL-4 in 2003.
The vessel conducting the survey completed data acquisition on Block SL-4 on June 6, 2008, which was in accordance with expectation. The 3D seismic field data tapes were received by the seismic processing contractor's office in the UK in late June. Processing parameters have now been set and the processing sequence has been initiated. Approximately 10% of the survey has been processed and it is anticipated that the full sequence will be completed by Q4, 2008. Detailed interpretation of the data will immediately commence by Elixir's UK based exploration team on receipt of the fully processed dataset.
Elixir will be required to contribute during the coming quarter approximately US$1.5m to the cost of the 3D survey and can elect to issue fully paid ordinary shares in Elixir to the value of approximately US$2.0m in order to exercise the option over an additional 20% interest in the project that it holds (taking its total WI to 35%).
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