Island Oil & Gas PLC has provided an ongoing operational strategy report for its Celtic Sea and Atlantic Margin assets for the fiscal year 2008.
Celtic Sea Forward Strategy
At the beginning of the period, Island tested 21 million cubic feet ("mmcf") per day of dry gas in the 57/2-3 gas appraisal well at Schull, which was the culmination of a four well Celtic Sea drilling program spread over 2006 and 2007. This program delivered four successful gas wells and cemented Island's position as the most successful operator offshore Ireland in recent years.
During the year under review Island has been involved in a detailed reservoir engineering study for the Old Head and Schull gas fields. We have also acquired new high resolution 2D seismic data over both gas fields. Preliminary indications are that the proven limit of the Old Head gas field may extend further to the southeast than has previously been interpreted. Information from our West Seven Heads 48/23-3 gas well has proved invaluable to the understanding of potential production behavior for the extended area of the Old Head gas field.
Scoping production profiles for Old Head and Schull indicate conducive conditions for conversion to gas storage projects relatively early in field life, a situation which would materially contribute to the debate on Ireland's security of supply issue and to the provision of additional strategic gas storage capacity for Ireland. Several low risk exploration leads have also been matured in the Old Head and Schull licenses.
During the year, Island was also awarded the Barryroe Licensing Option, which includes a 30% stake in the undeveloped Seven Heads oil accumulations. Island has consistently maintained that the potential oil and wet gas reservoirs in the Lower Cretaceous, which have flowed light, waxy oil at rates between 1,300 and 1,600 barrels per day ("bpd"), may ultimately be developed and may contribute to prolonging the life of the Seven Heads and Kinsale infrastructure.
As part of Island's core area Celtic Sea strategy to 'hoover up' proven, probable and possible oil and gas accumulations around a wasting infrastructure, Island has embarked upon a reservoir modelling study in the West Seven Heads area to determine the level of gas-in-place with greater certainty in the area tested by our 48/23-3 appraisal well. Potential unperforated gas sand intervals below the main producing horizons are also being targeted by this study. The results from this work will be used by Island to pursue discussions with Marathon on a way forward to unitize interests in the West Seven Heads area tested by the 48/23-3 and 48/24-6 gas wells.
The announcement by Marathon during 2008 of the initiation of a sales process to dispose of its assets in Ireland means that Island is well-placed to avail of any near-term opportunity to realise value and consolidate its Celtic Sea assets as these have the potential to extend the projected current economic life of the Kinsale field by several years, thereby adding additional value to the infrastructure for the owners of the facilities. This objective is compatible with a desire to maintain security of supply by fully developing Ireland's indigenous gas resources in a timely manner in addition to the opportunity of increasing gas storage capacity. Island has available the 'cushion gas' required to establish a new commercially viable gas storage project in the Celtic Sea. Given the recent rise in wholesale gas prices this represents a potentially valuable asset for the Company which justifies the Company's timely investment in its Celtic Sea drilling program during 2006 and 2007 and puts Island in a unique position to monetise its gas assets at the earliest opportunity.
In the Irish Atlantic Margin, the Company began the longer term process of gradually monetizing exploration portfolio with the sale of a 20% stake in the North Porcupine Basin Frontier Exploration Licence 1/04, containing the undeveloped Connemara oil field, to Supernova Energy, a wholly owned subsidiary of the Bluewater Group and one of the world's leading providers of floating production storage and offloading facilities for a cash consideration and an investment in Island shares at a significant premium to market price. During the year, Island has identified and developed a new Lower Cretaceous stratigraphic trap, with multi-billion barrel oil potential, in a previously over-looked area of the License. This is an important addition to Island's growing portfolio of prospective structures in its Atlantic Margin acreage.
Island has expanded its area under licence on the Atlantic Margin, which we consider to be a vital area for future long-term exploration activity as this region is a very much under-explored part of the 'Atlantic Basin' hydrocarbon province relative to offshore West Africa, Norway, eastern Canada, UK-Faeroes, Gulf of Mexico and Brazil, with the award of the Tir na nog Frontier Exploration License in the South Porcupine Basin. Island operates the License, with a 50% stake, in joint venture partnership with Supernova Energy. The License contains a large Triassic prospect overlain by an early Tertiary deep sea fan which is considered even at this early, immature stage in evaluation to have multi-billion barrel oil potential.
In our Rockall Basin Licence, geological and geophysical studies have identified the Kingfisher Triassic gas prospect which, together with the neighbouring multi-TCF Killala Triassic gas prospect, makes this acreage potentially even more attractive to companies wishing to exploit the proximity of these sizeable prospects to Shell's Corrib gas field development.
Our Slyne License also contains a sizeable Triassic oil prospect which provides Island with a balanced portfolio of Triassic oil and gas prospects in an area with a proven active hydrocarbon system.
The Atlantic Margin is a hostile deep water environment where access to deep water rigs is costly and difficult, mainly due to Ireland's poor record of drilling activity relative to other Atlantic Basin oil and gas provinces.
Island's portfolio-building concept is designed to create a materially significant package of diverse exploration prospects that may prove attractive to a large multi-national oil company or utility company seeking access to new Northwest European sources of potential energy supplies. Island will seek to monetize these assets at an early stage through a sale of equity in the licence portfolio whilst retaining exposure to drilling success through a royalty arrangement on any future production revenues.
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