Norse Energy Corp. has provided an operational report by division in its third quarter report released today.
Divisional Report – Brazil
Manati Project (10% interest)
All six wells in the Manati field were online in the third quarter. The field increased its production to an average of 6.0 MMm3/day (3 778 BOE/day, net to NEC interest). Daily gas sales were 3 567 BOE/day, representing an increase of 9% compared to the second quarter. In addition, a daily average of 63 barrels of condensate (net to NEC interest) was also sold from the field. The average production in the month of October was 4 107 BOE/day (net to NEC interest).
Tests to increase production from the field have been successful and show that the facilities can handle higher gas production.
The field is planned to produce up to 8.0 MMm3/day in the first part of 2009 and maintain this plateau production through 2012. The new gas contract covering the incremental production was agreed upon by the consortium. Petrobras is the purchaser of the gas. The gas price of the new volumes will be linked to an oil price basket. The current contract will remain valid for the already contracted production. The entering of the new gas contract will significantly increase the company's proven reserves, as these currently only reflect the 23 Bm3 covered under the current 6 MMm3/day contract.
BCAM-40 exploration block (10% interest)
The consortium is still awaiting the environmental licenses to commence further exploration. All commitments towards ANP are fulfilled in this license.
Blocks BM-CAL 5 and 6 (18.33% interest)
Three wells were planned in these two blocks; Copaiba and Jequitiba in the BM-CAL 5 licence and Peroba in BM-CAL 6. Drilling licenses for the wells were granted on April 4, 2008 (BM-CAL 6) and April 15, 2008 (BM-CAL 5) and is valid for fifteen months.
In BM-CAL 6, the consortium is further evaluating the block before deciding upon relinquishment after the Peroba dry well. The semisubmersible drilling rig Ocean Winner is now on the Copaiba prospect where a second and different petroleum play is being tested in the BM-CAL 5 license.
The well was spudded on July 3, 2008, and the drilling of the well was concluded on September 22 at total depth of 3 396 meters. Final logging confirmed intervals of interest for further evaluation through formation testing, which is currently in progress. Operations were longer than initially anticipated due to technical problems in drilling, cementing and preparations for testing. The operator has communicated a substantial reimbursement of the incurred cost due to the poor performance. We expect results from testing of the two zones shortly.
The second commitment well in the BM-CAL 5 block is the Jequitibá prospect which is expected to be drilled next year. The company is evaluating the option to drill a cost efficient delineation well at the Copaiba discovery and claim this as the second commitment well in lieu of the Jequitibá well. The minimum ANP commitment on this second well is US $1.1 million.
Cavalo Marinho (50% interest) and the BS-3 Project
The independent Norwegian E&P consulting company AGR has supported Norse to conduct a feasibility study of the BS-3 area, the first phase of which was concluded at the end of the second quarter. The initial interpretations of the study are encouraging. Estimates from the study showed recoverable reserves net to NEC of 22 MMBOE versus Gaffney Cline certified reserves of 12 MMBOE as of year-end 2007. The main reason for this upgrade is that the geological structural trends are larger than previously estimated.
The operator expects sanctioning of the project in during 2009 with anticipated production start-up in 2012.
Estrela-do-Mar (65% interest)
The second phase of the AGR study assesses new development options for the Estrela-do-Mar and Coral fields, potentially integrated with the Cavalo Marinho and the Petrobras operated and owned Caravela field located adjacent to Cavalo Marinho. The results show that tie-back of Estrela-do-Mar and a redevelopment of Coral are feasible and significantly improve the economics of BS-3 with break even oil price below 50$/bbl after tax. The study proved the feasibility of the project, with the four fields sharing an FPSO. Estrela-do-Mar would be developed through a single horizontal well, and Coral would be re-developed through the re-use of two existing wells; one for water injection and one for oil production.
Our new feasibility study indicates recoverable reserves of 11.5 MMBOE net to NEC as a tie-back together with Coral to the Caravela/Cavalo Marinho integrated project. Gaffney Cline certified reserves for Estrela-do-Mar are 5.7 MMBOE (2P) as a stand-alone development project.
Coral (35% interest)
Oil produced from the field in the third quarter averaged 1 260 BOE/day net to Norse Energy's interest, a decrease of 5% compared with the second quarter. Year to date production in 2008 was 1 242 BOE/day, a decrease of 6% compared to the same period in 2007.
As of October 28, production in the fourth quarter decreased to 295 BOE/day net to Norse Energy's interest. The consortium decided to temporary abandon production from the single remaining producing well as the partners are evaluating other redevelopment alternatives.
Our new feasibility study indicates recoverable reserves in a re-developed Coral of 3.8 MMBOE net to NEC as a tie-back to the Caravela/Cavalo Marinho integrated project. Gaffney Cline certified reserves at year-end 2007 for Coral was zero.
S-M-1035, S-M-1036 and S-M-1100 (50% interest)
During the third quarter of 2008 the company concluded the analysis of the 2D seismic data acquired from Schlumberger, confirming the existence of two prospects in these blocks; the Jandaia and Sabia prospects.
DeGolyer and MacNaughton, an international certification company, has been hired to verify the resource potential. 3D seismic has been contracted from Petroleum Geo-Services ASA. The data acquisition is expected to commence in the first half of 2009.
Norse Energy is evaluating structural alternatives to best exploit the growth opportunities for its Brazilian activities. Due to market uncertainties, the company shelved plans for a separate listing of Norse Energy do Brazil in January, and have since focused on other opportunities. In connection with this work, the company made a data room available in Rio de Janeiro. Norse Energy is currently evaluating its alternatives together with financial advisor Merrill Lynch.
Divisional Report – USA
Exploration & Production
As of the third quarter of this year Norse Energy has drilled a total of 29 wells, including 15 Herkimer, of which 11 were horizontal. Our current procedure of air drilling has significantly reduced drilling time and corresponding drilling costs. Stepout wells drilled during the first nine months of 2008 have helped to delineate the one-half trillion cubic feet (0.5 TCF) regional potential of the Herkimer Formation. Recently completed pipeline enhancements resulting in pipeline capacity of 15000 MCF/day will provide our increasing production with valuable access to the attractive markets in the US Northeast.
Daily gas production net to the company’s share was 2 309 MMBtu (398 BOE/day) in the third quarter, a 22 % increase over the second quarter of 2008. Six wells came on line during the quarter.
The exploration program completed in the third quarter successfully extended the targeted Herkimer play. With that accomplished, the drilling focus has been shifted back to areas of existing infrastructure and increased pipeline capacity and will remain in these areas for the balance of the year thereby significantly improving cash flow.
During the third quarter the company drilled nine wells, bringing the total for the first nine months to 29 with another four wells drilled after the end of the third quarter.
In a September 18 press release the company reported the successful completion of two wells in the Herkimer Formation.
Production rates for each well were reported to approach 1 000 Mcf (178 BOE) per day. At present, the company continues to estimate average reserves of 1.2 Bcf (214 000 BOE) per well. The company has 250 seismically identified Herkimer locations plus offsets. With additional seismic data acquisitions, the number of locations could multiply. The Herkimer is anticipated to ultimately yield more than 0.5 Tcf (90 MMBOE).
A recent change in drilling procedure to air drilling coupled with a re-design of the drilling plan has begun to positively impact drilling costs. Drilling costs are expected to stabilize around US $1 million per horizontal Herkimer well as our drilling experience continues to improve. With average anticipated recoverable reserves estimated at 1.2 Bcf per well, finding and development costs would be approximately USD 1 per Mcf.
In the company's deep Theresa exploration project two successful wells were drilled during the quarter and a third well successfully sidetracked. Testing has been completed on one of the two drilled Theresa wells with an IP rate of approximately 1.2 million cubic feet per day and reserve estimates of approximately one billion cubic feet (gross).
In order to accelerate the development of the company's shale potential, the company has retained Jefferies Randall & Dewey to advise it on the formation of a joint venture. Norse Energy evaluation of the Marcellus shale continued during the third quarter. ECS logging and core analysis from widely separated wells shows average Gas In Place ("GIP") of over 40 BCF per square mile in an interval between 200 and 300 feet thick. Norse Energy recently completed a vertical Marcellus well which is currently undergoing testing.
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