Rockhopper updated on a number of operational and strategic developments since its AGM on September 30, 2010.
The recent successful flow test at Sea Lion has validated the potential for commercial oil in the North Falkland basin and has significantly enhanced the prospects for the Company. Rockhopper is now preparing to progress its operational program which will include appraising the Sea Lion discovery, shooting additional 3D seismic across the extent of the North Falkland Basin and drilling further exploration and appraisal wells on its Northern acreage. Rockhopper announced that a number of highly attractive new targets have been determined.
Diamond Offshore Drilling (UK) Limited, the owners and managers of the Ocean Guardian semi-submersible drilling unit, which is operating in the Falkland Islands and is currently engaged in the drilling campaign, has recently made a proposal to Rockhopper, at Rockhopper's request, for a continuation of the drilling campaign under a new rig contract consisting of a possible three firm wells and five options extension. The execution of any such contract with Diamond Offshore Drilling (UK) Limited would be subject both to the deposit by the Company into an escrow account of significant funds sufficient to cover the day rate and other obligations and to agreement on a form of contract acceptable to both parties.
Furthermore, the Company has entered into two letters of intent with a seismic contractor to acquire additional 3D seismic using two separate vessels. The Company intends to enter into contracts to procure both vessels shortly and, if it does so, it expects that work will begin before the end of January 2011 to allow Rockhopper to better analyze the Sea Lion sandstone fans, as well as allowing more detailed and accurate mapping of additional exploration upside within the basin.
Competent Person's Report ("CPR")
The Company had hoped that the outcome of work to determine attractive appraisal and exploration drilling locations, that has focused on an Amplitude Versus Offset (AVO) study and which remains in progress, would also provide useful data for inclusion in the process of preparing an updated Competent Person's Report, which it had been planning to publish before the end of 2010.
Following discussions with the Company's technical consultants, it has become apparent that a complex set of new data and interpretations will be required in order to resolve the reservoir distribution with the multiple stacked fans at Sea Lion. A number of these stacked fans are yet to be penetrated by a well.
This work will be time consuming and would also be materially assisted by the collection of additional data points. For guidance, this work would ideally include collection of new 3D seismic, a full reprocessing of the current 3D data set into this volume of data, inversion of the new entire data set, subsequent production of an acoustic impedance volume, creation of calibrated AVO cubes, depth migration of the entire new volume and other techniques and analysis. In particular, this work will assist in attempting to resolve the complex issue of reservoir distribution with the Sea Lion sequence and narrow the current range of estimates for oil initially in place by reducing uncertainty. The technical consultants and the Board also recognize that provision of additional well data would have a material impact on the accuracy and reliability of any such new CPR.
As the Company has not had the time to complete the work outlined above, it is likely that any CPR based on the limited data currently available (including the interim results of the new AVO study and an initial acoustic impedance volume) would result in a lower figure for both oil in place and contingent resource than is contained within the existing preliminary estimate of resources reported in the volumetric update published in June 2010. For guidance, the technical consultants have informed the Company and its advisers that were a report to be produced today both the P50 oil in place and 2C contingent resource numbers might reduce by a factor in the region of 30%. However, this would not reflect the Board's view of the prospectivity of Sea Lion, not least in the light of the preliminary nature of the analysis undertaken to date.
The Board is very confident about the commerciality of the Sea Lion discovery and the prospectivity of the North Falkland basin. In addition the Board is comfortable with the existing range of contingent resources as contained in the preliminary volumetric update published in June 2010. Following an intensive drilling campaign it is anticipated that an updated CPR will be issued in the second half of 2011.
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