Lion Energy to Spud Oseil-21 Development Well in Indonesia's Seram Block

Australia's Lion Energy Ltd announced Friday that the recently completed Oseil-26 development well in the Seram (Non-Bula) Production Sharing Contract (PSC) in Seram Island, eastern Indonesia is performing at above pre-drill expectations.

The well was completed Jan. 30 and has been producing crude oil at an average rate of 490 barrels of oil per day, or bopd, (12.5 bopd net to Lion’s interest). This compares with pre-drill predicted initial production of 300 bopd.

Oil production from Oseil and surrounding oilfields has averaged 2,831 bopd (71 bopd net to Lion), an increase of 20 percent from the approximate 2,350 bopd prior to Osiel-26 coming on line. Production currently exceeds guidance production of 2,500 bopd in Lion’s prospectus issued Nov. 6, 2013.

The Oseil-21 development well, due to spud this week, is designed to exploit undrained oil reserves on the western flank of the Oseil-2 fault block. Drilling is expected to take about 90 days and, if successful, the well should commence production in May 2014.

Following Oseil-21, the joint venture plans to drill the Lofin-2 well to appraise the exciting Lofin-1 discovery made in 2012. Current scheduling has the well spudding in July 2014 following the completion of Osiel-21.

Lion’s CEO, Kim Morrison, said: “We are delighted with the performance of the Seram Project, which continues to surprise on the upside.”

“While a 2.5 percent interest may seem modest, it still makes a meaningful contribution to our company,” he said. “We are optimistic that the Osiel-21 development well will further enhance production and look forward to the high-potential Lofin-2 appraisal well later in the year.”

Seram (Non-Bula) Block PSC

Lion, via its wholly owned subsidiary, Lion International Investment Ltd, holds a 2.5 percent participating interest in the Seram (Non-Bula) Block Renewal Production Sharing Contract (PSC), located onshore Seram Island in eastern Indonesia. The major equity holder and operator of the joint venture is CITIC Seram Energy Ltd (51 percent). Other partners are KUFPEC (Indonesia) Ltd (30 percent) and Gulf Petroleum Investment (16.5 percent).

The block contains the Oseil oilfield and surrounding structures that have produced cumulative crude oil production of 12,130,226 barrels since initial field start-up in January 2003 through to Jan. 31.

Oseil-26 Development Well

The Oseil development well was spud Dec. 7, 2013 and completed Jan. 30, taking 85 days. As the well has cleaned up, the operator has prudently increased the flow choke to its current setting of 19/64 inch, and the flow rate has stabilized at 489 bopd during the past 10 days with less than 2 percent water/filtrate.

Potential exists to increase the choke setting further. However the operator will monitor well performance and make further adjustments as is deemed appropriate. Well planning was based on an initial flow rate of 300 bopd. The current flow rate is approximately 496 bopd, significantly above expectations. Flowing wellhead pressure is approximately 495 psi.

Oseil-26 well is an infill development well located about 918 feet (280 meters) north-west of the Oseil-15 deviated well in the Oseil-2 structural area. The Oseil-26 proposed development well was drilled with the producing Manusela fractured carbonate as the main objective.

The top of the Manusela was encountered at 6,204 feet (1,902 meters) measured depth, or MD, 5,055 feet or 1,541 meters subsea true vertical depth (sstvd), 393 feet high to prognosis, and the 6.125 inch open-hole section extends from 6,712 feet or 2,046 meters MD (5354 feet or 1,632 meters sstvd) to 7058 feet or 2,151 meters MD (5,475 feet or 1,669 meters sstvd).

The 7-inch casing was set at 5,356 feet or 1,632 meters sstvd, approximately 45 feet below the gas oil contact, to limit the potential for gas coning to occur.

The criteria for selection of the Oseil-26 location was based on the identification of an attractive undrained area on the western flank of the faulted four-way dip closure of the Oseil-2 fault block. Pre-drill forecast production potential was 401,000 barrels of oil from Oseil-26 (based on predicted initial production of 300 bopd). The Oseil-26 infill development well is the sixteenth Oseil Phase II Development Program well and the seventh well drilled in the Oseil-2 area.

Oseil-21 Development Well

The Oseil-21 development well is due to spud this week and is expected to take approximately 90 days from spud to rig release. Oseil-21 is a development well located about 1,607 feet (490 meters) north-west of the successful Oseil-26 well in the Oseil-2 structural area, with the main objective being the producing Manusela fractured carbonate. As with Oseil-26, the infill well is intended to recover undrained oil reserves on the western flank of the faulted 4-way dip closure of the Oseil-2 fault block. The well will be drilled directionally from the Oseil-15 well pad to a total depth (TD) of 7,615 feet or 2,321 meters (5,475 feet or 1,669 meters sstvd) in the upper part of the Manusela Formation.

The Oseil-21 infill development well is the seventeenth Oseil Phase II Development Program well and the eighth well drilled in the Oseil-2 area. Economic justification for the well is based upon a low oil rate outcome of 300 bopd and a base case of 500 bopd. If successful, estimated base case production potential from the well is 631,000 barrels of oil.

Lofin-2 Appraisal Well

Lofin-2 is an appraisal well of the large Lofin structure that is scheduled to be spudded in July 2014, upon completion of the Osiel-21 development well. The Lofin-1 discovery well was drilled in 2012 and flowed gas and oil/condensate from the Manusela Formation at a rate 15.7 MMscf/d of gas and 171 barrels per day of 36.1 degree API oil/condensate, with a flowing wellhead pressure 4,750 psi on 24/64-inch choke. An oil/water contact is yet to be established and downhole shut-in pressure data, acquired during testing operations, indicates potential for a highly significant hydrocarbon column (up to 2,540 feet or 774 meters) extending below the total depth of Lofin 1, which will be tested by Lofin-2.

Lion’s share of the cost of drilling Lofin-2 is forecast to be fully funded out of Lion’s production revenue from the Seram (Non-Bula) PSC.

Competent Persons Statement: Qualified Petroleum Reserves and Resources Evaluator

Pursuant to the requirements of the ASX Listing Rules Chapter 5 the technical information and resource reporting provided in this announcement are based on and fairly represent information and supporting documentation that has been prepared and/or compiled by Kim Morrison, CEO of Lion Energy Ltd. Morrison holds a BSc (Hons) in Geology and Geophysics from the University of Sydney and has more than 28 years of experience in exploration of, appraisal and development of oil and gas resources including evaluating petroleum reserves and resources. Morrison has reviewed the results, procedures and data contained in this announcement. Morrison consents to the inclusion of this announcement of the matters based on the information and context in which it appears. Morrison is a member of AAPG.



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