New Bass Strait O&G Development to Double Beach's Reserves

Beach Petroleum has taken a stake in a new Bass Strait oil and gas development project.

The expansion will more than double Beach Petroleum's reserves base to approximately 10.5 million barrels of oil equivalent.

The Company has reached agreement with unlisted independent upstream oil and gas company, Anzon Australia Limited, for an immediate 25% farm-in to the Basker, Manta and Gummy ("BMG") oil and gas discoveries.

The fields are located in Retention Licenses VIC RL 6, VIC RL 9 and VIC RL 10 in the Gippsland Basin in Bass Strait, offshore eastern Victoria.

In conjunction with the farm-in, Beach Petroleum will also acquire an initial 9% equity stake in Anzon.

Anzon acquired 100% of the Basker, Manta and Gummy assets from Woodside Petroleum earlier this year.

The BMG fields have Proven and Probable (2P) recoverable oil reserves of 23.3 million barrels (mmb). In addition, a contingent gas/condensate resource of 19.2 million barrels of oil equivalent (mmboe) has been identified.

"The acquisition is a quality project consistent with our growth strategy," Beach Petroleum's Managing Director, Mr. Reg Nelson, said.

"It mirrors the strategy we successfully adopted in moving to full ownership of what is now our flagship onshore Cooper Basin production assets, the Kenmore-Bodalla oil blocks," Mr. Nelson said.

"The BMG assets, which offer long-term upside in the same vein but to a much greater degree as did the Kenmore-Bodalla acquisition, now position Beach as a potential producer – and explorer - in the key offshore Gippsland Basin.

"The Basin, although a proven petroleum production province producing around 64% of Australia's crude commercial reserves to date, is, however, very under-explored by world standards.

"Beach expects to be able to fund our participation in the BMG project from existing cash reserves – currently $37.5 million - and revenue from our other oil production assets," Mr Nelson said.

"If appropriate, the Company will also consider using project finance for more efficient use of its capital."

Under the farm-in agreement, Beach owns, a 25% interest in the BMG fields. It has also retained an option to acquire a further 12.5% farm-in interest.

The Company has also agreed to fund one third of the cost of commercializing the 2P oil reserves for the fields – but has set expenditure limits on its contribution.

Beach's obligation reverts to 25% of total costs if the limits are exceeded.

If development of the contingent gas/condensate resource proceeds – the planned third stage commercialization of the fields after oil production commences - Beach will fund 30% of the capital development costs for this gas stage, but again to set limits.

In addition, under a share subscription agreement, Beach has acquired approximately 9% of the issued shares of AZA for $5 million and has agreed to subscribe a further $5 million to an Initial Public Offering (IPO) by AZA later this year.

In the event that the IPO is fully subscribed, Beach expects to hold approximately 10- 11% of the issued capital of Anzon, which will initially focus on fully developing the BMG assets.

Production target of less than 18 months Mr. Nelson said the Beach Petroleum-Anzon joint venture would now:

  • Appraise and develop the oil reserves at BMG with the aim of establishing production within 12 months
  • Evaluate identified exploration leads, and
  • Commercialize the identified gas/condensate resource as soon as feasible.

  • "An initial review of 3D seismic data over the BMG properties indicates that there may be some significant exploration plays for follow-up drilling," Mr. Nelson said.

    "If full development of the fields is warranted, production is expected to reach a peak in excess of 20,000 barrels of oil per day (bopd), based on historical performance of other fields in the region," Mr. Nelson said.

    An appraisal well will be drilled as early as the second quarter of 2005.

    Major boost to Beach's reserves

    The Anzon acquisition increases Beach's 2P oil reserves entitlement by 5.8 million barrels (mmb), more than doubling the Company's oil reserves of 4.3 mmb at June 30, 2004.

    With additional new reserves from discoveries late in September at Beach's Christies oilfield in the Cooper/Eromanga Basin, Beach Petroleum's reserves now total approximately 10.5 million barrels.

    Mr. Nelson said the contingent estimated gas/condensate resource within the BMG licenses had the potential to increase the Company's reserve base by a further 4.8 mmboe.

    "This is an attractive opportunity to farm-in and secure a long term presence in a blue-chip petroleum address," Mr. Nelson said.

    "The fields' short production cycle and close proximity to infrastructure and refineries, are highly favorable for quick cash flow in the current high oil price environment.

    "The BMG assets particularly will benefit from modern technologies developed in the past decade or so. The Beach-Anzon joint venture is considering the use of a dynamically positioned mini Floating Production and Storage Offtake (FPSO) vessel and shuttle tankers and while 3D seismic has been recorded since the fields were discovered, no new wells have been drilled using this data.

    "Overall, the investment offers three undeveloped fields with a medium risk, but potentially high reward profile, and that is the exact investment Beach was seeking for such a milestone expansion," Mr. Nelson said.

    "We have reviewed many opportunities over the past 12 months. We think that this project fits our objectives of quality, diversification and the potential to add real value."

    Development timetable

    Anzon is headed by Executive Chairman, Mr. Steven Koroknay, a respected Australian oil and gas industry executive, with substantial experience in developing Bass Strait oil and gas reserves.

    "We are planning to drill Basker-2 in the second quarter of 2005," Mr. Koroknay said.

    "Subject to successful testing, we expect to move to full production from Basker in the first half of 2006." Mr. Koroknay said.

    "The Manta field is to be developed concurrently with the Basker field." Anzon will be Operator over the fields with current total field development costs of approximately A$200 million for the BMG oil-only reserves.

    Beach Petroleum is due to expand its offshore activity even further during the coming summer when Corowa East-1 spuds in WA-264-P in the Carnarvon Basin of Western Australia, in joint venture with Santos Limited and Kufpec Australia Pty Ltd.

    Mr. Nelson said that he expected to announce further offshore exploration drilling participation by Beach in the near future, noting that the Company is continuing a very active Cooper Basin program, with up to 8 onshore wells planned over the next few months.