2016 Annual Report and Financial Statements
- Net loss after tax for the twelve months ended 31 December 2016 was US$13.0 million.
- Net oil and gas revenues (after royalties) of US$1.1 million generated from production of 313 MMcfe at an average gas equivalent sales price of US$3.48/Mcfe.
- Acquisition of 100% working interest (82.5% participating interest) and operatorship of the Damis (Block S-1) Production licence in Yemen which holds 5 sizeable oil and gas discoveries including the developed/productive An Nagyah Oilfield holding reserves and target resources of approximately 55 million barrels of oil and 550 billion cubic feet of gas.
- Successful production test of the Main Pass Block 270 No.3, Hummer discovery well with test rates on a 16/64th inch choke averaging 19.88 MMcfpd and 396 bopd. Platform jacket construction and installation completed.
- Award of Main Pass Block 274 lease (Hummer Project) at the Central Gulf of Mexico Lease Sale 241.
- Increased potential working interest in Block 7, Yemen to 100% following execution of an Acquisition Agreement with KUFPEC to acquire their 25% interest in the block.
- Establishment of a branch office in Sana'a, Yemen.
- Establishment of US$15 million secured convertible note facility to provide flexibility for the Group's ongoing funding requirements to progress its development projects in the USA and Middle East and North Africa ("MENA") - US$4.5 million drawn down under the facility as at 31 December 2016.
- Completed a fully underwritten non-renounceable entitlement offer raising approximately A$11 million.
- At 31 December 2016, Petsec Energy held total cash deposits of US$13.1 million (including US$3.6 million of restricted deposits).
The Hummer Prospect, which was generated by Petsec Energy in 2010, was drilled in late 2015 and is a substantial oil and gas discovery with five reservoirs covering a large prospective area extending over three offshore lease blocks of Main Pass 270, 273 and 274. Petsec Energy owns a 12.5% working interest in the Hummer discovery in the three Main Pass leases.
A jacket was constructed and set over the well and the well was completed for production in November 2016.
The well was production tested in one of the upper reservoirs over a 48 hour period beginning 16 November 2016. Flow rates were measured at restricted rates on variable choke sizes.
Over the last three hours of the 48 hour test period the well flowed at an average rate of 19.88 MMcfpd (million cubic feet of gas per day) and 396 bopd (barrels of oil per day) through a 16/64th inch choke with an average flowing WHP of 9753 psi (pounds per square inch) and no formation water. Production rates continued to rise over the duration of the test with a maximum gas rate of 20.5 MMcfpd recorded. The flow rates met our expectations and supported the Company's high range estimates of mapped potential.
The Main Pass 270 No. 3 well was perforated from 14,100 feet to 14,186 feet measured depth (MD), 14,058 feet to 14,144 feet true vertical depth (TVD) in a Miocene age sand reservoir. Well logs indicate four additional potential reservoirs in the well, but a decision was made not to run additional tests at this time. These untested sands will be targets of future drilling activity on the Hummer Project. Significant production occurs for similar reservoirs along trend. Peak production rates from those intervals can exceed 25 MMcfpd and 1000 bopd. The well has now been temporarily suspended pending the fabrication and installation of a production deck and gas and oil pipelines. The Company estimates first production from the Hummer project to commence in late third quarter 2017.
Oil and Gas Reserves Acquisitions in the MENA Region
The Company's major achievement for 2016 was the acquisition of a 100% working interest in the Damis (Block S-1) Production Licence in Yemen. The block holds five substantial oil and gas field discoveries, only one of which, the An Nagyah Oilfield, has been developed. The An Nagyah Oilfield production was suspended in 2014 due to political uncertainty in Yemen. Remaining oil reserves net of all costs to Petsec Energy's economic interest in An Nagyah are 5.6 million barrels. The estimated net present value of the oilfield to the Company was US$155.4 million at Brent oil forward prices as of the 1st January 2016. The field is in a state of readiness to recommence oil production once the situation allows, which we assess to be during the course of 2017. In the absence of the re-opening of the Marib export pipeline to Ras Isa on the Red Sea, it is the company's intention to restart production by way of trucking to the East of An Nagyah to the Masila Basin oil facilities, which have been back in operation since Se ptember of 2016 with regular oil shipments from the port of Ash Shihr, near the city of Al Mukalla on the Southern coast of Yemen.
During 2016, the Company also entered into an agreement with KUFPEC which will see it acquire the remaining 25% of Block 7 in Yemen it does not already own. The KUFPEC transaction will bring the Company's potential interest in the block to 100%.
Block 7 holds the potentially large Al Meashar oil discovery with target resource potential of 11 MMbbl to 50 MMbbl of oil, and eight prospects and leads each holding target resource potential of up to 900 million barrels of oil.
The outlook for oil and gas has improved substantially since our last annual report. At this time last year the oversupply of oil internationally and natural gas in the USA, had caused a substantial fall in oil & gas prices, which made conducting our business particularly challenging. However, I am pleased to say that oil prices and gas prices have rallied substantially over the course of 2016. Oil prices are now above US$50/barrel versus US$30/bbl at the beginning of the 2016 year and US gas prices are closer to US$3 per thousand cubic feet of gas rather than US$2 in early 2016.Our current reserves are highly economic at current prices, and at such time as the An Nagyah Oilfield can be brought back into production, anticipated in excess of 5,000 barrels of oil per day, it is likely to generate annual cash flow the equivalent of our current market capitalisation.
In 2017, in the USA, we shall concentrate on bringing the Hummer oil and gas discovery into production which is scheduled for September 2017 and in Yemen, we will seek to bring the An Nagyah Oilfield back into production, which should generate sufficient cash flow to engage in further development of An Nagyah and our other five undeveloped oil and gas fields.
The Company now has a sizeable reserves base and large oil and gas resources which could be developed for production in the near term, providing a strong growth profile for many years, and high leverage to any increase in oil prices.
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About Petsec Energy Ltd
Petsec Energy Ltd (ASX:PSA) (OTCMKTS:PSJEY) is an independent oil and gas exploration and production company listed on the Australian Stock Exchange. It has operations in the shallow waters of the Gulf of Mexico and state waters of the Louisiana Gulf Coast region of the USA, and exploration activities in the Gulf Coast onshore and bay areas of Texas and Louisiana, USA and Yemen.
Petsec Energy Ltd