Oil Basins Limited (ASX:OBL) Cyrano Oil Field Scoping Study Suggests Potential For A Rapid Hub Development

Melbourne, Oct 26, 2011 AEST (ABN Newswire) - Oil Basins Limited (ASX:OBL) are pleased to make the following ASX announcement relating to Retention Lease R3 / R1 containing the undeveloped Cyrano Oil Field, offshore Carnarvon Basin, offshore Western Australia (WA) so as to keep the market fully informed.

As previously advised to the ASX on 12 October 2011, the R3 Retention Lease was successfully re-awarded to Oil Basins Limited (OBL) as R3 / R1 for a term of 5 years until 10 October 2016. Work program commitments are modest at a minimum of $200,000 expenditures on Subsurface, Engineering and Economic Evaluation Studies, in each of the five years.

OBL holds 100% of R3 / R1 where previously Oil in Place was estimated at 10.12 MMbbls.

The Cyrano Oil Field, situated in only about 15m water depth, is a relatively shallow (circa 700m deep subsea), low pressure, low permeability reservoir filled with challenging biodegraded 23 degree API heavy oil with a viscosity of 3.95 centipoise (cp) and with a small gas cap.

Earlier attempts to commercialise the Cyrano Oil Field have been unsuccessful.

In parallel with this imminent awarding, OBL recently commissioned its Perth based specialist petroleum engineering and operations consultant DU-EL Drilling Services Pty Ltd (DU-EL) to undertake a scoping study to assess the development options for a field development of the offshore Cyrano Oil Field, Carnarvon

Basin Study Scope of Work

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Recognising that the field presents as a marginal field up until this point in time, the scope of work and study parameters included the following:

- an assessment of the challenges presented by the Cyrano Oil Field;

- an overview of the previous operator's engineering studies and economics (including the OBL R3 Renewal Application dated 9 June 2011) and a review of the OBL commissioned RPS Energy Expert Report (RPS) dated 2 April 2011; and

- a review of the latest development technologies, the suitability of modern completion systems and pumping equipment and, based upon DU-EL's in-house offshore experience in successfully designing and operating similar small marginal offshore field developments in SE Asia (Vietnam & Philippines), a recommended preferred development for OBL.

Principal findings of DU-EL Scoping Study

- After consideration of all the available options, based on the information at hand and the RPS reservoir report, the DU-EL recommended best option is a standalone low cost development initially in the form of an Extended Well Test (EWT) either as a Hub, or series of EWTs using functional removable and re-deployable equipment.

- The Airlie Island option is most likely uneconomical for OBL to pursue, mainly due to the likely disproportionally high net tolling cost related to the attributable upgrading costs of the vintage facility on Airlie to OBL (as a non-JVP) as well as the infrastructure (pipeline and unmanned monopod) required to service the field.

- The most cost effective development would be using a Jack Up Rig or Barge with a modular rig to drill and production test the required extended reach drilling (ERD) - approximate 1000m horizontal section of the wells.

- In taking the RPS recommendation of the ERD aspects of the well into account, this study concluding that the most feasible option would be to start with two horizontal ERD wells into the Mardie Greensand formation, as this appears to be the best producing sands, with higher producing rates then the Airlie Sandstones.

- In contrast with RPS (which assumed no pumping in their field assessment and recovery factor), the DU-EL Scoping Study recommends that once the wells have been drilled, they are completed with modern Electric Submersible Progressing Cavity Pumps (ESPCP), as per their Basic Concept, to aid in production rates of a low pressure reservoir. The Basic Concept development required for the Cyrano first phase development plan is a horizontal well with a sophisticated ESPCP deployed in aid of extracting the heavy oil.

- Utilising the ESPCPs, recovery factors (RFs) are assumed at circa 20% to 40% - broadly in-line with engineering studies by the former operator.

- The wells should then be flowed over a period of time to assess the feasibility of the development design and gain further information about the field. For this phase of the development it is recommended a smaller Barge be mobilised in order to reduce the EWT operating costs. Bringing in a Jack-up Storage Barge with the capacity of 60,000 barrels would in addition reduce the costs of a Floating Storage and Offloading (FSO) vessel on site full-time.

- Production estimates for the ERD horizontals using the advanced ESPCP pump units have been made using DU-EL's experience, with approximate costs estimated up to a two year EWT life following the drilling phase.

- Preliminary EWT economics are encouraging for the conservative production assumptions, and indicates assuming a FEED of USD$3.5m and additional working capital of circa USD$5 million with initial capital expenditure estimated at circa USD$59 million (reducing to less than USD$30 million with the leased case).Assuming a minimum 795,000 bbls recovery per ERD well, development costs of circa USD$38/bbl are estimated with one ERD well, reducing to circa USD$30/bbl with 2 ERD wells. Broad breakeven single EWT economics are within 12 months at a crude oil price of US$80 per barrel assumed as the Base Crude Price.

- Economics improve with modest RF assumptions and the staged second well (and indeed subsequent EWT's) may be funded by project cashflow under some circumstances - indeed one of the key objectives of the EWT is to trial optimum production testing for either additional future EWT's or a full field development.

Study Conclusions

- The DU-EL Scoping Study has successfully built upon earlier work by RPS Energy.

- The DU-EL Scoping Study has suggested a 'new' rapid development EWT concept (which subject to acceptable reservoir risk criteria) may lead to greatly improved economics allowing the development of the Cyrano Oil Field within a modest risked capital of circa USD$30m (assuming all moveable equipment is fully leased) and with expected capital recovery breakeven estimated within 12 months - and recovery factors used are expected to be within those determined by future reservoir simulation studies.

- Reservoir risk and performance of the tight Mardie Greensand flowing moderately low pressure viscous heavy biodegraded crude remains the 'real unknown'.

- Detailed reservoir simulation studies (including orientation of horizontal wells / use of multilaterals and contingent use of either vertical or horizontal injectors - gas and water) are essential to further assess the potential adoption of ESPCP completion technologies and overall recovery factors and reservoir performance characteristics.

OBL Comments and Strategy

OBL is pleased with the significant re-direction that the DU-EL Scoping Study now proposes to improve overall development economics with the following:

- Use of fit-for-purpose re-deployable relatively cheap shallow water equipment.

- Proposed use of ERD laterals and multilaterals technologies.

- Use of modern ESPCP pumps and the possibility with better modelling and field EWT trials to high grade 2P reserves from the relative modest circa 1.5 MMbbls 2C reserves to between 2.0 MMbbls and 4.0 MMbbls 2P reserves.

- OBL will now take steps to further the geophysical and geological studies by integrating the two studies and as a priority determine the extent of the resources contained within R3 / R1 by the assessment of the extension of the nearby Nasutus Oil Field from R5 into R3/R1).

In parallel with future work program activities, additionally OBL will now seek farmin partners to accelerate the Cyrano Oil Field EWT development studies. The advancing of the rapid EWT development concept will be subject to the approvals and consents of the WA Department of Mines and petroleum and all stakeholders

A presentation overviewing and summarising the DU-EL Scoping Study is attached to this Announcement:
http://media.abnnewswire.net/media/en/docs/ASX-OBL-363458.pdf

Contact

Neil F. Doyle SPE Director & CEO Oil Basins Limited Tel: +61-414-912-901 Email: n.doyle@oilbasins.com.au