Exploration Permit NT/P68

On February 23, 2004, the Northern Territory Department of Business, Industry and Resource Development, as the Designated Authority and on behalf of the Commonwealth of Australia, granted a petroleum exploration permit over the area NT/P68 to the MEO Australia wholly owned subsidiaries, TSP Arafura Petroleum Pty Ltd and Oz-Exoil NL.  Note the NT/P68 permit map below and the proximity to Tassie Shoal, the location of the company's methanol and LNG projects.

The NT/P68 Permit will have an initial life of 6 years, with two further 5-year rights of renewal.  The permit area covers an area of 12,070 kms² (2,981,290 acres) and is located immediately to the west of Tassie Shoal.  The Company believes that the permit offers considerable scope for the confirmation of significant gas accumulations that could support the future gas demand of either the methanol or LNG projects.

In 2006, MEO acquired approximately 600 line km of 2D seismic and 500 square km of 3D seismic in NT/P68.  The new seismic data was fully processed to both PSTM and PSDM volumes. 

While a number of leads and prospects have been identified in this large permit, MEO has focused its efforts on the Epenarra, Heron and Blackwood structures so that optimum well locations could be selected for the West Atlas drilling campaign.  MEO contracted the West Atlas for two firm wells and one option well.  The rig commenced drilling the Heron-2 well on October 12, 2007.  This well is designed to penetrate and production test the interpreted hydrocarbon bearing zones identified in Heron-1, the most significant in the Darwin Formation, where hydrocarbons were recorded in a fractured carbonate interval in the lower section of the formation. 

During 2007, a series of geoscientific studies were undertaken to better define the nature of the potential gas accumulations in NT/P68 and the probability for commercial deliverability.  These included charge and migration modelling, regional tectonic stress regimes and fracture modelling, well-bore stability and hydrocarbon inclusion sampling.  CSIRO Petroleum was engaged to conduct hydrocarbon inclusion and Raman Laser microprobe testing on cutting and core samples obtained through the gas charged zones identified in the Heron-1 well.   The first stage of the study focused on the gas charged zone within the Darwin Formation and confirmed that the hydrocarbon inventory in Epenarra would most likely have a high condensate gas ratio (CGR) (~100bbls/MMscf) and contain low levels (1% to 3%) of carbon dioxide (CO₂), a gas quality regarded as suitable for LNG conversion.

The second stage of the study reviewed the Heron-1 core and cutting samples where the deeper Top Elang/Plover Formation gas charged sandstones were penetrated.  CSIRO’s testing on these deeper samples indicated that the initial charge into the Elang-Plover system was a wet gas which most likely contained magmatic CO₂.  Progressive burial of the reservoir and increasing temperatures appears to have thermally “cracked” the longer chain hydrocarbons, producing a dry, methane-rich, low CGR gas.  This dry gas is expected to contain CO₂, with a value between 15-25% regarded by CSIRO as the most likely range.  This gas would be suitable for methanol production.

Fugro Jason Australia was engaged to conduct reservoir characterization studies of Epenarra utilizing Heron-1 well data and the new 3D seismic.  The study demonstrated that areas of lower impedance in the high impedance reservoir groups were likely to correlate with better reservoir quality.  Additionally, the study identified zones of increased fracture density and the orientation of the open fracture sets.  Fugro integrated all available data into a single model through a pre-stack inversion process to enhance understanding of the Epenarra gas bearing reservoir within the Darwin Formation so that zones of increased porosity/permeability could be identified, with sweet spots targeted by the 2007 drilling program.  This model was used to confirm the optimum location for the Heron-2 and Heron-3 appraisal wells. 

Fugro Inversion section - random line through Heron-1 and proposed Heron2 location

The estimated gas-in-place mean Contingent Resource for Epenarra is 5620 Bcf (P50: most likely) with a recoverable mean Contingent Resource estimate for gas of 3200 Bcf.  The estimated gas-in-place mean Contingent Resource for Heron North and Heron South is 5537 Bcf (P50: most likely) with a recoverable mean Contingent Resource estimate for gas of 3875 Bcf. 

MEO has designed the West Atlas wells and received approval to drill in any of four locations.  The rig will initially drill Heron-2, which is approximately 2.7 kilometres north of the Heron-1 location.  Heron-2 is a vertical well designed to penetrate and production test both the Epenarra and Heron North structures.  The total depth of the well is 4300m subsea and the duration if full production testing is conducted in both horizons is expected to be 75 days.

Dependent on the results of Heron-2, the second well would either be Heron-3B, Heron-3C or Blackwood-1.  Heron-3B is designed as a commercial production test of Epenarra with a 500m horizontal completion.  Heron-3B is approximately 5 kilometres northwest of the Heron-1 location and is sufficiently down-dip to prove a significant P2 resource assuming the production testing is successful.  Heron-3C is south of Heron-1 and is designed as a vertical well to penetrate both the Epenarra and Heron South structures.  

Blackwood-1 is an exploration well to test the conventional Plover Formation prospect, which is located in the northern part of NT/P68 on the Sahul Platform.  The Blackwood prospect is relatively shallow with a target reservoir depth 3350m.  The shallower depth of Blackwood may improve the porosity and permeability of the Plover sandstones, and therefore producability of any gas discovered.

West Atlas drilling rig’s October 2007 arrival into Darwin on the heavy lift vessel, Blue Marlin

The 2007 drilling campaign should be completed early in 2008 and if successful would lead to further drilling in 2008 to fully appraise the gas accumulations leading to third party reserve certification.  MEO remains optimistic that drilling results could establish sufficient commercial gas resources in NT/P68 to underpin the development of the approved Tassie Shoal gas-to-liquid projects.