Borders and Southern spurts higher on operational update

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South Falkland oil and gas explorer, Borders and Southern (BOR) are up 13.5% to 27p this morning after an operational update RNS giving some extra facts on figures relating to last year’s drilling campaign. The company’s analysis appears to show that its Darwin East discovery is commercial at $65 per barrel and above, the quality of the gas condensate is similar to light oil and that it could produce a mid case of 210 million barrels with the right aquifer support.

The company is planning to reinterpret 3D seismic data on its acreage and then opening a data room for a potential farm out. But given limited rig availability, BOR is unlikely to be drilling another well before late 2014.

Encouraging news from Borders, but plenty of patience still required and hurdles to cross given the technical and geographical challenges of the South Falkland basin.  The key will be the need for a partner which the company intends to update investors on later in 2013.

Unsurprisingly some strong profit taking on the initial 30% plus spurt up this morning, given it will be many months before further substantial news flow.

Contrarian investor UK

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11469785
Some key highlights include:

“Fluid analysis has revealed that the discovery contains a relatively high liquid content. Initial reservoir engineering studies, suggested that 130 to 250 million barrels of liquid could be recovered, with a mid case of 190 million barrels (split almost equally between the two fault blocks). Subsequent studies have shown that, if there is strong aquifer support, the mid case could be as high as 210 million barrels
“Whilst the discovery well was not tested, analysis of the reservoir parameters suggests that individual sustained well flow rates of up to 70 MMscf/d (gas) and 9,500 stb/d (condensate) could be achieved.”
“Whilst the quantity of condensate available for analysis was limited, and further analysis will be required, preliminary observations indicate that the liquid is typical of an ultra-light crude oil and somewhat heavier than most condensates (API gravity of 44.5 to 49°)”

In Q4, 2012 the Company commissioned E & P, part of the ThyssenKrupp Group, to undertake a screening feasibility study. The objectives were to determine if the development of Darwin East and West would be technically viable and to provide some high level cost estimates for an economic model. The conclusion of the study was that Darwin East and Darwin West are technically viable as stand alone developments, phased developments or combined in parallel development. Despite a relatively harsh environment and lack of local infrastructure, there is sufficient confidence in current proven technology to develop the discovery. The study concluded that the most likely development option would be subsea wells tied back to an FPSO for processing and storage of the condensate whilst re-injecting gas back into the reservoir to maximise liquids recovery. The integral storage offered by an FPSO allows condensate to be offloaded to shuttle tankers for export. It has been estimated that a development of this type would take three years from project sanction to first production.

 

Numerous production profiles and cases have been considered, including Darwin East as a stand-alone development (with production levels up to 28,300 barrels per day) and Darwin East and West as a combined development (with up to 56,600 barrels per day). Facilities capital expenditure estimates for a Darwin East stand-alone development, including a 40% contingency, are $2.73 billion if the FPSO is purchased or $1.585 billion if the FPSO is leased. Capital expenditure estimates for a combined Darwin East and West development, again with 40% contingency, are $3.77 billion (FPSO purchased) and $2.435 billion (FPSO leased).

Economic modelling, undertaken by an independent consultant, has shown that a 200 million barrel development project would be commercial at an oil price as low as $65/barrel. It has also shown that a 100 million barrel development project could be commercial, but requires an oil price of at least $85/barrel. Leasing the FPSO delivers a higher economic return. Using an oil price of $100/barrel with a $1/barrel discount and including a 40% capital expenditure and operating expenditure contingency, a 200 million barrel development could yield a net present value (at a 10% discount rate) of $1.7 billion.

Having determined that a gas condensate development to the south of the Falkland Islands is both technically and commercially feasible, the next step for the Company is to prove up the recoverable volumes in its discovery with appraisal drilling and to confirm the predicted well flow rates with a well test. Due to the high confidence levels in the geophysical attributes, the appraisal drilling is considered to be relatively low risk. The Company is currently reviewing the rig market for the next drilling campaign.”

“The impact of all this new geochemical information is that there is likely to be a range of source rock types, quality and maturity levels in Borders & Southern’s acreage and we might expect oil, gas and condensate in future discoveries.”

“The Company’s prospect inventory contains nine prospects within this fairway (prospect sizes in the range 120-720 million barrels recoverable) along with several other leads. Many of the prospects are considered to be low to moderate risk and are located close (3 to 10 km) to the Darwin discovery. In addition to these Early Cretaceous prospects, the Company’s prospect inventory contains numerous Late Cretaceous and Tertiary prospects.”


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