Exploration the crux of the matter

VICTORIA-based oil and gas company Nexus Energy listed on the ASX in 2000, and made the transition from explorer to producer nine years later.
Since then, the company has built up a portfolio of high-quality assets in two regions of Australia: in the Gippsland Basin off the southeast coast of Victoria, Nexus owns and operates the Longtom gas project; and in the Browse Basin offshore WA, it holds a majority stake in the developmental Crux asset with Osaka Gas.
Nexus is also the sole owner of WA-377-P, a high-potential exploration permit that contains the Echuca Shoals gas fi eld in the Browse Basin.
The company is currently focussed on maintaining production and exploring further upside volumes from its Longtom asset, in addition to the commercialisation of the Crux fi eld plus the continued exploration and appraisal of WA-377-P.
Longtom gas project Discovered by BHP Billiton in 1995, the Longtom gas field was initially considered to be non-economic. However, in 2006 after Nexus had acquired exploration permit VIC/P54 in 2003, it drilled the Longtom-3 well and confi rmed the fi eld’s commercial potential when a fl ow rate of more than 75 million standard cubic feet of gas per day was recorded during a production test spanning several reservoir sections.
The company was granted a production licence for petroleum permit VIC/L29 in 2007, and production from the Longtom gas project began in October 2009.
The development concept for Longtom involves the production of gas through two horizontal subsea wells that are tied back to the upgraded, Santos-operated Orbost onshore gas plant in Victoria. In 2005, Santos had signed a Gas Sales Agreement with Nexus to process up to 450 petajoules of raw gas from the Longtom gas fi eld through Santos’s existing Patricia Baleen facilities. Gas from Longtom is currently delivered into the Eastern Gas Pipeline that connects the Melbourne and Sydney gas markets, while the condensate is trucked and sold to the Shell refi nery in Geelong, Victoria.
In Nexus’s December 2011 quarterly report, the company stated that it had sold 5.33pj of gas and 45.55 thousand barrels of condensate to Santos in the period, booking total revenues of $24.7 million (which was $4.3 million less than in the previous quarter).
Nexus also stated that further to the first phase of offshore works that were completed in September (a full survey of the pipeline and subsea facility, which verified the facility to be in good condition), a second phase of offshore works utilising a small remotely operated vehicle was completed at the end of
the December quarter.
The second phase of works located the source of a small hydraulic leak that had been ongoing for the last 15 months. Long lead items were currently being sourced to enable the leak to be repaired, with the work scheduled for the second half of 2012. “As presented at the 2011 Annual GeneralMeeting, the less than expected performance of producing wells Longtom-3 and Longtom-4 has led to an extensive review of the fi eld to identify further development opportunities to satisfy Nexus’s obligation under the Gas Sales Agreement,” the company stated. “As a result of this review, a full updated reserves report is expected in March 2012.”
Potential well designs for both the Longtom South exploration prospect (now renamed the Gemfish prospect) and a possible field infill development well (Longtom-5) were progressed as options for drilling in 2012. Crux asset
As operator of production licence AC/L9, Nexus acquired the Crux fi eld in January 2006. The permit’s average water depth is about 170m, with the major Crux reservoir at 3800m.
The company holds an 85 per cent equity share in the liquids resource, with its joint venture partner Osaka Gas owning the remaining 15 per cent. Shell Development Australia holds the rights to 100 per cent of the gas resource within the permit and, under the current contract, it will be able to access the gas in 2021.
Nexus stated that to date, fi ve intersections of the Crux fi eld had been drilled and about 280 square kilometres of 3D seismic data had been collected to delineate the structure. On January 19 this year, the company signed a non-binding Heads of Agreement (HOA) with Shell and Osaka Gas to exclusively pursue a Shell-led integrated gas and liquids development to commercialise the Crux asset.
Nexus stated that the non-binding HOA was executed after it had fully considered the standalone liquids project versus an integrated development case with Shell to achieve maximum shareholder value. “We are pleased with this agreement with Shell and Osaka Gas, and believe it is a good outcome for Nexus and our shareholders,” Nexus chairman Michael Fowler said in a statement.
“It will allow us to focus on adding potential gas reserves to the Crux area and continue the next phase of growth for the company.”
He said that the deal provided certainty for the future of the Crux project and created a transparent value for Nexus’s share of the project, which was not fully refl ected in its share price.
“The base case development option is for Crux to become part of the Prelude Floating LNG project currently under development by Shell. This provides Nexus with exposure to
future LNG sales in proportion to its equity interest,” Mr Fowler said. “This deal gives Nexus high leverage within the Australian E&P [exploration and production] sector as we are the only mid-tier stock with planned production through Shell’s Floating LNG project,” Mr Fowler said.
Nexus explained that the agreement, once finalised and subject to a number of conditions (including relevant regulatory approvals), would result in a new joint venture being formed to consolidate the existing gas interests held by Shell with theliquids interests held by Nexus and Osaka Gas.
The transaction will enable the new joint venture to evaluate the Crux exploration prospects in AC/L9 and potentially increase reserves.
“An amendment of the terms of the licence consistent with the integrated project will also be required,” Nexus stated. “Once binding agreements are signed, targeted for April 2012, participating interests for the new joint venture will be Shell (becoming operator) holding 80 per cent, Nexus 17 per cent and Osaka Gas 3 per cent.”
Nexus also has a 12-month option to sell 2 per cent of its participating interest in the new joint venture to Shell for $75 million, reducing Nexus’s participating interest to 15 per cent. Shell will become operator of the AC/L9 Crux title after settlement, which will require approval from “the relevant Federal
Government authorities”. “As Shell has indicated, Crux gas is an integral part of its groundbreaking Prelude Floating LNG development as it intends to use gas from Crux to ensure the PreludeFloating LNG facility continues to remain at full throughput for as long as possible,” Nexus stated.

Home to the Echuca Shoals gas discovery, exploration permit WA-377-P was solely awarded to Nexus in March 2006. According to the company, the Echuca Shoals-1 well that was drilled in 1983 intersected a gas column over a 70m gross interval but did not intersect a gas-water contact.
Pressure data from the well indicated the potential for a signifi cant column and the likelihood that the accumulation was stratigraphically trapped. It also allowed for the possibility of condensate-rich gas as no samples had been collected in the original well.
In August 2007, Fossetmaker-1 was drilled 7km east of Echuca Shoals-1 to evaluate the possible eastern extension of the field. The well intersected about 10m of gross pay based on log data, however, pressure communication with Echuca Shoals-1 was unable to be determined due to the tight reservoir.
The current estimated gas in place at the
Echuca Shoals gas field is about 0.5 trillion cubic feet within the permit. In addition, and as stated in Nexus’s 2011 annual report, the Cooper and Mashmaker prospects have been identified via 3D seismic data in the northeast of the permit at the prospective Plover and Tithonian reservoir levels, with total an estimated volume of about 5tcf in place unrisked. The company stated that additionally, the combined potential for associated condensate in the permit was most likely to be more than 200 million barrels.
In the same December quarterly report, Nexus stated that geological and geophysical studies were continuing in the Echuca Shoals exploration permit, which was “favourably located” near the Prelude and Ichthys developments in the Browse Basin.
The current work program commitments for permit year six (ending March 2012) included seismic reprocessing. “This project is on target and near completion. Once completed, all work commitments for the permit term will be met,” the company stated. “As previously reported, a five-year renewal term application was submitted to the government authority in December 2011, incorporating further studies, prospect maturation and a commitment well in the third year.
“Farm-out efforts are continuing with the objective of achieving a full carry on the planned well, hopefully earlier than year three,” Nexus stated.

 

By Jaimee Conn

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