Talk of further rationalisation of increasingly valued Perth Basin oil interests became substance last week as companies traded percentage points for as much as $1.7 million each.
The deals underscored regard for the offshore Cliff Head and onshore Jingemia finds, but also spelt dilemma for low-priced junior partners keen to boost their holdings.
Onshore Perth Basin specialist Arc Energy sold its entire 7.5 per cent interest in offshore WA 286P to permit operator Roc Oil for a conditional $12.75 million in a deal thrashed out over two months.
On Government approvals, $9 million of this goes immediately to Arc as a cash payment, the remainder dependent on reserves for the Cliff Head field, oil prices and any new discovery declared commercial within four years.
The type of deal has been described as "typical", but the price is considered a guideline for other deals likely to follow.
Arc, operator and a 50-50 partner with Origin Energy in the producing Hovea field, is focused on achieving quick production from discoveries, and this is much easier to execute with onshore discoveries, and in small group partnerships.
Prior to Arc’s sale there were five partners in WA 286P and Roc CEO John Doran said any front-end design study was not expected to be announced before the third quarter this year.
Arc is keen to explore more onshore prospects, and has just paid $150,000 for 0.25 per cent from Victoria Petroleum in the Jingemia discovery in EP 413, adjacent to its
own production interests.
Arc still holds 15.5 per cent of the offshore TP/15, in between WA 286P and EP 413, and along the shoreline, but shared by more partners than WA 286P.
First cash from the company’s WA 286 P is expected within two months, and with continued strong cashflow from Hovea, onlookers are expecting more trading.
Voyager Energy, in WA 286P, TP/15 and EP413, is also "advancing plans" for more equity in EP 413, something Victoria Petroleum is still able to offer, but only a little more than one quarter of a per cent.
Their stocks were most vulnerable to the Summer wildcat drilling disappointments, the smaller partners are finding it tough in the current circumstances to exploit their knowledge and positions, Voyager managing director John Begg said.
"But the pragmatic outcome is a good one for Cliff Head," he said.
"Given that the operator is making the purchase, it’s a real thumbs up for the Cliff Head project. We were very interested in improving our position there, but it was beyond our capacity."
Victoria Petroleum has also sold Roc a 0.25 per cent chunk of EP 413 for $150,000 and managing director John Kopcheff confirmed the company still had plans to reduce its holding by a further 0.2685 per cent.
Commencing long-term production testing, the Jingemia-1 well offers steady cash-flow this year, and the field will be much cheaper to develop than any offshore finds.
On further dealings, Mr Begg would only say Voyager remained interested in improving its position, and Arc managing director Eric Streitberg would only reveal the company was continuing to consider "all business opportunities".
However Mr Streitberg pointed out last week’s WA 286P announcement was "carefully phrased".
Dr Doran, renowned for his caution on blue-sky projections, announced the WA 286 P deal in typical thematic style: "This acquisition is a good example of the sort of deal that can be done when two companies have a clear view of their strategic objectives, a realistic view of the potential value of the relevant asset and a constructive and open-minded view about sharing down-side risk and upside potential."
Cliff Head reserve estimates were downgraded earlier this year from a high of 40 million barrels to 30 million – a big disappointment for the joint venture - and drilling suggested a thinner poorer quality reservoir.
However the flow-rate from Cliff Head-3 was much higher than expected in this scenario, and Bell Potter Securities senior analyst Matthew Ward said all the companies were being realistic about any development.
Unlike Arc, significant Cliff Head partner Australian World-wide Exploration has no intention of selling out of the field.
AWE managing director Bruce Phillips described the Cliff Head-3 flow as "excellent", even though it was "from some of the poorest reservoir rock known in the field".
The lower reserves meant capital costs should come down comparably, and the NPV should not be dramatically reduced.
"In any appraisal program there are positives and negatives," Mr Phillips said.
"We are very interested in acquiring more (of WA 286P)," he said.
"The Perth Basin is a corner-stone asset for us."
Even for vulnerable partners like Norwest Energy, whose stock has slumped the most following unsuccessful drilling near Cliff Head, the benefit of staying on remains, Hogan & Partners resources analyst Adam Conigliaro says.
Norwest CEO Ivan Burgess acknowledged the market had really wanted Twin Lions to come in positive at first try, like Cliff Head.
Twin Lions is a prospect straddling WA 286P and TP/15.
Cliff Head is viewed as Norwest’s only tangible value, but capital raisings and bank project finance are achievable once the development is considered a robust project, Mr Conigliaro maintains.
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