11th May 2010 07:00
LENI GAS & OIL PLC
("LGO" or "The Company")
11 May, 2010
PORTFOLIO OPERATIONS & RESOURCES UPDATE - SPAIN
Leni Gas & Oil plc (LGO), the AIM listed international Oil and Gas Exploration, Development and Production Company, today announces an update to its 100% owned Spain interests and reports a major increase in resources, a step change in production strategy and expansion of oil sales off-take plans.
Updates on Trinidad and Malta shall be issued shortly, with quarterly reporting on all countries issued as a norm during the remainder of 2010.
Highlights
·; Comprehensive geological re-interpretation of Ayoluengo completed with reprocessed 3D seismic. Increased understanding of the field and de-risked future production expansion programs.
·; Total STOIIP of the currently assessed prospects across the acreage which can be developed is 173.8 mmbo Mean, 265.2 mmbo P10, 151.4 mmbo P50, and 108.3 mmbo P90.
·; The updated geological re-interpretation has considerably increased the chance of success in developing the prospects.
·; Two new deeper hydrocarbon carbonate structures identified approximately 1000m below Ayoluengo in the Lower Jurassic, Ayo D1 and Ayo D2. Ayo D1 is a conventional hydrocarbon reservoir in limestones within the Lias Calcarenite interval (at a depth between 2000m and 2300m subsurface) and Ayo D2 is a deeper unconventional gas play in the Liassic interval (at depths to 2700m subsurface).
·; A large gross rock volume for Ayo D1 has been deterministically estimated at 780 million m3 with a gross 80m reservoir sequence (equivalent to a 10 sqkm reservoir footprint). Ayo D2 is a shale gas play and assuming it is comparable to shale gas plays in North America has a size equating to a GIIP of 3.8 tcf (630 mmboe).
·; Ongoing negotiations near conclusion with the Spain Government, major oil refiners and international oilfield service companies to increase investment for step changing production and off-take from all identified prospects.
·; Significant progress made to modernise and expand the capacity of the processing facilities, off-take the majority of production to BP refineries in Spain, undertake various methods of enhanced oil recovery, and fast-track development of the exploration prospects into production.
·; Compliance with new European safety and environmental legal requirements through a major survey and compliance program with SGS at the Ayoluengo processing facility.
David Lenigas, Executive Chairman, commented:
"The Company is tremendously excited about the recent achievements and potential of Spain, the core investment in LGO. Considerable effort by LGO, our staff in Spain and external providers, has positioned Spain for several orders of magnitude increase in activity, production, potential and contribution to both LGO and Spain national production revenues."
"The achievements in Spain are too numerous to mention, though the key ones are the improved understanding and new development strategy for Ayoluengo, the deeper resources identified below Ayoluengo, progress on other prospects, modernisation and expansion of the infrastructure to handle very high production volumes and the potential of a new oil sales off-take agreement with BP."
"The potential of our investment in Spain has been recognised by the highest levels in the Government, one of the world's largest oil and gas companies, and international oilfield service providers who have all committed the resources to support LGO with ensuring our interests in Spain meet their absolute potential."
Background
LGO retains 100% ownership through its wholly owned Spain subsidiary, Compañia Petrolifera de Sedano, in one production concession, La Lora, and three exploration permits, Basconcillos H, Huermeces and Valderredible, in north Spain. The permits are centrally located in the proven Basque-Cantabrian petroleum basin and span an area of over 550 sqkm, with a processing facility designed to handle 10,000 bbls per day and store 21,000 bbls centred on the producing Ayoluengo oilfield which itself spans an area of 14 sqkm.
The reserves and potential resources of the acreage are located in thirteen prospects which are at all stages of exploration, appraisal, development and production. One prospect is currently in production (Ayoluengo), two in development (Hontomin and Tozo) and nine in varying stages of exploration and appraisal (Bas A, Bas B, Ayo NE, Val A, Val B, Val C, Val D, Ayo D1 and Ayo D2). The Huidobro prospect has been relinquished due to its location within an area of high environmental sensitivity.
Existing Producing Interests - Ayoluengo and Processing Facilities
The Company's existing producing interest is 100% of the Ayoluengo oilfield which is primarily a sandstone formation in the Lower Cretaceous and Upper Jurassic, with resources distributed over four different reservoir zones at depths between 800m and 1200m subsurface.
During Q4 2009, the 3D seismic shot over Ayoluengo by Chevron in the early 1990s was reprocessed using modern techniques, and during Q1 and early Q2 2010, was re-interpreted by Equipoise Solutions Ltd ("Equipoise") to improve the Company's understanding of the oilfield, de-risk production development programs and assess the deeper prospectivity.
Reprocessing the Ayoluengo 3D seismic data has resulted in a clearer structural image of the field and a more accurate determination of the fault positions. Relative to previous interpretations, the main differences are in the main field west-east bisecting fault, which is now smoother, and also to the north east, where cross-faults have been remapped. The result of the reprocessing and re-interpretation is a better understanding of the structure of the Ayoluengo field with revised deterministic and probabilistic estimates of STOIIP for the producing Lower Cretaceous and Upper Jurassic reservoirs.
The change in the position of the main field west-east bisecting fault accounts for the bulk of the differences in STOIIP for each reservoir zone compared with the interpretation done by AGR Tracs at end 2008. The overall STOIIP has increased by 1.7 mmbo with total probabilistic STOIIP of 105.72 mmbo Mean, 117.56 mmbo P10, 105.41 mmbo P50 and 94.19 mmbo P90. Historical cumulative production is 17.16 mmbo and 16.14 bcf (19.85 boe) equivalent to an 18.8% recovery factor.
The interpretation has also redistributed the oil between east and west and within each reservoir zone. Oil in place has slightly reduced in the east flank (79.5 mmbo 2010 versus 83.6 mmbo 2008) and considerably increased in the west (27.3 mmbo 2010 versus 20.6 mmbo 2008), particularly in the shallower zones with significant height above the water contact. Recovery factors to date in the east flank are 21% and only 5% in the west flank. Ultimate recovery factors within sandstone formations can reach 50% with the effective use of artificial stimulation and enhanced recovery methods.
Currently of the fifty three wells drilled on Ayoluengo, all of the fourteen producers are located in the east flank of the field. The new interpretation, remapping of primary and secondary faults and identification of increased resources in the west flank, has revised and de-risked the Company's future production expansion plans for Ayoluengo. The previous development strategy of maximising the productivity of the existing aging wells and conducting selected infill drilling has been determined to be sub-optimal and therefore will not maximise production.
The Company has redefined the Ayoluengo development strategy based on the improved understanding of the reservoir to ensure the majority of the fifty three wells can contribute to maximising production. A two-tiered strategy on the existing producers and also the current shut-in wells will be adopted.
The existing producers will undergo a near term plan to perforate the undepleted zones, shutoff water and gas to maximise oil production and install subsurface pumping systems to improve reliability. The shut-in wells will be selectively re-opened and artificial stimulation methods using nitrogen, carbon dioxide, water and polymer barriers shall be used to mobilise the oil. In parallel selective wells will undergo a batch horizontal sidetrack program using radial jetting, which is less expensive than drilling, to access discontinuous undepleted zones and increase the depletion radius of all wells.
The revision in the development program for Ayoluengo and the other prospects within the Company's acreage has necessitated an increase in future investment and coordination with the Spain Government and third parties. LGO has conducted numerous consultations with senior politicians in all relevant Ministries of Spain's national and regional Governments to ensure the necessary support and approval is in place to support the investment.
LGO also has negotiated and recently completed a heads of agreement with BP España to off-take the majority of the Company's current and future production to the Castellón refinery in east Spain and other BP España subsidiaries. The Company shall also continue to off-take a percentage of oil production to historical customers and include potential new small customers to ensure diversity of off-take from all future production prospects.
The revised development strategy has required a step change in how the various expansion programs are executed and the Company has evolved its supply chain from local vendors to large international oilfield service providers. Contract negotiations are currently being finalised with these providers to ensure the diversity of programs required to maximise field recovery at Ayoluengo and the other prospects can be successfully executed.
In order to provide the foundation for the production expansion of both Ayoluengo and the surrounding prospects, the Company engaged SGS at the end of 2009 who is the world's leading inspection, verification, testing and certification company and is recognised as the global benchmark for quality and integrity. The Ayoluengo processing facility required a major survey and compliance program at the end of 2010 to meet new European safety and environmental legislation, and modernisation of the facilities was also required to support higher volumes, artificial stimulation and multiple sales customers.
SGS is coordinating these improvements to ensure the Ayoluengo processing facility is both fully compliant with all current legislation and has a high operating reliability which is a necessity for the new off-take customers. During Q1 and early Q2 2010, the processing facility was reduced to minimum operating levels to undertake some of these critical improvements. The facility has recently restarted at full operating levels.
New Development Interests - Ayoluengo Deep Prospectivity
Interpretation of the Ayoluengo 3D seismic reprocessing and a wider regional geological review identified two new prospective hydrocarbon carbonate intervals underneath Ayoluengo. A conventional hydrocarbon (Ayo D1) reservoir in limestones within the Lower Jurassic Lias Calcarenite interval (at depths between 2000 and 2300 m subsurface) was identified as well as unconventional gas (Ayo D2) in the Lower Jurassic Liassic interval (at depths down to 2700m subsurface). Seismic re-processing exhibited no discernible reflectivity below the Keuper seismic marker in the Triassic, and therefore no prospectivity below the Lower Jurassic could be identified at this stage until additional seismic shoots are conducted.
Over 20 wells in the Basque-Cantabrian region have penetrated the Lias Calcarenite interval with some confirming the presence of reservoir including Hontomin 2 which flowed hydrocarbons during testing at an initial rate of 700 bopd, the Ayoluengo discovery well, Ayo1, which flowed 41 API oil to surface and also Ayo32.
A nominal gross reservoir sequence of 80m from the two Ayoluengo penetrating wells has been estimated (based on review of the original wireline logs and new core evaluations) for the conventional hydrocarbon sequence in the Lias Calcarenite interval. A large gross rock volume for the interval has been deterministically estimated at 780 million m3 (equivalent to a 10 sqkm footprint) to the reservoir structure boundary. A high probability of reservoir quality formations has been identified due to a locally high structure centred on Ayoluengo, hydrocarbon flows to surface from Hontomin 2 and Ayo 1, traces of oil stain within the cores and a good porosity range of 10-17% from the core evaluation.
A review of regional geology including the other Lower Jurassic wells in the area and a detailed analysis of the core recovered during Ayoluengo drilling was conducted to better understand reservoir quality and possible development methods. A conceptual model was developed which shows reservoir quality improving to the northwest with regional carbonate platform complexity indicating most Lower Jurassic sequences as water saturated apart from local highs such as Ayoluengo and some of the other penetrating well locations, such as Hontomin.
Due to the age of the wireline logs and core and regional versus local geological complexities, determination of prospective resources is dependent on the accurate calculation of the permeability ranges and water spill point across the local high centred on Ayoluengo and this work is continuing.
The deeper Liassic interval, Ayo D2, beneath Ayoluengo is immature for oil production, but is likely to be locally mature for shale gas production based on the regional geological review and Ayoluengo re-interpretation. Due to the lack of technical data at the depth of the interval (at depths of 2700m), there is not enough information to determine a verifiable analogue for the Ayoluengo Liassic shales at present.
However the size of the shale gas generation window below Ayoluengo is considerable and similar structures in North America can have substantial GIIP density. Should the Ayoluengo Liassic shale interval be comparable to North American structures, the Ayo D2 prospect would equate to a deterministic GIIP of 3.8 tcf (630 mmboe).
Due to the age of the available data (1960s) and absence of quantitative data at depth, modelling of both reservoirs has been difficult due to distribution of reservoir parameters, and thus a conservative prognosis has been assumed at present. Work is therefore ongoing to improve the accuracy of the reservoir potential including further core analysis to acquire quantitative porosity and permeability data, determination of the mechanical strength of the limestones and shales for fracture stimulation, petrophysical assessment to characterise the lithology and water contacts more accurately, thermal modelling to accurately define the reservoir boundaries, and detailed review of the wireline logs and core from all the 20 offset wells in the region which penetrated the Lower Jurassic.
Existing Development Interests - Hontomin, Tozo and Huidobro
The Company's existing development interests include the Hontomin oilfield and Tozo gasfield, which are carbonate and sandstone hydrocarbon formations respectively. The Company's interest is 100% after concluding an assignment of the minor interests from a former equity partner.
The Hontomin prospect is 1350m to 1500m subsurface and is the same Lias Calcarenite formation as the new Ayo D1 deep formation identified from the acreage re-interpretation. Probabilistic STOIIP for Hontomin is 2.40 mmbo Mean, 5.71 mmbo P10, 1.34 mmbo P50 and 0.29 mmbo P90.
The Company has prepared and permitted an extended well test on the Hontomin 2 well which initially tested at an initial rate of 700 bopd and was shutin at a rate of 50bopd. The well test will assess the commerciality of the well and the reservoir properties of the Lias Calcarenite interval to assist with development of the larger Ayo D1 deep formation.
LGO is also working jointly with CIUDEN, the Spain Government Foundation researching Carbon Capture and Sequestration at Hontomin, which shall include the shooting of a 6 sqkm 3D seismic survey over the structure, and the drilling of an additional well on the flank of the formation to analyse the response of the structure to CO2.
The Company is also modifying the processing facilities at Ayoluengo to handle oil and water production from Hontomin and installing separation and storage facilities at the Hontomin 2 well site. Once these works are completed the well test shall commence and continue for approximately six months when the decision will be taken whether to sidetrack Hontomin 2 for long term production or continue with the CIUDEN CCS works.
The Tozo prospect is a downdip trend from the Ayoluengo field with contingent gas resources at about 1000m subsurface. Probabilistic GIIP for Tozo is 4.1 bcf Mean, 4.8 bcf P10, 2.6 bcf P50 and 1.3 bcf P90.
The Company determined a gas to power scheme as the most economical way to develop the prospect due to its size and location, and has submitted an application for this scheme to be developed with Spain's regional Government, national electricity provider and local industrial and residential consumers.
The Huidobro prospect has contingent oil resources with mean probabilistic STOIIP of 2.4 mmbo. Due to the prospect being located in an area of high environmental sensitivity, the Company relinquished any development of this prospect at the end of 2009 with the agreement of the Spain Ministry of Environment.
Exploration & Appraisal Interests - Basconcillos H and Valderredible
The Company's existing exploration and appraisal activity includes seven identified prospects in the Basconcillos H and Valderredible exploration permits. Five (Bas A, Bas B, Val A, Val B and Val D) of the identified prospects are carbonate formations with the remaining two (Ayo NE and Val C) sandstone formations. The Company's interest is 100% after concluding an assignment of the minor interests from a former equity partner.
The total probabilistic STOIIP for these prospects is 65 mmbo Mean, 140.8 mmbo P10, 44.0 mmbo P50 and 13.5 mmbo P90.
During the regional geology review as part of the Ayoluengo deeper prospectivity evaluation, additional potential prospects were identified within the Basconcillos H and Valderredible exploration permits and these are currently being evaluated.
The Company has recently submitted an application for a three year extension to the Basconcillos H exploration permit and is in discussions with seismic and other subsurface imaging companies to improve the delineation of the seven prospects. This further investment in the exploration permits has also been discussed with Spain national and regional Governments to ensure the necessary support for the investment.
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Competent Person's Statement:
The information contained in this announcement has been reviewed and approved by Fraser S Pritchard, Executive Director for Leni Gas & Oil Plc (member of the SPE) who has over 20 years relevant experience in the oil industry.
Enquiries:
Leni Gas & Oil plc
David Lenigas, Executive Chairman
Fraser Pritchard, Executive Director
Tel +44 (0) 20 7016 5103
Beaumont Cornish Limited
Roland Cornish / Rosalind Hill Abrahams
Tel +44 (0) 20 7628 3396
Mirabaud Securities Limited
Rory Scott
Tel +44 (0) 20 7878 3360
Pelham PR
Mark Antelme / Henry Lerwill
Tel + 44 (0)20 7337 1500
NOTES TO EDITORS
Leni Gas & Oil Plc is an international oil and gas exploration, development and production company headquartered in London, trading on the London Stock Exchange's AIM index. LGO's strategy is to acquire projects and businesses within the oil and gas sector that contain a development premium which can be unlocked through a combination of financial, commercial, and technical expertise.
LGO operates a low risk portfolio of production expansion assets in the US Gulf of Mexico, Spain, Trinidad and Malta with significant play upside using similar strategies to leverage technologies and proven production enhancement techniques. LGO specifically targets near term production with upside exploitation potential and manages its portfolio to ensure all assets have accelerated incremental reserves and production enhancement programs.
All reserves and resources definitions are per the Society of Petroleum Engineers Petroleum Resources Management System and have been verified by Equipoise Solutions Ltd.
GLOSSARY
bbls = barrels
bcf = billion standard cubic feet of gas
boe = barrels of oil equivalent calculated on the basis of six thousand cubic feet of gas equals one barrel of oil
bo = barrels of oil
bopd = barrels of oil per day
CCS = carbon capture and sequestration
CIUDEN = Fundación Ciudad de la Energia
CO2 = carbon dioxide
LGO = Leni Gas & Oil plc
GIIP = gas initially in place
m = metres
mm = million
off-take = a term used by oil companies to refer to the removal of oil from the place of production for marketing
PRMS = Petroleum Resources Management System
scf = standard cubic feet of gas
SPE = Society of Petroleum Engineers
sqkm = square kilometre
STOIIP = stock tank oil initially in place
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