Empire Oil & Gas

Towards 100bcf in 2012: Exploring Empire Oil & Gas large acreage in the Perth Basin

For years rumour and supposition has surrounded the Cattamarra Coal Measures sands in the Perth Basin, Western Australia, seemingly founded on the results of a long back-dated and plagiarised reports which suggested that this Jurassic geology was too tight to flow gas to surface. However recent findings by Empire Oil & Gas (ASX: EGO), holders of the largest acreage in the onshore Perth Basin with 10 permits, dispel this outdated talk.

“We’ve always been a big believer in the Jurassic play—the Cattamarra Coal Measures sands—and that those sands had reservoir quality to flow natural gas naturally at economic rates,” Craig Marshall, Managing Director at Empire says.

“We have now drilled two discoveries in a row, Gingin West-1 and Red Gully-1 that have flowed naturally without any stimulation. Gingin West originally flowed at 8 million feet a day and on production tests at a stabilized rate of 7.5 million feet a day (50 barrels of condensate per million feet). Red Gully flowed at a stabilized rate of over 12 million feet a day and condensate levels which are substantially higher at 70 to 80 barrels per million feet. That well was essentially producing 832 barrels of condensate per day.”

With these condensate results at hand, which attract a premium to the crude oil price, Empire have flagged the myth and steadfastly proven that their holding is a highly prospective one. Success for 2011 looks imminent, and should the company’s efforts prevail, it looks likely to move swiftly up amongst the mid-cap oil and gas production companies to a value of more than $300 million.

The Perth Basin potential

In systematically acquiring acreage in areas of the Perth Basin that Empire valuates as prospective, the company has trended towards permits that are not located in the deep Dandaragan trough itself.

“We now have both conventional play and the unconventional shale play of about five million acres in the onshore Perth Basin,” Marshall says.

“The potential is there for other people drilling there at the moment for there to be a number of other discoveries which would then demonstrate this basin as prospective as it should be. Using 3D seismic ratio and discoveries should start to get it quite high.”

It is a good game to be in too, with natural gas attracting a robust price and Empire’s holding located in a very advantageous locations in terms of Western Australia’s infrastructure, population hubs, industry and demand.

“Industry is looking for a diversity of supply of natural gas away from the offshore Northwest Shelf. There’s one big pipeline that runs from Dampier—basically the centre for the northwest shelf—the city of Perth and its industrial satellites on to Bunbury which is the port south of Perth,” Marshall explains.

“Any gas in the Perth Basin, because of its close proximity to the industrial satellites of Perth and industry in the southwest region, will attract good robust prices from industry and they will want as much of the gas as they can get.”

Additionally for any condensate within its gas fields (Gingin and Red Gully are approximately 100 kilometres north of Perth) the main BP Kwinana Refinery is two hours by road tanker from site.

On the fast-track

Empire has amassed its well-placed holding by staying ahead of the rest. Its next move is to fast-track production from Gingin—to put in its gas plant.

“We have appointed a West Australian firm to design a gas plant—the plant isn’t complex. The reason for getting a West Australian firm is to use components that are available on the shelf that are used by both the Dampier and Parmelia pipelines,” Marshall says.

“Those pipelines use components similar to a gas plant, and that means if you have a problem with the plant you can immediately access their components without a long lead time.”

The main flow-line from the Red Gully gas plant to the pipeline Empire later elects to use will be able, by an additional train, to produce up to 20 million feet a day. Marshall says that the company sees good rationale for this option. There are two structures, Block A (Red Gully) and Block B (Gingin West-1), within the two wells the company has drilled on Gingin West. There is also a Wannamal structure located to the east, and another going further east. Gingin-2 Block with tilted fault blocks plays in addition beneath the structures. Marshall says that when the two other plays are drilled they will have recoverable gas and the gas plant being designed will be able to take that additional product and will boost longevity of the project to more than 10 years.

“[In locating a suitable gas plant] we’re seeking to get the main components from it. The other parts of the gas plant will be constructed. There are a number of components that go into a gas plant and if you can get most of those you’re able to get ahead of the game faster,” Marshall says.

Having production tested Gingin West-1 in July last year and Red Gully in March, Empire is confident that the wells offer 30 bcf (billion cubic feet) of gas, and the additional structures could take the total to 100 bcf—the 2011 target. Marshall says that they will record additional 3D seismic over an anticlinal structure at Gingin Brook, similar to Gingin West but far larger, then look at the larger Gingin Brook fault dependent structure—similar to Red Gully and potentially much larger.

“In 2011-2012 we’ll be drilling the Wannamal structure already defined by 3D, THE Gingin Brook structure and the Gingin structures by extending the 3D there too,” he says of the coming months.

“The future, just in this permit, is to record additional 3D and drilling so we end this year and/or start the coming year with two to three wells in our permit.”

Empire’s recent news releases suggest that much of the work towards this year-end goal is already well underway.

Unrivalled potential

As IRJ goes to press, Empire is about to complete its Garibaldi 2D seismic survey. Recording 10 kilometres a day over a large simple anticline. If the company can demonstrate structural closure in the Perth Basin, it considers it is very likely to discover oil and gas.

“We’re confident from the reservoirs that we can see in nearby wells to Garibaldi, that the Permian Dongara Sandstone and/or the Wagina Sandstone will be located beneath the sealing kockatea shale will be there,” Marshall says.

“Garibaldi-1 will likely be drilled as soon as we process the seismic and demonstrate categorically that we have four way dip-closed anticline.”

Within Empire’s 10 permits there are also a number of other prospects and leads which the company will introduce venture participation and increase the drilling programs situated in both the North and South Perth Basin. This includes the company’s shale gas, but Marshall says that the core focus today, as it works to become a mid-cap oil and gas producer, rests on the conventional gas sands and those that flow naturally at economic rates.

“We are confident we can use our hard-earned knowledge of the Perth Basin to have additional discoveries. The next thing we’ll announce is which pipeline we’ll go with and who we’ll sell the gas to,” Marshall says.

“That will be announced soon and I think that the market will find what we’re doing and the gas pricing very interesting.”

With gas prices that vary from $5 to $15 per mcf (million cubic feet) in the State, Marshall says, if you want to sell gas to a mining industry it is a commodity dependent option. Finding a long-term customer for 10 years or more is likely to be the route Empire takes—securing a dedicated customer capable of upping sales should reserves increase.

“We’ll be generating wealth and we’ll be making as much money out of condensate as gas, which is a bonus,” Marshall says of the company’s plans for the coming year.

Empire has an unrivalled large acreage position in the Perth Basin, well-placed in terms of infrastructure and market demand. Results to date have continually fallen in line with the company’s high expectations, doing away with any rumour about the prospectivity of the holding and proving just how attractive the ground is. The team operates cautiously and conservatively, tackling its huge area with a measured and driven approach. Its goal to reach 30 bcf in 2011 looks certain, its aim to reach the 100 bcf target by 2012 looms ever closer as it works to fast-track Gingin West in 2011, and you can bet that it won’t be long before the market picks up and adds value given the exciting success to come. 


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