WHL Energy

All to play for

Following a strategic refocusing of the company, frontier explorer WHL Energy (ASX: WHN) has a clear path to oil and gas production.

The Australia-based company has two significant projects: its flagship project offshore the Republic of the Seychelles and the La Bella gas and condensate project off the coast of southern Australia. WHL Energy’s strategy is to develop the known La Bella field and surrounding exploration block in the Otway Basin, offshore Victoria, towards production so that it can put the resultant cash flows towards further exploration of its less mature, higher risk, but  potential “elephant” sized  targets in the Seychelles.

WHL holds 17,345km2 of exploration areas in the southern and eastern flanks of the Seychelles platform, which are estimated to hold more than 3 billion barrels of mean Prospective Resources. This is a strategic acreage position, located at the heart of an emerging East African oil play. WHL was among the first in the industry to recognise this “exciting” opportunity, says Managing Director David Rowbottam.

“Our acreage comprises shallow water within the mini-continental shelf of the Seychelles, with an average water depth of between 20 and 50 metres for the most part,” he elaborates. “Because of the shallow depth we’d be looking at a drilling programme using a jack up rig, which greatly reduces the cost. We have more than 20 leads in the area, all in excess of 100 million barrels, with half a dozen within that group in excess of 200 million barrels.”

Progressing La Bella

WHL’s most advanced project is the proven 2,885km2 gas exploration block VIC/P67 containing the La Bella gas/condensate field, which the company picked up in April 2012. The block is known to contain high condensate and LPG (liquefied petroleum gas) content and 2C (best estimate) Contingent Resources of 115 petajoules (PJ). There is considerable upside available through low-risk exploration – more than 500 PJ of Prospective Resources, according to WHL’s estimates.

The La Bella asset was first discovered in 1993 by BHP Billiton, reveals Rowbottam. “When BHP discovered it, gas prices were less than half of what they are now and there wasn’t the existing infrastructure either,” he explains. “That meant the project was not as commercially attractive as BHP then envisaged, so they ended up relinquishing the acreage, which we subsequently acquired through a successful national acreage bid. We then sought to farm it out and were fortunate in getting two farm-in partners that fulfilled our selection criteria.

“For the future operator, we wanted someone who had a large stake in existing infrastructure and had a good record in project execution and operatorship. We were fortunate to get AWE Limited [ASX: AWE], in that they not only fulfilled those requirements, but had also proven themselves to be very capable and professional. So we’ve been very happy to work with them as we move towards the next stage of the project.”

AWE joined the venture on 4 September 2013, agreeing to pay 75% of the total cost to acquire a 3D seismic survey of the La Bella field and surrounding exploration targets – this was capped at US$9 million to earn up to 60% equity in the project. Two weeks later, WHL announced it had signed an Option Agreement with Tap Oil Limited (ASX: TAP), where Tap Oil would pay up to $2.95 million for an option to acquire an initial 10% interest in the permit as a non-operator.

“Tap Oil has a lot of experience in being a non-operator and getting maximum value out of that position, while working with financially larger operators,” comments Rowbottam. “So it was good to have them join us, and we hope to benefit from their commercial and technical skills in this area.”

The latest development was signing a contract with leading geophysical company CGG Services SA for the acquisition of the La Bella 3D seismic survey. This will utilise CGG’s Viking II vessel to acquire data with state-of-the-art Broadseis broadband seismic acquisition technology. The survey will begin mid-November and take approximately a month to complete.

“We’re hopeful that the 3D seismic survey will validate our belief in the upside prospectivity surrounding La Bella in terms of the La Bella North and Highlander targets,” comments Rowbottam. “If those estimations for those targets are correct, the feeling is that the current resource of 115 PJ and 1.4 million barrels of liquids could grow threefold to something close to 350 PJ and 5 million barrels of liquids, which would make it a very large and highly valuable project in terms of relativity to the existing nearby gas markets. The condensate alone would be worth more than $500 million.”

A great deal rests on this survey, because its success would put explorer WHL on the path to becoming a producer – albeit not as an operator. “Becoming a producer would provide long-term revenue for the company and underwrite our medium-to-long-term future,” Rowbottam adds.

Finding its direction

WHL has undoubtedly come a long way since Rowbottam joined the company three years ago. When he was first approached by WHL’s then-Chairman, Peter Bartter, WHL was focused primarily on developing wind farms in Scotland, UK; its initials stood for Wind Hydrogen Limited. The company also had some enhanced oil recovery prospects in the US. Rowbottam advised Bartter that neither of these assets were capable of bringing in cash flow fast, and suggested they be dropped. At around the same time, a group based out of Western Australia acquired the rights to buy some assets in the Seychelles. Rowbottam showed these assets to Bartter and they decided to buy them.

“We signed a conditional purchase agreement, which gave us until the end of February 2011 to close the transaction,” says Rowbottam. “Doing so meant we had an opportunity to perform some due diligence and raise additional funding. We were the cornerstone participant in a multi-client 2D seismic survey over a large area of the Seychelles – we financed our share before closing the transaction.”

Following that, WHL raised additional money and expanded both its executive and non-executive teams in preparation for starting the farm-out process. The company targeted primarily Tier-1 multinational oil and gas companies and attracted a number of interested candidates; in March this year, WHL announced it had a Letter of Intent from a top 100 Fortune 500 company. Unfortunately, this company was unable to complete the transaction and WHL had to ask the regulator PetroSeychelles for another extension to its work commitment.

The Seychelles Regulator has provided an extension to complete the Period Two work commitments with the period extended to 31 July 2015.  This will allow for the completion of a 1,000km2 3D seismic acquisition program and the drilling of an exploration well to a depth of approximately 2,000 metres.  The upside for the company and potential farm-in partners has been the confirmation of the lower royalty rates and more favourable tax regime when compared to the current model agreement for new acreage grants in the Seychelles.

“For us, as a frontier explorer, it’s very exciting that we’ve managed to get the Seychelles project to this stage – although we’d be far more comfortable if we’d completed the farm out,” Rowbottam remarks. “Ahead of us now lies the decision as to whether to do the additional 2D seismic survey, or whether we need to fund the much larger investment in 3D, as we build ourselves up towards drilling at the start of 2015. We’d probably finance a 2D seismic survey ourselves, but we’d need a farm-in participant to assist with 3D acquisition.”

Getting to this point has also seen WHL make a number of changes to its board – a process that is still on-going. Former Managing Director Steve Noske resigned in July and Rowbottam, formerly the company’s Finance Director, took his place just last month. With his background as the founding Managing Director of then US-focused oil and gas company Exoma Energy Limited, Rowbottam brings substantial experience to the role.

In August, chartered accountant Ian Hobson was appointed as Company Secretary. Former Chairman Trevor Benson resigned in September, due to an increased international travel commitment in his full-time employment. Until a full-time replacement is found, finance executive Faldi Ismail is acting as interim Non-Executive Chairman.

“We are seeking to recruit a long-term Non-Executive Chairman, as well as an appropriate Non-Executive Technical Director, who’ll be a key participant in our business growth plans for the new year,” Rowbottam comments. Without a doubt, the year ahead is going to be a very busy one for WHL.

http://www.whlenergy.com.au

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