Price: 171.5p Target Price: 210p Recommendation: Buy Market Cap: £150m
Nautical Petroleum this morning announced the results of their successful 9/2b-4 appraisal well on Kraken, one of its three major North Sea oilfield development projects.
- The well proved a substantially thicker and higher porosity main Heimdal Unit III reservoir than expected.
- Preliminary log evaluation indicates that the Heimdal III main sand contains 83 feet of net oil pay with an average porosity of 38.8% and an average oil saturation of 87.2%.
- No Oil Water Contact (OWC) was encountered in the Heimdal III main sand and thus the Kraken Field ‘oil-down-to’ has been extended to a depth of 3,934ft TVDSS, from the level of 3,842ft TVDSS indicated in the 9/02b-2 well.
The production testing programme was specifically designed to recover uncontaminated reservoir fluid samples and to confirm the productivity of the reservoir tested in the discovery well, 9/02-1A. These objectives have been successfully met, although operational problems caused by the exceptional quality of the reservoir encountered meant that it was not possible to flow the well at a stable production rate.
The well was initially pumped at a restricted rate of 300 barrels per day. A productivity index of 2 bpd/psi was indicated during this flow period. This is excellent for a vertical well in a viscous oil reservoir, confirming the multi-Darcy permeability.
As announced previously, the consequence of the decision by Nautical’s joint venture partner Canamens North Sea Energy Ltd not to participate in the 9/02b-4 well meant that Nautical’s interest in the 9/02b-4 well is 70% and Celtic Oil Ltd 30%. Celtic Oil Ltd has chosen not to partake in the 9/02b-4z exploration sidetrack and as such Nautical’s participation in this activity is 100%.
The interception of the thickest net pay reservoir section to date within the Kraken heavy oil field is a significant positive result for Nautical and justifies their recent decision to progress on a sole-risk basis. Preliminary log analysis suggests exceptional reservoir properties with average porosities of 38.8% (the theoretical maximum upper limit for porosity in sandstones based on stacked spherical grains is 46%) along with multi-Darcy permeability.
Despite indentifying the almost ideal reservoir unit, paradoxically it was the fact that the sands were so porous and permeable that the operational problem came about. We understand the issue was a blocked sand screen and this acted to restrict the flow rate and prevented a stable level of test production being established.
A significant amount of work was carried out prior to this appraisal well to understand reservoir sand distribution and having intercepted thick, oil-saturated Heimdal III sands, these efforts have been vindicated. Clearly the data has just been gathered but even at this early stage we understand that one of the important takeaways is that the new well control has enabled the company to correlate a particularly bright amplitude reflector on the seismic, with oil-saturated net pay sands in the well bore.
Importantly this same bright amplitude is visible across the whole structure and can also be mapped across the fault in the west and this is the area that is going to be explored next with the deviated side-track. In short this key point gives us confidence that the high 60% pre-drill chance of success attributed to the exploration part of the well is not misplaced and we look forward to hearing the outcome of this within the next 14 days.
In terms of the implications for contingent resources within the field, the company stated it will seek to establish this over the coming weeks. Our view is that given no oil-water contact was found and the oil-down-to has therefore increased markedly, any revision of recoverable resources is likely to be upwards.
We retain our BUY recommendation and Core NAV based target price of 210p/share.
Ambrian acts as Broker to and as a Market Maker in this company
Werner Riding, +44 (0) 207 634 4772
Oil & Gas Research
Simon Hawkins, +44 (0) 207 634 4757
Werner Riding, +44 (0) 207 634 4772
Sam Woodward, +44 (0) 207 634 4756
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