Jeremy Beckman - Editor, Europe
One of the “final” exploration frontiers falls under the spotlight next February when drilling resumes off the Falkland Islands. The semisubmersibleOcean Guardian will spud the first series of wells in these waters since the pioneering campaign of 1998.
London-based Desire Petroleum, the driving force behind the new program, is the sole remaining participant from the original license consortia which hired the semisubBorgny Dolphin for back-to-back wells in the North Falkland basin. All the other members, including Agip, Hess, Murphy, and Shell, pulled out following negative reactions to the drilling results.
In fact, the outcome was fair for an outright frontier basin, with oil or gas shows in five of the six wells, one since re-classified as a gas discovery. However, the industry was in no mood at the time for a protracted gamble, with oil prices teetering close to $9/bbl. There also was dissatisfaction over the quality of the seismic data on which the well locations were based.
What those first wells did reveal was the presence of two independent petroleum systems in the North Falkland basin. One is a late-Jurassic to early-Cretaceous lacustrine source rock, which may have expelled up to 100 Bbbl of oil, according to the British and US Geological Surveys. The other petroleum system is in a deeper-lying source rock.
Due to the rushed nature of the 1998 campaign, dictated in part by the tight drilling window, all the wells essentially targeted the same play above the source rock. Subsequent analysis showed that this play did not work because of a regional seal of immature source rock below the target reservoirs that prevents charging from the deeper mature oil rock.
However, following extensive evaluation of the well data and new seismic, the basin’s principal acreage holders today – Desire and Rockhopper Exploration – believe that all elements are in place for commercial discoveries. Proving this may entail drilling multiple play types, but that has been allowed for in the coming campaign.
Review process
Desire was formed in 1996 by Dr. Colin Phipps to apply for permits in the first offshore Falklands licensing round. Phipps, who died earlier this year, was a geologist who formed his own consultancy to support the early North Sea exploration industry in the 1960s. Later he became a member of the British Parliament, a role which introduced him to the Falkland Islands. Under his stewardship, Desire participated in wells on two of the first-round licenses awarded to Lundin and LASMO.
There was never any question of Desire joining the stampede out of Port Stanley once the initial drilling program was completed. “We believed in the basin and decided to stay there,” says Ian Duncan, CEO, former geologist with Exxon and CEO of Clyde Petroleum Netherlands.
The company originally had been awarded tranches I and L as operator. When the others departed, it also agreed to take control of tranches C, D, and F, following negotiations with the islands’ government. As a participant in two of the wells, Desire activated its entitlement to all existing well and geological data in the North Falklands basin, and embarked on a painstaking re-assessment of the area and its prospective plays.
Despite limited in-house resources and disinterest among investors in exploration in this region, the company sustained its studies. “By 2004 we were down to our last buck,” says Duncan, “but then we managed to raise £4 million ($6.6 million) for the next stage of our program, which involved hiring a vessel to acquire as much 3D seismic as we could over our licenses.”
Results from the 850-sq km (328-sq mi) survey that followed persuaded Desire to accelerate its drilling plans. By then market confidence had returned, allowing the company to raise a further £25 million ($41.3 million) during 2005 for a proposed three-well program, also involving Rockhopper, which had been awarded four licenses the previous year in the North Falkland basin.
According to Duncan, The Peak Group in Aberdeen was contracted for design and project management of the wells – “and then rig rates went out of sight. Also, the program we were looking for at the time only involved 60 rig days. There was no incentive for contractors to mobilize a rig down for this duration to such a remote location.”
Although Borders, and Southern and Falkland Oil and Gas were by now also active in the South Falklands basin, neither was remotely ready to drill. The program, therefore, was postponed, with Desire and Rockhopper agreeing to focus on refining their geological models until rig rates and availability eased. The break worked in Desire’s favor, with oil trading group Arcadia Petroleum farming in on the company’s licenses last year in exchange for funding, to a varying degree, the costs of future wells. The partnership was also awarded a new exploration license, PL034, thought to be strongly prospective for gas.
Early this year, Desire submitted environmental impact assessments for planned wells on this and two other licenses following site surveys performed by RPS, all of which were approved by the Falkland Islands government in July. In September, Desire signed a letter of intent with Diamond Offshore Drilling for theOcean Guardian, and this was confirmed last month as a four-well, 80-day minimum campaign starting early next February.
Following upgrades at the Invergordon repair yard in northern Scotland, the rig is due to mobilize to the Falklands late in November. Desire has secured options for a further six wells for itself and its partners, and has retained AGR Petroleum Services (which acquired Peak) for the well construction program under a £2 million ($3.3 million) contract. AGR had deployed theOcean Guardian earlier this year to drill the Bandon discovery off western Ireland.
Resource potential
Desire has $40 million in cash and the company is “carried” on some of the wells, but to boost funding for further drilling, it recently published a Competent Person’s Report (CPR), prepared by reservoir engineering consultancy Senergy (GB), concerning the Top 10 exploration prospects in its licenses. Among the main conclusions are:
- Gross un-risked prospective recoverable resources in these prospects amount to over 4.6 Bbbl, ranging from 122 MMbbl (Ninky) to 1,631 MMboe recoverable (Alpha)
- 14 different play types identified, comprising eight in the northern acreage and six in the south, only three of which were partly tested during the 1998 wells.
According to the CPR, the North Falkland basin was formed in the late-Jurassic to early-Cretaceous period as a continental rift associated with the opening of the South Atlantic during the break-up of Gondwanaland. It contains a thick Tertiary and Cretaceous sequence probably overlying Jurassic and older sediments.
The “world class” Lower Cretaceous lacustrine- shale, oil-prone source rock, is proven in the northern part of the basin. Well data suggests the source rocks are immature within the upper part of the Lower Cretaceous, and pass through the peak-oil window and into the gas-mature window at lower levels. A deeper oil/gas prone source interval also was identified by one of the wells while drilling through the gas window.
Reservoir quality sandstones are present in the Lower Cretaceous (Aptian) and are thought to be present also in Lower Cretaceous (Barremian) and Jurassic sequences. Depositional environments for the primary reservoir targets range from fluvio-deltaic and alluvial fan to lacustrine fan sandstones.
There is uncertainty over the source rock intervals, which may extend farther south than currently mapped. Also, the likely hydrocarbon phase in the southern area could be oil or gas, although oil appears to be more likely.
Desire’s high-grade prospects belong to play categories that share features such as trap type, reservoir target and hydrocarbon charge mechanism. Success in one play could reduce the risk of other prospects in that play type, but may also impact the potential in other cases. For instance, the hydrocarbon charge model for Alpha requires the trap model for the Jacinta prospect to fail, while drilling success in Jacinta could imply a lack of charge in Alpha. Elsewhere, the top seal for the Beth prospect could be compromised by reservoir development in the Liz structure.
Drilling targets
As Duncan points out, “it is unusual for a company our size to take on such a high-risk, high-reward venture. I am the only member of staff engaged full-time in technical studies; our chairman executive, Stephen Phipps focuses on fund-raising and media relations, while among our three non-executive directors, one serves as the company’s lawyer.” Another, Bob Lyons, was formerly with the Peak Group.
“Our licenses comprise a total area of over 4,500 sq km (1,737 sq mi), around 500 km (310 mi) from Argentina, with UK fiscal terms. Geologically, the South Falklands basin is as different from the North Falkland basin as the Mediterranean is from the North Sea. Most of what we are exploring is basically African geology – the nearest analogies are the East African rifts including the Lake Albert basin in Uganda, where Tullow Oil has made its recent discoveries.
“We are about to explore a failed rift basin, a model which is known to work around the world, with proven oil source rock. Shell and others have issued reports claiming that tens of billions of barrels of oil may have been generated from this source rock. The question is, where has it gone?”
According to Duncan, the next drilling campaign will test as many different play types as possible, typically targeting deeper objectives than the wells drilled in 1998. “Having said that, you must keep an open mind when exploring frontier plays – if your objective is too rigid, you can miss things.
“This program has been a long time in gestation. We have the flexibility to drill the same play type if successful, or we may decide to drill other plays. Alternatively, we may start drilling in our northern licenses then move the rig to the south. The wells we plan to drill are shallow lying, most to a subsurface depth of 3,000 m (9,842 ft), and should therefore take no more than 20 days to drill. Alpha, the shallowest prospect, has a target depth of 1,000 m (3,281 ft), and could therefore be drilled in 12-15 days.”
Apart from Helen and Pam, all the high-grade prospects have undergone site surveys and each theoretically could be drilled. In some cases, more than one prospect in multiple horizons could be tested by deepening a single exploration well, i.e. on Dawn/Jacinta, or Liz/Beth. “If we find something, we may also want to drill appraisal wells or even mount an extended test. If we find a lot of oil, we would suddenly be very digestible for a larger company, which is something we would consider.”
Like theBorgny Dolphin, the Ocean Guardian is a third-generation semi, suited for year-round drilling in the North Falkland basin. According to Duncan, wind and wave swells are similar to those experienced in the Central UK North Sea, with water depths typically around 400 m (1,312 ft). “You would definitely need a harsh environment semi to drill in the South Falkland basin,” he adds, “although that type of rig could also have been used in our area on a time-share basis.
“In this region, the exercise is more about logistics. In our case, because of the remoteness from established supply bases, two supply vessels will be sailing south from Aberdeen fully laden to cater for our program.” The consignment will include wellheads and tubulars pre-purchased for the original program of wells in 2005, which have since remained in storage.
Under the CPR, Senergy also performed a scoping economic evaluation in the event of an oil discovery. This was based on a single FPSO development with water injection for three scenarios of recoverable reserves ranging from 50-400 MMbbl, with oil transported via a shuttle tanker to the Argentine terminals of Caleta or Comodoro Rivadavia.
In each case, one exploratory well and four delineation wells were deemed sufficient to confirm the field’s extent. As for the development, Senergy assumed horizontal completions, ranging from four wells (28,000 b/d) for the 50 MMbbl case up to 20 wells (140,000 b/d) for the 400 MMbbl case. At $50/bbl the minimum economic threshold is 56 MMbl recoverable.
“If we discover gas,” says Duncan, “LNG might be an option in the Falklands, although we would need 4 tcf at least for this to be commercial. Another alternative could be a gas-liquids scheme. For this to work we would need a large gas field discovery – maybe Alpha – serving as a hub with satellites.”
