| Business: TREAD WITH CAUTION WITH PNG’S GAS DISCOVERY |
But PM Somare “excited” with Elk-1 results
Baeau Tai
Canadian oil firm InterOil Corporation’s gas discovery at its Elk-1 well in Papua New Guinea could hold at least 4 trillion cubic feet of gas, potentially the biggest discovery in the Pacific nation.
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Gas discovery at Elk-1... could potentially be the biggest discovery in PNG.
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InterOil and the PNG government have said the Elk deposit contains enough natural gas to anchor a U$3 billion (K10 billion) liquefied natural gas (LNG) joint venture between InterOil, Merrill Lynch Commodities (Europe) Ltd and private equity group, Clarion Finanz AG.
Merrill Lynch & Co., one of the world’s largest brokerage firms, now plans to invest in LNG production plants as the United States and Europe import more fuel.
The New York-based firm is considering investing in countries including PNG.
The construction and development of an LNG industry, involving refrigerated ships and a large processing plant on the coast, probably near Port Moresby, by far would be the largest resource development ever undertaken in PNG.
Distinctly different from the gas-to-Australia pipeline proposal, an LNG development would see PNG gas shipped to a range of customers in North Asia and the West Coast of America.
Meanwhile, shares of InterOil have jumped 55% since the company announced the 3-trillion cubic feet gas accumulation on its leased acreage at the Elk-1 well in mid-September.
Even if so, investors have been asked to take caution in assessing this discovery, New York’s Wall Street Access has said.
Among other reasons, Wall Street Access said that first of all, it’s unusual (though not unheard of) for a company to discuss reserve quantities on the basis of one well. Most operators feel they need at least two wells to make reliable estimates of the large field reserves, such as those in Elk.
LNG is natural gas that has been chilled to liquid form, reducing it to one-six-hundredth of its original volume, for transportation by ship to destinations not connected by the pipeline. On arrival, it’s turned back into gas for distribution to power plants, factories and households.
Papua New Guinea’s proven gas reserves are over 15 trillion cubic feet.
PNG’s Prime Minister Sir Michael Somare was “excited” by the positive test results from the Elk-1 gas and condensate discovery in the Eastern Papuan Basin.
InterOil believes that oil underlies the gas, justifying further drilling.
“Further positive results may lead to the opening of a new oil and gas basin in Papua New Guinea.
“There have been many reports of oil and gas shows in the area surrounding the licences where InterOil is drilling. But to-date there has not been a well in this area that has exhibited the high gas pressures currently being experienced at Elk-1.
“The discovery is good news for our country,” said Somare.
Both the government and the company are hopeful the two to three additional wells that InterOil intends to drill on the Elk and adjoining structures will be a large step forward in confirming the commercial value of the gas field, thus accelerating LNG future in Papua New Guinea.
For Papua New Guinea, the confirmation of Elk as a commercial discovery has come at a good time, with some recent disappointing announcements regarding the gas-to-Australia pipeline project.
“InterOil’s sometimes unorthodox approach to kick-starting projects may be what is needed to bring together some of PNG’s rich but dispersed petroleum assets and overseas investors who are now looking at PNG in a new light,” Somare said.
“We can’t allow super-major developers to place our projects on a list with many other targets worldwide and leave us on the back-burner for a decade.
“We have been working effectively with InterOil and its chief executive, Phil Mulacek for 10 years.
“He arrived with a vision to build a refinery which in those days seemed to be a huge undertaking. He did it with his team.
“I now have confidence that we are witnessing the beginning of an LNG project, in the company of additional partners such as Merrill Lynch and Clarion Finanz of Switzerland.
“An LNG project of the proposed size in PNG will be the largest investment in the country’s history and will be a driving force towards the creation of an industrialised nation, with many benefits including the development of our human resources.
“InterOil’s belief in their licence area appears to have delivered the results that we had hoped for and we expect the news to get better as more wells are drilled on the Elk,” Somare said.
Mulacek echoed similar optimism and gave credit to the government.
“We are very encouraged by our Elk discovery,” he said.
“This is a proud moment for me, which would not have come without the foresight of the Somare Government, and its drive to change the fiscal policy affecting oil and gas exploration in country.
“The final test recorded gas flow at 21.7 million standard cubic feet /day at a flowing bottom hole pressure of 3577.7 psias as reported to the Department of Petroleum and Energy, which is an extremely healthy flow rate.
“We remain confident that the Elk discovery will underpin an accelerated development of LNG in PNG.
“We also believe that there is an oil leg below the gas cap, and we’ll drill that in the follow-up wells.”
If oil is confirmed, it would add greatly to the value of the discovery.
Positive signs from recent analysis by Australia’s CSIRO indicate that the origin of the condensate taken from the Elk well was in the ‘peak to late oil generation window of the source rock’.
“This may result in Elk becoming the largest discovery in the new Eastern Papuan Basin,” Mulacek said.
Bernard Pawih, administering the PNG Oil and Gas Act, said the government’s technical staff had reviewed the drill stem test data.
“The pressure data suggests a reservoir demonstrating an extremely high flow capacity to gas, as indicated by an absolute open flow potential (AOFP) of 2858 million standard cubic feet/day.
“Elk-1 appears to be a big reservoir based on the technical data supplied,” Pawih said.
InterOil recently formed PNG LNG Inc. which is the vehicle used to develop the proposed LNG facility, adjacent to the company’s Napa Napa refinery in Port Moresby.
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