While exploring for oil in PNG, Oil Search has discovered very considerable quantities of gas and associated liquids. Proven and probable reserves of over 505 million barrels of oil equivalent of gas and associated liquids were booked following the PNG LNG Project sanction decision in 2009. At the end of 2012, Oil Search still had 2.2 trillion cubic feet of gas in its contingent resource inventory waiting to be commercialised as well as substantial gas exploration and appraisal potential.
A core component of Oil Search’s growth strategy is to expand its PNG gas business. Internal studies have indicated that there is substantial gas potential within the Company’s PNG acreage, which could generate significant future growth for Oil Search. Based on the Company’s current assessments, exporting gas as LNG creates the highest return.
The 2010 Strategic Review highlighted two major growth initiatives, which are being pursued concurrently:
During 2011, Oil Search undertook extensive planning and strategy work aimed at proving up further gas resources within the existing PNG LNG Project fields and in near-by non-Project licences to assess whether there was adequate resource to underpin an expansion of the PNG LNG Project.
Subsurface modelling work was carried out to assess the gas upside potential in the oil fields (the associated gas fields). History-matched compositional models were developed for the Kutubu and Moran fields, which suggested that additional gas reserves may exist compared to initial estimates.
An integrated seismic and drilling programme on non-PNG LNG Project, high potential licences in the Highlands was agreed with licence partners. Activities commenced in early 2011 with a 58 kilometre 2D seismic programme over a possible southern extension of the P’nyang gas field. The seismic was encouraging, providing support for the existence of a southern extension of the field.
A 150 kilometre 2D seismic programme was also completed in 2011 across three licences in the area east of the Hides field, to assess non-PNG LNG Project gas potential. Activities comprised the acquisition of 55 kilometres of data in PPL 233 and the interpretation of a 96 kilometre seismic programme acquired in 2010 over PRL 11 and PDL 8. This survey confirmed the existence of the Trapia prospect in PRL 11 and provided additional information on the Huria (PDL 8) and Tagari (PPL 233) prospects. During the year, the PRL 11 Joint Venture (ExxonMobil and Oil Search) agreed to drill the Trapia prospect, located approximately 30 kilometres east of Hides.
During 2012, Oil Search was involved in drilling two high potential gas prospects in the PNG Highlands. In early 2012, drilling took place on P’nyang South, a prospect located four kilometres south-west of the P’nyang 1 gas discovery and approximately 90 kilometres north-west of the Juha gas field. The P’nyang South 1 ST1 well discovered a 380 metre gas column in the primary reservoir. Seismic interpretation and structural mapping indicates there is additional up-dip potential, suggesting a vertical gas column of over 650 metres. The well results have led to a material increase in estimated gas resources at P’nyang, which is now being considered as a resource to underpin a potential expansion of the PNG LNG Project.The PRL 3 Joint Venture partners, which comprise the operator Esso Highlands Ltd, JX Nippon and Oil Search, commenced conceptual design studies for the development of the P’nyang resource during the third quarter of 2012. The work includes an assessment of potential development options and an estimate of costs. Oil Search expects the Joint Venture to finalise the preferred development concept in 2013 and, subject to completing commercial discussions, make a decision on whether to proceed into front end engineering and design (FEED).Also in 2012, Oil Search and its partner, ExxonMobil, drilled the Trapia 1 well in PRL 11, located east of the Hides and Angore fields. The well was plugged and abandoned after having drilled through a fault zone and encountered a repeat section of the Darai Limestone. While the Trapia well was unsuccessful, the area remains prospective and the Company and its partners are continuing to assess other structures and independent plays, particularly those located close to the existing PNG LNG gas fields.During 2012, Oil Search and Esso Highlands completed the purchase of 100% equity (split equally between the partners) in PPL 277, a large block in the Highlands covering many prospective trends.Oil Search believes there is considerable gas resource upside within the existing PNG oil and gas fields, most notably in the Hides gas field, which is not yet fully constrained. Eight wells are planned to be drilled on the Hides structure as part of the PNG LNG Project development plan. One of these wells, a produced water disposal well, which will reinject water that is produced from the gas production wells back into the reservoir, will help constrain the extent of the vertical hydrocarbon column. The development wells will also be drilled in the north-west area of the field and will provide important information regarding the ultimate recoverable reserves in the Hides field. In addition, recent modelling of the Associated Gas field reservoirs has demonstrated the potential for an additional 0.4 tcf of gas within the oil fields.
During the first quarter of 2013, concept studies for the P’nyang resource, including utilisation of the gas as a potential foundation resource for PNG LNG Project expansion, were progressed. In addition to scoping and planning, work on commercial aspects, environmental studies and engagement with various stakeholders were undertaken. The acquisition of a 2D seismic programme over the P’nyang field commenced in the first quarter. Data acquired will provide information to assist with development planning and resource assessment.
In 2010, Oil Search acquired a material licence portfolio offshore and onshore in the Gulf of Papua, based on a view that, apart from the Highlands, the Gulf Basin is the most prospective area in PNG for gas with the potential to support the development of a standalone LNG project, independent from the PNG LNG Project. The Company’s strategy has been to de-risk the acreage through the acquisition of high quality seismic and then introduce a strategic partner, to share the exploration and appraisal drilling risk.
In 2011, a major 3D offshore seismic programme comprising more than 6,300 kilometres over four licences and a 2D onshore seismic programme of 95 kilometres over two licences, was completed. Initial interpretation of the seismic confirmed several different play types in the Gulf and material gas and liquids potential. During 2011, planning of a multi-well offshore drilling programme began, including the identification of preliminary drill targets.
In 2011, as part of the Company's strategy to introduce a partner with expertise in developing major LNG projects and with similar development aspirations, initial discussions were held with a number of international companies. Towards the end of 2011, a data room was established and a competitive transaction process commenced.
In October 2012, one of Oil Search’s key strategic objectives for its Gulf of Papua acreage was delivered, when the Company signed five Sales and Purchase Agreements with wholly owned affiliates of French multinational Total SA, for licences in the onshore and offshore Gulf of Papua region in PNG.
The Total deal, which will see Oil Search and Total hold equal interests in the five licences, marks the start of a strategic partnership with Total in PNG, outside the PNG Highlands. The terms of the transaction contains both firm and contingent components, dependent on drilling success. The firm component includes the reimbursement of past licence costs and a partial carry through an initial offshore drilling programme and an onshore seismic data acquisition programme. In a success case, additional cash-based success payments and a partial carry of Oil Search through up to seven exploration and appraisal wells in the offshore licences and up to eight wells in the onshore licences will be made.
Concurrent with the farm-out process, the Company decided to acquire an additional 1,050 square kilometres of 3D seismic data over a number of significant prospects and leads which had been identified on the fringe of the 2011 3D survey area. The results of this survey have been encouraging, with several new high-potential prospects and leads identified in the survey area, which covers parts of PPL 385 (where Oil Search was awarded a new exploration licence in October 2012).
During the first quarter of 2013, the transactions associated with the Total SA farm-in (offshore PPLs 234 and 244 and PRL 10, and onshore PPLs 338 and 339) received approval from the Minister of Petroleum and Energy. The farm-in deal for PPL 244 is now unconditional, with Total funding its partial carry of the initial offshore drilling programme. Towards the end of the quarter, the drilling programme, comprising two firm wells and the option to drill two further wells, commenced, with the Flinders 1 well spudded on 31 March using the Stena Clyde semi-submersible rig. The well will test the Flinders prospect in PPL 244, which has mean, unrisked, prospective resources of 1 – 1.5 tcf. This is expected to be followed by the Hagana 1 well, also located in PPL 244, with mean, unrisked, prospective resources of 1 – 1.3 tcf.The farm-out process for offshore licence PPL 385, which lies adjacent to PPL 244, will be revisited once the PPL 244 drilling programme has been completed.In the onshore licences (PPLs 338 and 339), planning took place for a small 2D seismic programme in PPL 338, which is scheduled for the second quarter of 2013, and for gravity gradiometry surveys to be undertaken in PPLs 338 and 339.