Kutubu

Project Overview

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The Kutubu Oil Project, which was Papua New Guinea's first commercial oilfield development, is located in the southern highlands of Papua New Guinea and takes its name from nearby Lake Kutubu. Oil was first discovered at Kutubu in the Iagifu sandstone structure in 1986 and commercial production commenced in June 1992.

The Kutubu development comprises a network of wells that produce oil from the Iagifu-Hedinia, Usano and Agogo fields, a gathering system and on-site processing facilities (the Agogo and Central Processing Facilities) and supporting infrastructure, as well as a 265 kilometre export pipeline to the coast and a marine loading terminal in the Gulf of Papua. The pipeline operates under Pipeline Licence 2 (PL-2), while the oilfield operates under Petroleum Development Licence 2 (PDL-2). Both licences were issued in December 1990 for a term of 25 years.

Production from the Kutubu field peaked in 1993 at 130,000 bopd. Although still a strong contributor to Oil Search's profitability, the Kutubu Oil Project is in its decline phase due to natural field depletion and increasing gas production. However, efforts over the past three years to arrest the production decline have been highly successful. In late 2006, an infill well, UDT 7, was spudded in the Usano area of the field.  The well results were very encouraging and have proven up an eastern extension of the Usano reservoir.  A number of additional wells are planned to be drilled during 2008 to fully exploit the oil in this area and the central saddle, where untapped reserves are believed to exist.

Oil reserves

At the time of application for PDL-2 in May 1990, the Kutubu Project fields were estimated to contain proved plus probable reserves of approximately 170 million barrels. As at 31 December 2007, Kutubu had produced 307 million barrels and the gross proved plus probable ultimate recovery estimated by independent experts Netherlands Sewell and Associates (NSA) was 348 million barrels with 41.4 million barrels remaining. Oil Search’s share of remaining recoverable reserves as at 31 December 2007 was 24.9 million barrels. The main reserves are contained within high permeability oil rims in the Toro and Digimu sandstones with smaller volumes in the Iagifu and Hedinia reservoirs.

Marketing

The Kutubu crude oil is a light, sweet 45 degree API oil that has found a niche in the Asian Pacific crude oil markets and particularly in Eastern Australia. Each party to the Kutubu joint venture is responsible for marketing its own share of production. The price received for Kutubu crude is pegged to the Tapis Asian Petroleum Producers Index (APPI).

Recent performance

Production net to Oil Search

Latest quarterly report

Production from Kutubu was impacted during the first quarter of 2008 by a shut-down of the Central Production Facility (CPF) and Agogo Production Facility (APF) in February for maintenance and repairs to the flare system. As a result of this, together with natural decline, Kutubu production net to Oil Search was 8% lower than in the fourth quarter, at 0.69 million barrels. Gross production rates averaged 12,602 bopd during the period.

A new Usano field well, UDT 8, was spudded at the end of the fourth quarter of 2007. The presence of an oil column has been confirmed but due to commissioning problems with the new rig (now resolved), drilling progress was slower than expected and the well is anticipated to be brought into production in the second quarter, approximately two months later than expectations. This will have a knock-on effect on the timing of drilling the remaining wells in the Usano drilling campaign, which will continue through the balance of 2008.

A six-well work-over programme for 2008 is expected to commence around mid year 2008. A workover unit is currently being mobilised to the field to undertake this activity.

Other activities during the quarter included the conversion in March of a gas injector well, IDD-4, into an oil producer for a temporary trial. This has been successful, with the well flowing at a rate of 1,000 bopd. Early indications from the IDT-19 ST1 well, which was successfully converted into a water injector in late 2007, are that some improved oil production has resulted from this new injector.