Annual Report 2010 - Ophir Energy

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Ophir energy plc | 2010 ANNUAL REPORT
BUsiness review | OPERATiONs REviEw
The Group’s drilling results to date have demonstrated that
the basins in southern Tanzania can generate significant
quantities of gas. The presence of a regionally extensive
gas-prone system is confirmed by recent discoveries
made immediately to the south of Block 1 in northern
Mozambique, in a block in which the Group does not have
an interest, where an Anadarko-operated joint venture has
reported several gas discoveries. Numerous potential source
rocks are present, ranging in age from Permo-Triassic
(Karoo) through to Middle Eocene. The most significant
source rocks are thought to be Jurassic to Cretaceous in age
and these are sufficiently deeply buried in the western parts
of Blocks 1, 3 and 4 to be within the gas window.
The basins of southern Tanzania and northern Mozambique
have also produced an oil charge. Oil is present in the Mnazi
Bay Field and residual oil columns have been reported in
exploration wells to the west of Mnazi Bay. Oil seepages
are recorded along the coast and the Nyuni-1 well west of
Block 4 encountered Jurassic age oil-prone source rocks.
The Anadarko-led joint venture in northern Mozambique
reported the presence of a significant oil column in poorly
developed Cretaceous reservoirs in its Ironclad
exploration well.
Management believes the Jurassic and Cretaceous source
rocks that lie within the gas window in the west of Blocks 1,
3 and 4 are less deeply buried towards the east of the
blocks where they may be mature for oil generation.
The Group has recently acquired an extensive 5,000km 2
3D seismic survey over this part of the basin targeting a
prominent structural feature called the Seagap Ridge.
In preparation for the recent drilling campaign the Company
has been instrumental in transforming the port and airport
facilities in Mtwara in southern Tanzania into an oilfield
supply base capable of supporting deepwater drilling
operations. In October 2009, Ophir Tanzania (Block 1)
Limited (“Ophir Tanzania (Block 1)”) entered into a lease
agreement with the Tanzania Port Authority pursuant to
which it was granted the right to develop the existing
port at Mtwara as a supply base for drilling campaigns.
The upgrading of the facilities at Mtwara has involved a
considerable amount of civil works to improve the capability
of the port and airport and the training of local workers to
provide essential services. At the peak of operations during
the recent drilling campaign there were more than 65
expatriate workers based in the Group’s facilities in Mtwara,
supported by over 230 local employees.
Interests
On 29 October 2005, the Group was awarded a 100%
interest in Block 1, offshore Tanzania. TPDC has back-in
rights in Block 1 of 12% exercisable at any time. On 19 June
2006, the Group was awarded 100% interest in Blocks 3
and 4. In Blocks 3 and 4, TPDC has a back-in right of 15%,
12% exercisable at any time and a further 3% exercisable
within 12 months of a declaration of commerciality. The
Group currently holds its interest in each block through its
wholly owned subsidiary, Ophir Tanzania (Block 1).
On 26 May 2010, the Group entered into a suite of
agreements with the Government of Tanzania and TPDC
granting it the rights to develop, build and operate the
infrastructure required to exploit any discovery of natural
gas in any of Blocks 1, 3 or 4. The agreements also grant the
right to export and sell any recovered gas (converted to LNG
or other gas products) into the international market. The
suite of documents include an implementation agreement
relating to all of Blocks 1, 3 and 4 and an addendum to each
of the production sharing agreements relating to Blocks 1, 3
and 4 which incorporate gas terms (together the “Gas
Commercialisation Agreements”).
On 16 April 2010, the Group entered into a farm out
agreement with BG (the “BG Farm Out Agreement”),
granting BG a 60% participating interest share in each
of Blocks 1, 3 and 4.
Operatorship
Under the terms of the BG Farm Out Agreement,
Ophir undertook to act as the operator on behalf of
the Contractors until the completion of the first three
exploration wells and the acquisition of the 3D seismic
survey at which point operatorship would transfer to BG.
The process of transferring operatorship is currently
underway.
Exploration and appraisal
In 2006, the Group completed a considerable amount of
work to establish a stratigraphic framework for the whole
of the southern Tanzanian offshore area in order to gain a
better understanding of potential reservoir distribution and
source potential. Infill 2D seismic surveys were acquired over
Block 1 in 2005 and Blocks 3 and 4 in 2006. Based on
these data, a significant portfolio of large prospects was
identified, many of the prospects having multiple targets.
Management believe the probability for success for many of
these prospects is enhanced because of the interpreted
presence of seismic DHIs.
There is a considerable body of evidence to suggest that
the petroleum system in the deepwater areas can generate
oil, but nearby discoveries at Mnazi Bay, Songo Songo,
Mafia Island, Windjammer and the recent gas discoveries
(see below) by the Company show that the basin is
predominantly gas-prone. Given the size of the prospects, it
is likely that gas discoveries would be commercially attractive
and able to support a significant LNG development. On this
basis, the Company entered into the Gas Commercialisation
Agreements with the Government of Tanzania and TPDC
which now provide the joint venture with the contractual
framework to develop any such significant gas discoveries.
The Company commenced drilling operations during the
second half of 2010 using the newly built semi-submersible
rig Deepsea Stavanger. Over the period September 2010
to date the Company drilled three wells with each well
encountering a significant gas column. Following drilling
of its first well, the Pweza-1 exploration well located in
Block 4, the Company announced on 17 October 2010 that
it had encountered a thick section of gas-bearing sands. In
December 2010 the Company announced that a significant
gas discovery had been made in the Chewa-1 exploration
well. A third gas discovery in the Chaza-1 well was made
subsequent to 31 December 2010.