Pancontinental Oil & Gas NL Limited (ASX:PCL) Executive Director & CEO, John Begg, provides an update on the company's offshore Namibia Project, PEL 37, ahead of first drilling in September.
Rachael Jones: Hello, I'm Rachael Jones for the Finance News Network.
Joining me today, from Pancontinental Oil and Gas is Chief Executive Officer and Executive Director, John Begg.
John, welcome back.
John Begg: Thank you very much Rachael.
Rachael Jones: Now Pancontinental is about to drill a well offshore Namibia in a very large prospect with a 20 per cent interest and no cost exposure. How is that achieved?
John Begg: Pancontinental were the early mover on this project. Originally the operator with a large interest. And then farmed out the interest to Tullow Oil). Tullow are now the operator of the project and, of course, Tullow are one of the very best credentialed explorers of Africa.
Subsequently, late last year, Tullow also brought in ONGC Videsh(ONVI.BO) of India, giant quasi government company and we subsequently brought in a further specialist African exploration company, Africa Energy Corp.As a result of all of that, we have a 20 per cent interest in the project and fully carried through the cost of the well.
Rachael Jones: And once the well's spuds and starts drilling, you'll receive a further $7.3 million payment. That seems an extraordinary outcome for a currently small company.
John Begg: This whole project is the product of very good science and some smart deals, by Pancontinental. That payment is the closing payment from Africa Energy Corp., who are supported by the Lundin Group out of London. So they're buying into the project through our interests. So, to close that transaction, there's a payment due to us when the well starts.
Rachael Jones: And what is the scale of the oil target you'll be drilling?
John Begg: We're drilling the Cormorant Prospect as our selected prospect of a cluster of very large, Late Cretaceousturbidite fan plays, similar in nature to where big discoveries are being made around the Atlantic margin basins. And really, Cormorant is testing this cluster of prospects that have best estimate prospective resources totaling over 915 million barrels.
Now, it's an enormous amount of oil and the upside is higher than net gain. We've provided all the details about how those potential recoverable resources are calculated on our website and earlier releases that we've made to the market.
Rachael Jones: It seems that some of the world's largest oil companies agree with you about the big oil potential in Namibia.
John Begg: Yes, very exciting. It's clear that Namibia has become one of those hotspots around the world, where the big companies think they've got the opportunity to find the scale of oil reserves that move their dial. And the fact that there's an acceleration of interest and entry into Namibia by the big companies is very promising for us.
To the south and PEL 87, which we hold 75 per cent. Adjacent to us to the south we've got Shell (NYSE:RDS.A) and entry into the area also just last year was Total (EPA:FP)of France. And of course to the north, late last year, we had ONGC Videsh (ONVI.BO) of India farm into PEL 37 with Tullow and ourselves. And immediately south of our block in the very next block, we've had Exxon Mobil (NYSE:XOM) farming in April and then just very recently announced that they've taken a further block in the acreage immediately on trend from our blocks.
So clearly, these very, very large companies believe that these plays that we're pursuing and will be drilling in Namibia have the potential for very large oil resources.
Rachael Jones: Now will the Cormorant-1 well be the only well drilled in Namibia over the next 12 months that could impact the value of your large acreage position?
John Begg: No, in fact a British company, Chariot Oil and Gas (LON: CHAR) have already committed to drill a well to take the rig after we finish the Cormorant well. And they'll be drilling on a block to the south of our PEL 37 on a plays that we feel are also represented in our block. Add to that the entry of the major companies, we expect this to lead to, over the next 18 months, up to a further four wells to be drilled in offshore Namibia. All of which will be drilling plays and on geology that relates to our blocks. It could impact on the value of our blocks.
Rachael Jones: And to the last question now John. The industry and investor climate has certainly been improving. What do you put this down to?
John Begg: On the macro scale, it's an improved oil price, and I think companies and markets have now got confidence that a decent oil price is achievable and there's a lot of talk that it could go even higher in the coming period. So that's one thing.
The second thing is that the cost-base for offshore drilling and other services has come way down off the price structure it had during the peak times, and there are still not as many wells as that being drilled so there's a much more commercial cost base.
And then the third things is, as I've mentioned, this trend back in to deep water, linked to those two factors, but linked to the belief by the major companies that these big fan plays, that can have very big reservoirs, provide a commercial outcome that's superior to the main competition, which is onshore US oil shales.
More locally, for Pancon, there's also the recent success of Carnarvon Petroleum (ASX:CVN) in their wells in the Bedout Sub-basin in WA and that just is a demonstration that small companies can do it. In particular, they can do it very well when they're in good joint ventures, as they are there and we are in Namibia, and have sizeable projects and material interests in them.
Rachael Jones: John Begg. Thanks for the update.
John Begg: Thank you Rachael.