PHILIPPINES

Service Contract 54 (SC 54)

Operator: Nido Petroleum Limited

SC 54 is located in the productive North-West Palawan basin in water depths ranging from 30 metres to 1,100 metres and covers an area of 5,418 km2.

Kairiki acquired its interest in May 2006 by farming into the Permit held by Nido Petroleum Limited. The Joint Venture has access to over 1,000 km2 of 3D seismic data (largely acquired by the JV in 2006-2007) and some 7,500 km of 2D seismic data which has developed the current prospect and leads inventory.

Subsequent to the drilling of the two exploration wells in 2008, Yakal-1 and Tindalo-1 the Joint Venture partners agreed to partition the block into two areas: SC 54 Area A (SC 54A) and SC 54 Area B (SC 54B).

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Service Contract 54 Area A (SC 54A)

SC 54A WORKING INTERESTS

Company Working Interest
Nido Petroleum Philippines Pty Ltd (Nido) - Operator 42.4%
Yilgarn Petroleum Philipines Pty Ltd (Kairiki) 30.1%
Trafigura Ventures III BV (Trafigura) 15.0%
TG World (BVI) Corporation (TG World) 12.5%

SC 54A covers some 862 km2, the inboard, shallow water area portion of the Service Contract Area including the Tindalo and Yakal oil discoveries.

The Tindalo oilfield was discovered by the Tindalo-1 exploration well in October 2008. The well was located in approximately 100 metres of water and targeted a pinnacle reef structure similar to the nearby, producing Nido and Matinloc oil fields and intersected a 124-144+ metre oil column in Miocene carbonate reservoir. The reservoir is characterised by a prevalence of vugs and fractures. The well was plugged and suspended for re-entry and completed for production in the Tindalo development project.

The field was subsequently developed using a leased, jack-up rig to re-enter and complete the suspended Tindalo-1 well for production. An electric submersible pump was installed as part of the well completion to assist in maintaining production rates once water production occurred. The jack-up rig (the Aquamarine Driller) remained on location to provide a stable weather-tolerant production platform using specially installed production equipment on board. Crude oil from the well was processed on the rig and then flowed into storage via a floating hose to a leased dynamically positioned, Floating Storage and Off-loading (FSO) vessel (the Tove Knutsen) located nearby.

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TINDALO WELL TEST

Following high oil test rates of in excess of 20,000 bbls/d, the Extended Well Test (EWT) at Tindalo which formally commenced on 6 June 2010 was designed to evaluate well performance, thereby providing a long-term reservoir management plan for optimisation of Tindalo’s resources and value during the normal production phase beyond the EWT term.

During the initial stages of the EWT, water was produced to surface which was later determined to be water from the formation. The formation water production was being produced from either a flow path to the aquifer behind the production casing and within the wellbore, or conversely was the result of a high permeability, high angle fracture(s) with direct access to the aquifer associated particularly with this well location.

As a result of the significant water cuts being experienced the Joint Venture decided to initiate a work-over which was anticipated to increase the amount of oil produced by a significant reduction or elimination of the watercut.

The SC 54A Joint Venture approved the Tindalo-1 well intervention and remediation programme, and decided after well re-entry to sidetrack within the Nido Limestone. The original Tindalo-1 vertical well bore was plugged back and the Aquamarine Driller drilled approximately 180 metres of reservoir in a new high-angle sidetrack hole to the south-southwest of the original Tindalo-1 well. This provided 120 metres of near horizontal producing section and the production completion, including the downhole electric submersible pump, was re-installed.

Testing and other diagnostic data gathered from the sidetrack and a subsequent work-over that involved the installation of a selective completion were unsuccessful in preventing or slowing formation water influx to the extent required for commercial oil production. As a result, the Joint Venture Partners made a decision to abandon the Tindalo Well on 29 December 2010. 

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ABANDONMENT AND DEMOBILISATION

Having made the decision to abandon Tindalo the Joint Venture partners considered whether to demobilise the production equipment and hardware from SC 54A, or to retain the equipment for further work within the permit. A decision was made in early January 2011 not to pursue the Yakal development at that time. A review of the Tindalo Project results that incorporate the sub-surface, technical and operational aspects of the project was required prior to any further development activities in the shallow water.

As a result of these decisions the Joint Venture decided to demobilise the project equipment (including the Aquamarine Driller and Tove Knutsen) from the Service Contract. The Tove Knutsen was demobilised to Singapore where it delivered the final cargo of Tindalo crude to buyers in Singapore. All contracts associated with the Tindalo Project were completed within the March 2011quarter.

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As a result of the abandonment of the Tindalo well, the net costs associated with Kairiki’s share of the project from inception of approximately US$30 million were written off at 31 December 2010.

Total production for the project was approximately 269k bbls (KIK share: 81k bbls).

SEISMIC REPROCESSING

In addition to the activities being undertaken on Tindalo, the Joint Venture reprocessed 3D seismic data covering an area of 140 sq km within the central portion of the contract area which includes the Tindalo, Nido 1X1 and Yakal discoveries, and the Pungapong and Nandino prospects along with numerous smaller leads.

Assessment of the results of Pre-stack Depth Migration seismic reprocessing of the area covering the Nido 1X1 oil discovery confirmed the robustness of the oil-bearing Nido Limestone pinnacle reef play. Work is currently ongoing to determine the potential oil volumes within the structure and commercialisation scenarios.

A substantial portfolio of potentially economic prospects and discoveries has been re-affirmed, with the highest graded opportunities identified to be the Lawaan exploration prospect and the Nido 1X1 discovery. Total oil in place resources are estimated by the Operator at 112 mmbls in the top 10 prospects/discoveries (gross un-risked).

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Location Map and Portfolio Inventory

SC 54A In early December 2011, 73 full-fold line kilometres of new 2D seismic was acquired over the greater Lawaan and Libas Prospects. The objective of the survey was to determine if the two prospects are connected structurally which would further upgrade the potential of the larger Lawaan Prospect, which is currently the leading drilling candidate in SC 54A. Prospective resource oil-in-place estimates for Lawaan and Libas are currently 34.7 million barrels* and 12.0million barrels respectively (gross, unrisked, mean volume).

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FARMOUT

KIK announced in June 2011 that it had selected its preferred farminee party to farm-in to the SC 54A permit. The Party was granted an exclusive 60 day period to finalise its due diligence review and complete and execute farm-out and associated agreements. This exclusivity period was extended by an additional 30 days on 5 September 2011.

Since that time, discussions with the potential farminee have been on-going with a view to finalising commercial terms.

The transaction contemplated will, if completed, result in Kairiki reducing its interest in SC 54A from 30.1% to 15.05% in return for a funded work programme involving drilling within the permit. Kairiki’s expenditure commitments in SC 54A in the short to medium term are therefore expected to be minimal.  

    

Service Contract 54 Area B (SC 54B)

SC 54B WORKING INTERESTS

Company Working Interest
Nido Petroleum Philippines Pty Ltd (Nido) - Operator 60%
Yilgarn Petroleum Philippines Pty Ltd (Kairiki) 40%

SC 54B covers some 3184 km2 the outboard area of the block which contains the large Gindara prospect along with several other attractive exploration targets.

GINDARA

The Gindara-1 well commenced on 20 May 2011 using the semi-submersible drill rig “Atwood Falcon”. It was drilled to a depth of 3,660 metres MD and it discovered a 187 metre hydrocarbon column (144 metres of gas and an additional 43 metres of oil). However, due to the hydrocarbon column being contained in poor quality reservoir, the discovery was considered non-commercial.

The Gindara result clearly demonstrates that there is an active hydrocarbon system in SC 54B. A thorough review of the Gindara results in combination with the seimic data in the area is in process. Should the results confirm the potential for substantial hydrocarbon charge from the Malampaya Trough this will have implications for leads such as Pawikan that would drain any possible extension of the Malampaya Trough in the central and southern areas of SC 54B.

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EXPLORATION PROSPECTIVITY

Interpretation of the 2D seismic data in the southern portion of the permit identified a number of potential leads at top Nido limestone stratigraphic level, the largest of which is the Pawikan Lead.

PAWIKAN

Seismic mapping of the central and southern parts of SC 54B has highlighted the potential significance of the Pawikan lead which lies 10 km south-west of the Service Contract 14 Nido A/B oilfields. The Pawikan lead is larger and potentially more oil-prone than Gindara, at 53 sq km in size with an appoximately 300 metre relief. In-place oil is estimated at 2 bln bbls (unrisked estimate by Independent Review as reported by Operator).

In addition, seismic reprocessing of some 2D seismic lines within the southern portion of SC 54B has provided some preliminary evidence for the possible existence of the southern extension of the Malampaya Trough adjacent to the Pawikan lead. This could have implications for the prospectivity of the southern part of SC 54B as the Malampaya Trough is considered to have generated the hydrocarbons encountered in Gindara-1 approximately 30 km to the north of Pawikan.

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In December 2011, 430 full-fold line kilometres of new 2D seismic data was acquired over the Pawikan Lead. The objective of the new seismic is to mature the Pawikan Lead to Prospect status by addressing remaining risks relating to reservoir and charge into the structure.The data will be available by Q2 2012.

It is the company’s intention to further farm-down its interest in SC54B in return for a full carry on an exploration well on Pawikan in 2013

SC 54 PERMITTING

In July 2011, a 12 month extension to the current work period (Sub Phase 6) for Service Contract 54, which was to end on 4 August 2011, was granted by the Philippine Department of Energy (DOE). This extension of Sub Phase 6 until 4 August 2012 applies to both SC 54A and SC 54B blocks. The well commitment associated with Sub Phase 6 has been met by the drilling of Gindara-1.