GRANT OF CORNEA RETENTION LEASE

The Commonwealth – West Australia Offshore Petroleum Joint Authority has now granted Petroleum Retention Lease WA-54-R (Cornea Retention Lease) with respect to the Cornea oil and gas accumulation to the Cornea Joint Venture Participants, an important step on our pathway to the ultimate development of the oil potential of this resource.

The Cornea Retention Lease provides the Participants with an initial 5 year period in which to progress the assessment and feasibility of a major staged development of the Cornea Oil Field (“Cornea”). The terms have been designed, on a step by step basis, to accommodate development challenges and to provide a progressive de-risking of those challenges.

Cornea is a significant prize to strive for, as it represents one of the largest undeveloped oil resources in Australia, with a P50 estimate of 411 million barrels in place. But it faces a presently low assessed recovery factor, which is a function of the technical challenges that the successful development faces. The terms of the Retention Lease reflect the need to progressively and methodically deal with each of those challenges.

Cornea present s a unique set of circumstances. While significant hydrocarbons have been discovered, with oil and gas samples obtained and resources identified, productivity of the reservoirs has not been proven, despite a large number of exploration and appraisal wells being drilled into the accumulation. The quantum of contingent resources in Cornea is such that it can reasonably be expected to be economic, so long as production flow rates can be achieved.

There are two significant barriers that must be overcome for Cornea to become commercially viable:

  1. Technical challenges presented by reservoir characteristics require the deployment of new technology completions in order to unlock oil production; and
  2. Assessment of the productivity of the wells and the recovery factors that can be achieved.

Sufficient reservoir quality, both in terms of permeability and continuity, will be crucial to the delivery of commercial oil rates. The nature of the reservoir dictates that the use of horizontal well completions will be necessary.

A program to test the completion design and the long-term production behaviour of the wells and reservoirs is considered to be the only means by which the Cornea field will be proven to be capable of becoming commercially viable.

Oil price is significantly less critical to the development of Cornea than it generally is to the development of many hydrocarbon accumulations. The assessed in place volumes for Cornea offer a reasonable expectation that a commercial development can be achieved, even at oil prices significantly lower than current oil prices, if the technical risks and challenges can be overcome and threshold production flow rates achieved. Economic analysis demonstrates that producibility has the most significant impact on the economic feasibility of a development of Cornea.

Credible production tests that incorporate emerging control technologies are needed and will act as a “proof of concept” for well placement, damage control and completion technology. Such credible production tests will also greatly assist in determining whether wells can deliver the required threshold volumes on which a commercially viable development can be justified. Such a production test program relies on the successful completion of engineering studies over the next four years to address the technical challenges presented by Cornea and to determine key design parameters.

The Cornea JV has proposed to carry out a suitable series of engineering study programs incorporated in the Cornea Retention Lease work program to address the key technical challenges to production and barriers to commercialisation. Subject to the results of these study programs, the Cornea JV proposes to implement a production test program in the fourth year of the initial 5-year term of the Retention Lease. This sequential approach is necessary in order to address the productivity uncertainties and ultimately to prepare for full development.

Optimisation of field recoveries is fundamental to the successful development and economic feasibility of Cornea. Innovations and advances in drilling techniques, in production and in development processes and procedures are expected to be the enabling factors in achieving adequate field recoveries.

It is anticipated that, in coming years, remote controllable hardware for gas inflow control will become available and would allow Cornea to achieve higher recoveries than those that could be expected to be achieved today. Technologies for enabling remote controllable interventions and preventing gas cusping into horizontal wells are in research and under development, including both the valves themselves and the surveillance/telemetry to detect and potentially seal off well segments where breakthrough has occurred.

Innovations and improvements in drilling techniques and in production and development processes are expected progressively over the next 5 years and will be incorporated in the production well test to be implemented by the Cornea JV.

If these technical challenges can be overcome and sufficient production flow rates demonstrated, the economics are immediately attractive with a reasonable expectation of long-term commercial development. A successful production test program would unlock a very sizeable oil resource, currently stranded due to the technical challenges to production, and full development of the Cornea Field could be expected to follow with wider applications for other undeveloped Australian fields with similar problematic reservoir characteristics.

Cornea Retention Lease and WA-342-P Location Map

PURSUING NEAR TERM PRODUCTION