Total is the latest major oil company to move into the Porcupine Basin offshore Ireland, a region that has been generating interest across the industry. It has entered into two separate agreements with Providence Resources and Sosina Exploration that will give it the option to farm into Frontier Exploration Licence FEL 2/14 as well as securing a 50% WI and operatorship of Licensing Option 16/27. FEL 2/14 is the location of the upcoming 53/6-A Druid/Drombeg well which is due to spud at the end of this month and was highlighted in our ‘Wells to watch 2017’ report. Click here for report LO 16/27 is to the north of Druid/Drombeg and contains the Avalon prospect.Providence has also agreed an option to farm out a further 20% of LO 16/27 to Cairn.
Source: Providence Resources
FEL 2/14 – Druid/Drombeg
Total will pay $27m to acquire the option on FEL 2/14. $20.25m of this must be paid within the next 10 days and prior to the spudding of 53/6-A, with the remaining $6.75m due three days after the P & A notice for the well. The company will then have a further 57 days to decide if it wants to exercise its option and acquire a 35% interest and operatorship. We believe the deal is being structured in this way rather than as a traditional farm-in because Total is new to the basin, and time is limited to gain the necessary government approvals and licence to operate ahead of 53/6 -A well spud. Providence currently holds 56%WI in FEL 2/14 and Sosina holds 14%. Cairn farmed in to the license in March 2017, picking up a 30% WI.
Source: Providence Resources
Druid and Dromberg are large stacked fan systems. estimated by Providence to contain in place mean unrisked prospective resources of 3.18bnbbl for Druid and 1.915bnbbl for Drombeg. Druid consists of two Paleocene fans while Drombeg is a Lower Cretaceous deepwater fan sitting around 1,000m below Druid. Providence interprets the seismic anomaly seen in Druid as an oil water contact, although Cairn sees more uncertainty regarding the fluid phase and estimates that Druid/Drombeg could contain around 0.6bnbbls or >3TCF Pmean recoverable resources.
Providence estimates that the well will cost around $50m. Under the terms of its farm-in, Cairn will pay 45% of the costs of drilling 53/6-A up to a gross well cap of $42m, together with a cash payment of $2.82m in back costs. Providence’s share of well costs is likely to be carried by the Cairn cost carry and the Total option acquisition.
LO 16/27 Avalon
In consideration for its 50%WI and operatorship of LO 16/27, Total will pay 60% of the drilling costs of an exploration well up to a cap of $42m (in the event that the LO 16/27 is converted to a Frontier Exploration Licence). It will also pay its share of past costs, at c $0.175m and a further 21.4% of the past and future costs during the two year term of the licence up to $1.33m. Cairn has also secured an option to farm-in to a 20% WI in LO 16/27. The licence contains the Avalon prospect, a Paleocene basin floor channel and fan system that shows an AVO anomaly similar to that seen in Druid. The anomaly is seen on 2D seismic, and we would expect that a 3D seismic survey would be required here before any commitment is made to exploration drilling.
In entering the basin, Total is joining a host of major companies, including ExxonMobil, Statoil, CNOOC, Eni and BP that secured positions here in 2016, having been awarded acreage as part of the 2015 Atlantic Margin Licensing round. Although positions in the Porcupine are continuing to consolidate, a number of independents still hold significant acreage. In addition to Providence’s six licences, Europa Oil & Gas holds seven and privately backed AzEire holds six. If Cairn exercises its option to farm-in to LO 16/27, it will increase its position to six licences.