Warrego Announces Activity for Quarter Ended 30 September 2021

Source: www.gulfoilandgas.com 10/28/2021, Location: Not categorized

HIGHLIGHTS

EP469 West Erregulla Gas Project Development
• Warrego commenced payments to AGIG in July 2021 to enable the procurement of Long Lead Items for the construction of the 87 TJ/d gas processing facility, consistent with project timelines.
• Independent certification of West Erregulla Reserves by NSAI, completed in October 2021 for the EP469 JV, was in line with independent certification of West Erregulla Resources by RISC Advisory, completed in May 2020 for Warrego, and supports ability to meet contracted volumes:
• 2P Reserves of 300 PJ of gas (gross) with 3P upside of 372 PJ (gross);
• 2C Contingent Resources of 128 PJ of gas (gross); and
• A further 198 PJ (gross) of 2U Prospective Resources.
• Following finalisation of the independent West Erregulla Reserves certification, Warrego expects to shortly mandate selected banks to engage in formal due diligence to arrange a proposed project finance facility for Warrego’s 50% share of the West Erregulla Gas Project.

EP469 Exploration and Appraisal
• WE-4 was flow tested in July and achieved a sustained rate of 35 MMscf/d through a 76/64” choke at ~1,770 psig FTHP after a 46-hour flow period. This was an excellent result for a flank well.
• WE-5 flow test affected by sub-optimal completion which induced a production barrier (skin factor) that could not be overcome. The well was suspended in August 2021 pending re-testing.
• The EP469 JV is planning to re-enter WE-3 in the first half of 2022 and will drill ahead to the target formations in the Kingia and High Cliff, followed by flow testing.
• The JV will undertake a 3D seismic survey over the remaining two-thirds of the permit currently only covered by 2D seismic. This area encompasses at least three highly prospective structures.

STP-EPA-0127 Northern Perth Basin Exploration
• Warrego received farm-in inquiries for EPA-0127 and provided data room access to interested parties. Following receipt of indicative offers, a preferred farminee has been selected and negotiations are underway on a confidential basis.

Corporate and Financial
• Consolidated cash at 30 September 2021 was $49,352,000.
• The Company held an EGM as a virtual meeting on 10 August 2021 with all resolutions passed including the approval of Tranche Two of the June share placement which raised $50 million.

WESTERN AUSTRALIA

EP469 (50%) West Erregulla Gas Fields
Exploration Permit located onshore northern Perth Basin, Western Australia, targeting conventional gas reservoirs West Erregulla Gas Project Development

In July 2021 Warrego commenced a series of non-refundable payments to Australian Gas Infrastructure Group (AGIG) to facilitate the procurement of Long Lead Items (LLIs) required for construction of the 87 TJ/d gas processing facility. This has enabled the project to remain on track for first gas in the second half of 2023 Following finalisation of the independent West Erregulla Reserves certification, Warrego expects to shortly mandate selected banks to engage in formal due diligence to arrange a proposed project finance facility for its 50% share of Phase 1 of the West Erregulla Gas Project. Warrego’s financing is underpinned by the substantial 155 PJ long-term gas sales contract the Company secured with Alcoa in 2020. Importantly, funding secured via project debt financing would not be made available to Warrego until the project receives EPA permit approval, anticipated in the first half of calendar year 2022.

West Erregulla Gas Field Appraisal
The EP469 JV progressed its three-well appraisal drilling campaign during the quarter.

The WE-4 well, a step out appraisal well drilled down-dip on the south-eastern flank of the Central Area of the West Erregulla gas field, commenced flow testing operations in May 2021 over a 75m perforation between 4,847m and 4,962m MDRT.

Clean-up of the well was paused due to the presence of sand in the production stream which was successfully controlled. On 10 July, after a 46-hour flow period, WE-4 achieved a sustained gas flow rate of 35 MMscfd through a 76/64” choke at ~1,770 psig FTHP and produced low salinity water at a rate of 1,365 bbl/d (water entry was observed at 4,630m TVDSS). This is an excellent flow test result for a flank well and strongly correlates with the WE-2 discovery well located on the crest of the Central Area. The WE-4 well has been completed for future production. The WE-5 well, located to the north of the Central Area between WE-2 and the fault that divides the Central from the Northern Area of the field, commenced flow testing operations in July 2021. The well was perforated in two separate zones over a combined 31m interval in the Kingia Sandstone between 4,840m and 4,874m MDRT (4,613m and 4,647m TVDSS). After an extended clean-up period and prolonged flow test, it was determined that the reservoir was unable to overcome a production barrier thought to be well bore skin caused by filtrate from drilling mud invasion and cement resulting from sub-optimal cement placement round the well bore casing.

The primary flow period was conducted over 77 hours. An instantaneous flow rate of 13.1 MMscf/d was achieved while a sustained rate of 5.1 MMscf/d was measured through a 64/64” choke with 260 psig FWHP. Associated water was produced at less than 5.9 bbls/MMscf on average. Gas flows were measured down to 4,670m TVDSS although, due to the compromised flow test, there was no conclusive evidence as to the source of the produced water.

The JV’s original intention was to recomplete and retest WE-5 as soon as possible, however the JV is now looking at recompleting the well and retesting it in conjunction with the WE-3 re-entry.

The WE-3 appraisal well is located in the Northern Area of the West Erregulla field which is separated from the Central Area by a fault. The well was temporarily suspended on 4 January 2021 at 4,294m MDRT in the Carynginia formation after encountering high pressure readings that were close to the design limits of the well.

Following a comprehensive review of WE-3 operations and data by both JV partners and external consultants, the JV has agreed that the well can be safely re-entered. The procurement of specialized long lead items and rig contracting commenced in the first quarter of FY22 with re-entry operations expected to occur in the second half of FY22, followed by flow testing.

Independent Reserves Certification
Subsequent to the end of the quarter, in October 2021 Nertherland, Sewell & Associates, Inc. (NSAI) completed its certification of West Erregulla Reserves, Contingent and Prospective Resources on behalf of the EP469 JV1. The independent Reserves certification by NSAI strongly correlates with the initial
Resources certification that RISC Advisory completed for Warrego in May 20202 and supports the ability of the West Erregulla Gas Field to satisfy foundation Gas Sales Agreements.

NSAI attributed 2P Reserves (proved plus probable) of 300 PJ of gas (gross) to the Kingia reservoir, with 3P upside of 372 PJ (gross). In addition, 2C Contingent Resources of 128 PJ of gas (gross) was assigned to the Kingia and High Cliff reservoirs with a further 198 PJ of gas (gross) in 2U Prospective Resources from to the Kingia, High Cliff, Dongara and Wagina reservoirs. There remains potential to grow West Erregulla Reserves and Resources through further exploration and appraisal in EP4693.

Further Exploration Potential
The recent discovery at nearby Lockyer Deep-1 by Norwest Energy in September 2021 is extremely encouraging for the future exploration potential within EP469. The EP469 JV has agreed to undertake a 3D seismic survey over the remaining two-thirds of the permit that is unmapped to provide better definition and enhanced subsurface data over a number of undrilled prospects with potential for tie-in to the West Erregulla Gas Project at some stage in the future.

The primary prospects lie to the north and east, up dip from West Erregulla, in Permian structures similar to Waitsia and West Erregulla. Scheduling is yet to be confirmed but could commence in the first half of calendar year 2022.

STP-EPA-0127 (100%, Operator) North Perth Basin
A 2.2 million acre permit application located onshore Coolcalalaya Perth Basin, Western Australia, targeting conventional gas reservoirs.

Exploration Potential and Permit Grant
At 2.2 million acres (8,700km2), EPA-0127 is the largest exploration permit located onshore Western Australia. The permit area is 130km north of the Waitsia and West Erregulla fields and is in the Coolcalalaya Sub-basin.

Multiple West Erregulla-sized prospects and leads with potential for gas and liquid hydrocarbons have been identified and a GIS project database has been collated.

During the quarter, Warrego submitted a six-year conventional work program and budget to the WA Department of Mines, Industry Regulation and Safety (DMIRS) for review.

Negotiations with Native Title groups are continuing to progress to the final step before the exploration permit can be issued by DMIRS in 2022.

Farm-in Potential
During the quarter Warrego received farm-in inquiries from a range of international and domestic entities, reflecting the substantial and exciting exploration potential within the large permit area. Data room access was provided to a number of interested parties.

Following receipt of indicative offers, a preferred farminee has been selected and negotiations are underway on a confidential basis.

SPANISH ASSETS
Warrego is seeking to unlock value from its Spanish exploration prospects and power generation assets and remains in discussions with various entities interested in acquiring all or part of its holdings in the Tesorillo exploration and El Romeral gas to electricity projects.

TESORILLO PROJECT, Cadiz Region (85% ownership of Operator and permits)
Targeting conventional sandstone gas reservoirs in 94,000 acres in Southern Spain. Tesorillo is estimated to contain 830 BCF gross unrisked prospective resources on a best estimate basis4. There are no financial or drilling commitments attached to the permit.

The Tesorillo Project in the Cadiz province of Southern Spain comprises two petroleum exploration licences, the Tesorillo and Ruedalabola Permits, that include a conventional gas discovery at the El Almarchal-1 well and have excellent proximity to existing pipeline infrastructure.

The energy crisis in the northern hemisphere has highlighted the critical need for reliable local supplies of natural gas across Europe. Against this backdrop, with the freeing of COVID restrictions Warrego’s UK team has increased its efforts with various government agencies to progress drilling approvals. Warrego is targeting conventional onshore sandstone reservoirs. An application for progression to a production permit for Tesorillo was submitted to the Ministry along with a field development plan for approval in Q4 FY21. There are no financial or drilling commitments attached to the permit.

EL ROMERAL PROJECT, Seville Region (50.1% ownership of Operator and permits)
Integrated gas production and power station operation on 76,600 acres in southern Spain. Three producing wells, 13 prospects and multiple low-cost development opportunities with the potential to significantly increase gas production, electricity generation and revenue.

Operations
During the quarter, Warrego has agreed with its partner Prospex Energy plc a cost-effective well intervention operations enhancement programme to increase gas and electricity production to capitalize on strong electricity demand in Spain. We anticipate being able to further employ additional generation capacity to deliver additional electricity into the grid by end of Q1 22 on the back of increased gas production.

The transition to a new governance and management structure has been successfully completed with particular focus on health and safety at the El Romeral facility. A technical committee has been established to manage and coordinate local Spanish operations and key management activities. An application to extend the Romeral production licenses was submitted to the regulator in Q4 FY21.

CORPORATE AND FINANCIAL
Consolidated cash at 30 September 2021 was $49,352,000. Principal inflows for the quarter were $46,321,000 from the share placement (after transaction costs), whilst principal outflows for the quarter were $7,446,000 for West Erregulla exploration and $1,417,000 for EP469 AGIG long lead item security deposit payments. A summary of Warrego’s cash flow for the Quarter and year to date is contained in the attached Appendix 5B statement.

Share Placement
On 2 July 2021, Tranche One of the $50 million two-tranche placement was completed, raising a total of $32.4 million (147.1 million fully paid ordinary shares). On 17 August 2021, Tranche Two was completed, with a total of $17.6 million raised (80.2 million fully paid ordinary shares to be issued).

Proceeds from the Placement will be used to fund Warrego’s 50% share of commitments for Phase 1 of the West Erregulla gas project including LLIs for the 87 TJ/d gas processing plant and the upstream gathering system; unbudgeted costs associated with the re-entry, drilling, testing and completion of the currently suspended WE-3 well; 3D seismic over the balance of the EP469 permit; early-stage exploration activity of EPA-0127; and general working capital.

The Company held an Extraordinary General Meeting as a virtual meeting on 10 August 2021 with all resolutions passed by an overwhelming majority including the approval of Tranche 2 of the share placement and the approval of the Long Term Incentive (LTI) Plan including approval to issue performance rights under the LTI plan.


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