Quarterly Report
31 January 2009 - 3:10AM
UK Regulatory
TIDMELP
RNS Number : 5764M
Elixir Petroleum Ltd
30 January 2009
Elixir Petroleum Limited
(AIM : ELP)
30 January 2009
QUARTERLY ACTIVITIES REPORT FOR THE
PERIOD ENDED 31 DECEMBER 2008
HIGHLIGHTS
* Award of Block 211/12b containing the Tiger Prospect in the UK North Sea
* Recommencement of production at High Island Field
* Production receipts received in the December quarter of A$1.9 million
* Repayment in January of A$3 million in convertible notes - Elixir is now debt
free
* Cash on hand at the end of the period of A$12.5 million (and at 30 January
of A$9.0 million following convertible note repayment)
COMMENT AND OUTLOOK
Despite difficult market conditions, Elixir Petroleum Limited ("Elixir" or the
"Company") made progress in the December 2008 quarter in various aspects of
its portfolio.
We were pleased to have been awarded interests in Blocks 211/27d and 211/12b in
the UK Continental Shelf 25th Seaward Licensing Round, which further
consolidated the Company's position in the northern sector of the UK North Sea.
Block 211/27d contains the mapped southern extension of the Mulle field and
Block 211/12b contains the Tiger Prospect, which is believed to hold 90 million
barrels of oil ("MMBbls") on a most likely in-place resource basis. The Tiger
Prospect is located 5 kilometres to the east of the large Magnus field, which
has been in production for some years and is operated by BP.
It was also pleasing to be granted in the December quarter a four month
extension to the licence term on Block 211/18b which contains the Leopard
prospect. The recent upper Jurassic discovery in the Cladhan well has further
reinforced the potential of the Leopard prospect, which is one of the largest
remaining undrilled exploration targets in the UK North Sea. Despite a difficult
market for farmouts, we are hopeful of completing the farmout of Leopard in the
next few months and will then move to drill the Leopard exploration well before
year end.
In terms of our production assets, the High Island field was shut-in during the
December quarter pending the repair of third party operated export pipelines.
This was an unfortunate and frustrating consequence of the passage of Hurricane
Ike in mid-September 2008. We were pleased however that by early January 2009
the two High Island wells were brought back into production at rates equivalent
to those being achieved prior to the shut-in. We are also looking forward to
undertaking a remedial well intervention on Well #1 at Pompano in the coming
quarter which, if successful, should increase gas production rates from that
well.
Commodity prices continued their decline in the quarter, with oil falling a
further 60% in value over the quarter to approximately US$40 per barrel, whilst
gas prices declined 35% to approximately US$5.50 per thousand standard cubic
feet ("Mscf"). Natural gas, which comprises the majority of Elixir's production,
is currently achieving a well head price of approximately US$4.60 per Mscf,
which is below the 10 year average price.
The impact of the shut-in at High Island, intermittent production from Well #1
at Pompano and the decline in natural gas prices in the US reduced cash flow for
the December quarter, with total receipts from production of A$1.9 million being
achieved. However, Elixir remains well funded with cash currently on hand of
A$9.0 million. This figure is net of the repayment in late January 2009 of A$3
million of convertible loan notes. The repayment of the notes means that the
Elixir Group is now debt free. Elixir's current cash on hand equates to a cash
backing per share of over GBP0.02.
We continue to examine asset and corporate opportunities which have the
potential to be value accretive to the Company, although a measured approach is
being adopted in light of the volatile market conditions and the prospect of
better assets at more attractive values coming available in the next few months.
An update on the Group's operations follows.
STRATEGY
Elixir is an internationally focused upstream oil and gas company with a
diversified portfolio of offshore petroleum interests across the exploration,
appraisal, development and production lifecycle.
Elixir's business strategy is to acquire interests in exploration licences with
high impact potential, to work up prospects internally and to farm these out to
industry to drill, typically on a full carry basis. Complementing this
exploration strategy is the addition of lower risk oil and gas development
projects with appraisal upside located in the shallow waters of the Gulf of
Mexico. These projects typically demonstrate a short cycle time to production
and provide cashflow for the Elixir Group.
The Board of Elixir considers it important to remain flexible in the pursuit of
new business opportunities which are judged to be complementary to its existing
business activities and able to deliver superior growth in shareholder value.
DEVELOPMENT AND PRODUCTION
Gulf of Mexico
Project Name:High Island Project (Block 268A)
Location:High Island Area, Offshore Texas, USA
Ownership:30% Working Interest (22.5% Net Revenue Interest)
Operator: Peregrine Oil and Gas, LP
The High Island field is located 65 kilometres southeast of Houston, Texas and
was first brought into production in mid-September 2007. Wells A-1 and A-2 at
High Island discovered gas and condensate pay in two separate accumulations,
with each well currently only producing from the lower of the two reservoir
zones.
As previously reported, the field was shut-in during the passage of Hurricane
Ike in mid-September 2008. The High Island facilities suffered only superficial
damage as a result of the hurricane, but the High Island Offshore System
("HIOS"), a regional pipeline system into which production from High Island is
ultimately transported to shore, was damaged preventing production from being
re-instated at High Island. Consequently, in the three month period to 31
December 2008 no production was recovered from the High Island field.
Repairs to the HIOS were completed in late December 2008 and the pipeline was
re-commissioned and in operation in early January 2009. Wells A-1 and A-2 at
High Island were brought back into production from 5 January 2009, and
stabilised flow rates have now been achieved. Well A-1 is currently producing
approximately 0.3 million standard cubic feet of gas per day ("MMscf/d") and 160
barrels of condensate per day ("bocd") and Well A-2 is producing approximately
3.7 MMscf/d and 10 bocd.
It is expected that the prolonged shut-in of the wells will be useful in
providing the operator with a further source of data to assist with ongoing
reservoir management.
In the normal course, a lag of two months is experienced from the month of
production to receipt of sales proceeds. Accordingly, receipts for production
achieved during January 2009 are expected to be received in the month of March
2009.
Project Name:Pompano Gas Project (Block 446-L SE/4)
Location:Brazos Area, Offshore Texas, USA
Ownership:25% Working Interest (18.125% Net Revenue Interest)
Operator: AnaTexas Offshore Inc.
The Pompano gas field lies in the Gulf of Mexico approximately 150 kilometres
southwest of Houston, Texas. Well #1 at Pompano was directionally drilled from a
new caisson installed adjacent to the field's existing "B" satellite platform
and was placed on production in March 2008. Well #2 at Pompano was drilled from
a caisson adjacent to the existing main processing facility, the "A" platform
and was placed on production in May 2008. Well #3 at Pompano encountered
potentially commercial sands in one horizon, with the deeper sand targets being
wet. Well #3 has been temporarily suspended pending a detailed review of data
before a decision is made as to whether to complete the well over the 6700 ft
Sands or to use the well bore as a sidetrack candidate in the future.
In the three month period to 31 December 2008, the following production results
were achieved at Pompano:
+--------------+---------+---------+-----------+-----------+--------+--------+--------+----------+----------+--------+
| PompanoField | Gas Production | Oil Production |
| - | | |
| Brazos Block | | |
| 446-L | | |
+ +----------------------------------------------------+------------------------------------------------+
| | Total | Total | Avg | Avg |Change | Total | Total | Avg | Avg |Change |
| | Dec | Sept | Daily | Daily | (%) | Dec | Sept | Daily | Daily | (%) |
| | Qtr | Qtr | Dec | Sept | | Qtr | Qtr | Dec | Sept | |
| |(MMscf) |(MMscf) | Qtr | Qtr | |(Bbls) |(Bbls) | Qtr | Qtr | |
| | | |(MMscf/d) |(MMscf/d) | | | |(Bbls/d) |(Bbls/d) | |
+--------------+---------+---------+-----------+-----------+--------+--------+--------+----------+----------+--------+
| Project | 592 | 988 | 6.4 | 10.9 | -40% | 118 | 388 | 1.3 | 4.3 | -70% |
| (100%) | | | | | | | | | | |
+--------------+---------+---------+-----------+-----------+--------+--------+--------+----------+----------+--------+
| Elixir | 148 | 247 | 1.6 | 2.7 | -40% | 30 | 97 | 0.3 | 1.1 | -70% |
| (25% | | | | | | | | | | |
| WI) | | | | | | | | | | |
+--------------+---------+---------+-----------+-----------+--------+--------+--------+----------+----------+--------+
There were approximately 4 days downtime during the reporting period, with the
platform achieving an average uptime of 96%. There were no safety incidents
reported in the period.
Production from Well #1 was restricted in the quarter due to sand forming
bridges in the short production string which produces from the 6700 ft Sand.
Water and sand production is also affecting gas rates in the long production
string which produces from the B Sand. The water is believed to be originating
from the deeper B2 Sand and is channelling up to the B Sand through a leak path
in the annulus cement. It is expected that a well intervention operation will be
conducted in the coming quarter which will seek to remedy these issues with a
view to increasing production from Well #1.
Well #2 achieved an average flow rate in the quarter of approximately 6 MMscf/d
and produced 37 bocd, with the majority of the production being delivered from
the deeper E Sand. The well continues to produce in accordance with
expectations.
In the normal course, a lag of two months is experienced from the month of
production to receipt of sales proceeds. Accordingly, receipts in the quarter
were for production in the months of August 2008 to October 2008 inclusive.
Sales receipts for these months totalled US$1.5 million. The average price
realised for the sale of gas produced in these months was US$8.11/Mcf, and for
oil was US$94.63/Bbl.
APPRAISAL
UK North Sea
Project Name:Mulle Prospect (Block 211/22b and 211/27d)
Location: Northern UK North Sea
Ownership: 40% Working Interest
Operator:DNO (UK) Limited
The Mulle accumulation lies in Block 211/22b on the south-western extension of
the Osprey ridge and is adjacent to the proposed Causeway oil field development.
Elixir's wholly-owned UK subsidiary, Elixir Petroleum (Europe) Limited ("E(EU)")
holds a 40% working interest in the Block.
The operator of Block 211/22b, DNO (UK) Limited, published in late May 2008 a
most likely contingent resource estimate for Mulle of 18 million barrels of oil.
This equates to a most likely net contingent recoverable oil resource to
E(EU) of almost 7 million barrels. During the December quarter, Block 211/27d
was awarded to the Mulle joint venture. The Block contains a mapped southern
extension to the Mulle field and it is likely that this will result in a modest
increase to the resource estimate for the field.
The joint venture has developed an appraisal and testing programme for the Mulle
accumulation and is seeking a further partner, or partners, to enter the Block
to assist with the funding of the programme. To that end, an online data room in
respect of the Mulle accumulation was open during the December quarter and
attracted an encouraging level of interest from industry participants. The data
room is now closed and the joint venture partners are in discussions with
several parties concerning the project.
EXPLORATION
UK North Sea
Project Name:Tiger Prospect (Block 211/12b)
Location: Northern UK North Sea
Ownership: 100% Working Interest
Operator: Elixir Petroleum (Europe) Limited ("E(EU)")
E(EU) was successful in being awarded during the quarter Block 211/12b under the
UKCS 25th Seaward Licensing Round. The Block is located in the northern UK North
Sea, approximately 140 kilometres north east of the Shetland Islands, in a water
depth of approximately 125 metres. Block 211/12b contains a newly mapped
prospect named Tiger. The Block lies 5 kilometres to the east of the Magnus
Field which was brought into production in 1983 with an in-place volume of
approximately 1.5 billion barrels of oil.
The target reservoir in the Tiger prospect is the Magnus Sandstone Member, over
500 feet of which was encountered in Well 211/12b-15, which was drilled down dip
of the Tiger Prospect in 1992. The equivalent sands in the nearby Magnus Field
have excellent porosity and permeability characteristics. Evidence from the
211/12b-15 well also indicates the presence of a nearby hydrocarbon column.
Reservoir presence and hydrocarbon charge for the Tiger prospect are considered
to be low risk.
Elixir is in the process of finalising the forward work programme for 2009 for
the Block. The Block has been awarded for a licence term of 4 years with a drill
or drop decision required at the end of year 3.
Project Name:Leopard Prospect (Block 211/18b)
Location: Northern UK North Sea
Ownership: 56% Working Interest
Operator: Elixir Petroleum (UK) Limited ("E(UK)")
Block 211/18b (Licence P1381) is a traditional licence awarded in the 23rd UKCS
Seaward Licensing Round in December 2005.
As announced in December 2008, a four month extension to the original licence
term of the Block has been obtained from the UK regulator. Efforts to secure
another farminee in order to largely cover E(UK)'s cost exposure in the proposed
Leopard well are ongoing with several companies currently assessing the
opportunity.
The recent Cladhan discovery well drilled in the northern UK North Sea, which
also targeted Upper Jurassic sandstones in a stratigraphically controlled play
type (similar to the Leopard Prospect), we believe proves the viability of Upper
Jurassic plays in the region and significantly de-risks the Leopard Prospect. We
believe that the Cladhan discovery, together with the updated geobody studies
undertaken by E(UK) in the second half of 2008, has further upgraded the Leopard
Prospect and we remain hopeful that despite a more difficult farmout market,
E(UK) will secure an additional farmin partner prior to the expiry of the
licence.
Gulf of Mexico
Project Name:Red Fish Prospect (Block 479-L N/2 and NE/4)
Location:Brazos Area, Offshore Texas, USA
Ownership:25% Working Interest (18.125% Net Revenue Interest)
Operator: AnaTexas Offshore Inc.
During the quarter, the Red Fish lease was awarded to the Pompano joint venture
participants. Work continues to evaluate the opportunities within the block and
Elixir is currently considering participation in two further extensions of the
Red Fish area.
West Africa - Sierra Leone
Project Name:Block SL-4
Location: Offshore Sierra Leone
Ownership: 100% Working Interest
Operator: Elixir Petroleum (UK) Limited ("E(UK)")
An interest in Block SL-4 was assigned to E(UK) in February 2008. At that time,
E(UK) was also approved as operator of the licence. Block SL-4 comprises an area
of 4,429 km2 lying in water depths from 100m to over 3,500m offshore Sierra
Leone, West Africa. The acquisition of a 1,222 km2 3D seismic survey over the
Block was completed in early June 2008 with processing of the dataset completed
in November 2008.
As previously announced, E(UK) received in mid-December a statutory demand for
payment in the amount of approximately US$2.6 million from the seismic
contractor who has undertaken the 3D acquisition over Block SL-4. E(UK) has
addressed this issue with the seismic contractor's solicitors and has reached
agreement that recovery proceedings be suspended against the company for the
time being and that 21 days written notice would be provided to E(UK) if the
recovery proceedings were to be recommenced by the seismic contractor. It
remains the view of the E(UK) directors that E(UK)'s joint venture partner in
Block SL-4, Prontinal Limited, remains responsible for payment of the
outstanding amount owed to the seismic contractor in respect of the 3D
acquisition and processing.
As a result of Prontinal's failure to remedy its default in payment for the
seismic acquisition and certain other outstanding joint venture expenses, E(UK)
notified Prontinal in early December of the forfeiture of its interest in Block
SL-4 to E(UK). Prontinal has indicated they will be contesting the demand,
default and forfeiture notices. E(UK) has formed the view that any challenge to
the default and forfeiture process by Prontinal will be without merit. E(UK) has
subsequently commenced legal proceedings in the British Virgin Islands seeking
recovery of the outstanding amounts. A hearing date in relation to this matter
has been set for early March 2009.
MINERAL ASSETS
In the December quarter, Elixir elected not to renew the mineral licences in
relation to the Roxby Project and the Pine Row Project, both located in South
Australia. Elixir continues to market its remaining two mineral asset licences
which are located in the Northern Territory. Discussions have been held with a
number of parties with respect to a possible sale or farm-out of the licence
interests which are prospective for uranium, but to date no offers have been
forthcoming.
FINANCIAL SUMMARY
At the end of the December 2008 quarter, Elixir held cash on hand of
approximately A$12.5 million. During January 2009, the Company repaid on their
expiry A$3 million in convertible loan notes. With the repayment of these notes,
the Elixir Group is now debt free.
A copy of Elixir's Appendix 5B for the 3 month period to 31 December 2008 which
was published on the ASX on 30 January 2008 can be found on the Company's
website at www.elixirpetroleum.com.
Information contained in this report with respect to the High Island and Pompano
Projects and the Red Fish Prospect, was compiled by Elixir or from material
provided by the project operators and reviewed by I L Lusted, BSc (Hons), SPE,
who has had more than 15 years experience in the practice of petroleum
engineering. Mr Lusted consents to the inclusion in this report of the
information in the form and context in which it appears
Information contained in this report with respect to the UK North Sea Projects
and Block SL-4 offshore Sierra Leone, was compiled by Elixir or from material
provided by the project operators and reviewed by the Elixir's Executive
Director - Exploration, Iain Knott, BSc, MSc, FGS, AAPG, who has had more than
25 years experience in the practice of geology, including more than 5 years
experience in petroleum geology. Mr Knott consents to the inclusion in this
report of the information in the form and context in which it appears.
+----------------------------------------+----------------------------------------+
| For further information, please visit the Company's website at |
| www.elixirpetroleum.com, or contact: |
+---------------------------------------------------------------------------------+
| Elixir Petroleum Limited | Blue Oar Securities Plc |
| Alex Neuling | Jerry Keen / Olly Cairns |
| Tel: (+61) 8 9440 2650 | Tel: (+44) 207 448 4400 / (+61) 8 6430 |
| | 1631 |
| | |
+----------------------------------------+ +
| Conduit PR | |
| Jonathan Charles | |
| Tel: (+44) 207 429 6666 | |
+----------------------------------------+----------------------------------------+
This information is provided by RNS
The company news service from the London Stock Exchange
END
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