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Carnarvon Dorado Field Development Update

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Carnarvon Petroleum Ltd (ASX: CVN) is an oil and gas exploration company with projects located offshore off the north-west coast of Western Australia and in the Timor Sea. Carnarvon has a market capitalisation of A$531 million. 

What are recent updates in Carnarvon activities?

Carnarvon (20% interest) STO (80% interest) announcement on 8 October 2019 an update on their Caley flow test in Dorado-3. The test was very successful. It was reported that the Caley reservoir flow test exceeded 11,000 barrels of oil per day plus associated gas. Carnarvon notes that the potential flow rate is even higher, but the flow rate was limited by the capacity of the test equipment on the rig. This is a significant oil discovery. The test indicates very high potential flow rates of around 30,000 barrels per day from each production well in the Caley reservoir.

What are the key points from Carnarvon’s Dorado field development announcement today (3 December 2019)?

The operator, Santos, has released early concept select information in its investor day presentation (see article “Santos Upgrades 2025 Production Target”).

  • A liquids development with gas-re injection is currently the preferred development model.
  • Estimated initial gross oil production rate expected to be between 75,000-100,000 barrels per day (Carnarvon’s share 20%).
  • Estimated gross capital expenditure to first oil expected to be between $1.9 -2.2 billion (Carnarvon’s share 20%).
  • Carnarvon’s early financing discussions demonstrate strong support for this type of development.

Carnarvon has commenced early discussions with domestic and international banks who have indicated strong interest in financing the majority of its share of the development capital with senior debt. Carnarvon will commence a formal financing process once the development concept and contracting strategy has been finalised.

Carnarvon management also notes that the Front-End Engineering and Design (FEED) phase is expected to commence in early 2020.

Managing Director, Adrian Cook said: 

The information released by the Operator today demonstrates that the Dorado project has the potential for incredibly strong flow rates.  Ultimately the initial flow rates will be dependent on the nature of the development. We look forward to finalising the concept select in the coming months and announcing the commencement of the FEED work in the new year.

What is the outlook for Carnarvon?

The outlook for Carnarvon is positive. This significant oil, condensate and gas discovery should benefit Carnarvon. Carnarvon is a relatively small company compared with the major oil and gas companies such as BHP Group Ltd (ASX: BHP), Santos (ASX: STO) and Woodside Petroleum Ltd (ASX: WPL). The Dorado discovery could allow Carnarvon to become an established oil and gas company with significant earnings.

What is the market reaction?

The initial market reaction to Carnarvon’s announcement was positive. The share price rose sharply by around 4% but then fall back to broadly unchanged in a very weak equity market today.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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