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$648 million. Santos Ltd (ASX:STO) is a major Australian oil and gas company with a market capitalisation of $15.5 billion.
What are Carnarvon’s and STO’s interests?
Carnarvon has a project of significant interest, namely the Dorado project that is located 160 km north of Port Hedland. Carnarvon’s interest is 20% and STO’s interest is 80%.
What are the recent updates in Carnarvon’s operations?
In mid-July 2018, the Dorado-1 well discovered a large oil field. This discovery is considered to be the third-largest oil discovery in the North West Shelf area of Western Australia, with an estimated gross 2C oil resource of 162 million barrels.
Carnarvon completed an appraisal well on the Dorado discovery in June 2019 (known as Dorado-2). This well is located around 2 km from Dorado-1. This well confirmed the discovery of a major resource (oil and condensate) at Dorado.
On the 23 September 2019, Carnarvon and STO announced that the multi-rate flow testing of the Dorado-3 field in the Bedout Basin has confirmed excellent productivity and fluid quality from the Baxter gas and condensate reservoir. Condensate flowed at the maximum possible rate given the testing equipment.
Additionally, on the 8 October 2019, Carnarvon and STO announced 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.
How do these discoveries affect Carnarvon and Santos?
This significant oil, condensate and gas discovery should benefit Carnarvon and Santos in different ways. Carnarvon is a relatively small company compared with the major oil and gas companies such as BHP Group Ltd (ASX: BHP), STO and Woodside Petroleum Ltd (ASX: WPL). The Dorado discovery could allow Carnarvon to become an established oil and gas company with significant earnings. On the other hand, the Dorado discovery for Santos could provide additional earnings in the early 2020s.
In particular, Carnarvon and STO have described the Dorado discovery as follows:
- Carnarvon says that “the successful appraisal and accompanying flow tests have confirmed the phenomenal Dorado discovery.”
- The STO CEO tweeted “Great news today, the initial flow test of the Caley reservoir from the Dorado-3 appraisal well confirmed an oil rate which is one of the highest from a North West Shelf appraisal well test. CEO Kevin Gallagher called the result extremely positive."
What are the next steps?
Carnarvon and STO have indicated that that the plan to undertake a Front-End Engineering Design (“FEED”) phase commencing in 2020 before making a Final Investment Decision by late 2020. A key commercial advantage of the Dorado discovery is due to the fact that the resource is in shallow water with a depth of only 90 metres. This materially lowers capital costs to develop the discovery.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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