Nautical Petroleum is confident that the Kraken appraisal well currently drilling on UK North Sea Quadrant 9 will lead to a sizeable heavy crude field development.
Steve Jenkins told Energy that the issue is no longer whether the company’s Kraken field discovery is commercially viable; rather, it is the scale of the project that needs to be determined.
He said there would be a development and that studies had started at AGR in Norway. First oil could be achieved as early as 2011.
Kraken will need fixed infrastructure – a platform or production ship at the very least. Moreover, Jenkins said it was the company’s intention to be ready to submit a field development plan to the UK Government before the end of 2009.
However, whether Nautical will be in a position to file is currently hard to determine, even though, according to Jenkins, the oil junior has enough cash to see out its current drilling programme.
Nautical’s share price has taken a hammering in recent months, as have many other AIM-listed oil minnows. Late-September saw the company implement a 20 for one share consolidation in a bid to reduce share price volatility. However, the attempt did little to calm trading in the face of the financial hurricane that currently grips global markets and threatens to derail many energy development projects.
The firm’s reputation has also been damaged by a number of failed exploration probes.
Jenkins said the first appraisal well drilled on Kraken exceeded expectations and that the second, current well would identify where the anticipated oil-water contact is.
And if the second appraisal comes in on prognosis, it is possible that a third will be drilled next year, if not earlier.
Nautical Petroleum’s Steve Jenkins said: “The reserves range is some 370million to 1.2billion barrels of hydrocarbons in place, with a recovery rate anticipated to be in the high teens … early 20%. We’re being conservative.
“The API is around 15 or higher. The important thing is the viscosity. This is 110 centipoids (a measure of stickiness). Captain (field crude) is 88-150, the Maureen (formation) in the Mariner field is 65, so we’re well within the range of producible hydrocarbons.
“Kraken is very producible; the technology is all there and similar crude is being produced in the North Sea at the minute.”
When asked whether financial analysts and the investment community understood what is meant by heavy crude, Jenkins said there was widespread ignorance.
“They regard heavy oil as difficult. But this stuff moves about … it sloshes. It’s not like treacle in a can. It’s olive-oil type. It’s very mobile. It’s important to realise that there’s heavy oil … and there’s heavy oil.
“In Quadrant 9, apart from Mariner, which is 65, something like Bressay is 1,000-1,500 centipoids; Bentley is about that, too. Kraken is a lot less viscous than that.”
Kraken is close to Mariner, a field that has been heavily appraised, which is now operated by StatoilHydro and in which Mariner has a stake. But Jenkins said Mariner was not the key to everything else happening on Quadrant 9, especially Kraken.
“Kraken is a big, broad high that could have as much, if not more, oil in it as Mariner. The sands are the same as the upper Mariner reservoir … Heimdal … what we call the T33 sands. It could be hub. It’s obviously closer to Bressay and Bentley sand. I’m sure those fields would really like some Kraken crude because it would dilute down their crude.
As for development of Kraken, he said: “We’ve looked at various options such as subsea wells tied back to an FPSO or light platform. This is dependent on how big the in-place numbers are. We can do a staged development. It’s economically feasible. That’s probably the way we’re going. We’ve sized the facilities around various models.
“I think we would be talking about four or five wells tied back to an FPSO to start with. We’re talking about 6,000 barrels per day per well. So one is talking about, say, 30,000bpd.”
Defending Nautical’s financial position, Jenkins said the company had two “very strong partners” in the Koreans and Canamens, from Norway.
“This is going to be a significant project in North Sea terms and we have a very good relationship with the banks at the moment. Aspiration is to achieve first oil by 2011-12.
“It’s just as quickly as we can do it. The oil in the ground is no use to us. We want to get it out as quickly as possible.”
Jenkins was cagey about the cost of Kraken.
“All I can say is that I was pleasantly surprised at the lower threshold for a Kraken development, and we’ve gone on record saying 28million barrels recoverable, at $80 per barrel, could make a viable development. That’s a good floor, but we believe we have a lot more than that.”
Turning to Mariner, Jenkins said that critical survey work had been carried out this year by StatoilHydro and that the results had been “very good”, with a lot more hydrocarbons evident in the Heimdal section of the field than previously believed.
“They have a team working on it. We’ve had very positive feedback. They are going to develop Mariner. They’re very enthusiastic … especially the volumes that they perceive to be in the Heimdal.
“Expectation is that a field development plan be filed by the end of 2009. I would hope so, but it may spill into 2010, but only just.”