HORIZON OIL LIMITED - ASX: HZN

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Description

Horizon Oil Limited (‘Horizon Oil’) is listed on the Australian Stock Exchange (‘ASX’) and is one of Australia’s leading junior oil and gas companies. Horizon Oil has approximately 1,130 million shares on issue and a market capitalisation of around A$350 million (December 2010).

A Sydney based team of 10 experienced staff oversee operations, most notably, the producing Maari field offshore New Zealand, and Papua New Guinea (PRL 4 and PRL 5) and assets under development in China (Block 22/12). Horizon Oil also has a significant exploration footprint in offshore New Zealand (Maari and Matariki) and is constantly on the lookout for additional opportunities.

Block 22/12 - Beibu Gulf (14.7% / 30.0%)* - China

The technical section of the Overall Development Plan (ODP) for the Wei 6-12 and 12-8W combined development was completed as scheduled on 20 December 2009. Importantly, this embodies the agreement reached between the China National Offshore Oil Corporation (CNOOC) and the Block 22/12 joint venturers to adopt the integrated development concept utilising an auxiliary platform (PUQB) to the existing CNOOC platforms (see schematic below). This concept connects the Block 22/12 fields via unmanned wellhead platform (WHP) to a new-build auxiliary platform (PUQB), which is in turn connected to existing CNOOC platforms and 16" pipeline to oil storage and shiploading facilities on nearby Weizhou Island.

Negotiations between the joint venture and CNOOC over the economics and commercial sections of the Overall Development Plan (ODP) were concluded in June 2010 with the signing of a Commercial Negotiation Memorandum which specifies terms, conditions and tariffs for the joint development of the WZ6-12 and WZ12-8W fields. CNOOC has elected to participate in the development and will back-in for its full 51% share of the project. As a result (and as always anticipated) Horizon Oil's share will be 14.7%.

The agreed terms have been incorporated into a revisded ODP, which is presently subject to Expert Review within CNOOC. A Supplemental Development Agreement (SDA) to the Petroleum Contract to formalise the agreed commercial terms is also currently being prepared by CNOOC.

Amongst other things, the SDA provides for further exploration and appraisal of the significant remaining exploration potential outside the current scope of the WZ6-12 and WZ12-8W developments. In addition, a feasibility study on development of the WZ12-8E field has been initiated.

Following finalisation of the SDA, the JV will proceed with Final Investment Decision (FID) and lodgement of the ODP for formal Chinese Government approval. Start of development is then expected to commence, leading to first oil in H2 2012.

* CNOOC has a back in entitlement of up to 51% total equity in the field development.

PMP 38160 – Maari / Manaia fields (10.00%) - New Zealand

Horizon Oil's working interest share of production was 155,586 barrels of oil. Cumulative oil production from the field through 28 July 2010 was 9.2 million barrels.

Commissioning of the workover unit (WOU) permanently installed on the Maari platform last was completed on 7 May. The initial operation of the WOU was to run the upper completion in Manaia MN1 well and that well is currently undergoing hook-up to the production system.

This was followed by workovers of the MR5 and MRE wells, which had been shut-in for some time awaiting avaialbility of the WOU with pump failures, likely as a consequence of the multiple shutdowns and re-starts during the developing drilling phase. Both wells are now back online and producing well. The MR7 water injection well was not injecting a satisfactory volume for reservoir pressure maintenance purposes and additional perforations were added. Injections rate has increased significantly.

The current operation is the workover of the MR1 well. During the workover, calcium carbonate scale was noticed around the pump and this was removed with an acid wash. The intention is to inject scale inhibitor into all producer wells in future, to minimise scale build-up.

The successful utilisation of the WOU will enable production to be restored to optimal levels and the downhole information gained from the workover program will allow a preventative maintenance program to be planned and implemented. This should ensure an ongoing reliable production stream from the field.

Subsurface and reservoir modelling of the various productive zones continued throughout the quarter. The objective of this work is the design of a development scheme to exploit all the commercially viable oil and gas accumulations within the Greater Maari Area (GMA).

The participants in the development are:

Horizon Oil International Limited (a wholly owned subsidiary of Horizon Oil Limited) - 10%
OMV New Zealand Limited (Operator) - 69%
Todd Maari Limited - 16%
Cue Taranaki Pty Ltd (a wholly owned subsidiary of Cue Energy Resources Limited) - 5%

PEP 51313 - Matariki (30.00%) - New Zealand

Horizon Oil announced a farm-in to permit PEP 38494 on 3 September 2008 with the intention of earning a 25% interest in the block, which lies immediately adjacent and south of the Maari and Manaia permits. During the course of this year, the licensing position has been modified and increased to cover a new block PEP 51313. Horizon Oil has agreed to farm-in to this bigger block for a 30% stake.

A new survey utilising the vessel Reflect Resolution and comprising 204 sq km 3D seismic and 85 km 2D seismic began on 12 April and was completed on 22 May 2010. The 3D grid (see map on previous page) is designed to provide continuous coverage over the productive Maari and Manaia structures to cover the Pike, Paua and Matariki prospects that lie in PEP 51313. The two 2D lines were programmed to provide critical coverage over the Te Whatu and Pukeko prospects, to assist in the planning of a larger 2D seismic survey to be recorded over those prospects in 2011.

Processing of the data is underway, is expected to take four months and will include outputs designed to fully evaluate Pike, Paua and Matariki prospects for drilling in the 2011 / 2012 summer weather window. There will clearly be scope for correlating the seismic signature observed over the prospects with that attributed to the oil accumulations at Maari and Manaia fields. Early processing results indicate that the new data is of good quality and is providing confirmation of the targeted prospects.

PRL 4 - Stanley (50.00%) - Papua New Guinea

PRL 4 is located in the forelands of the Western Province of Papua New Guinea, lying in close proximity to the Fly River. Recoverable P50 resources are estimated at 261 bcf of gas and 8 mmboe of condensate.

5 December 2010 - Stanley 2 spudded and the well program is to drill a pilot hole to basement at a crestal location on the field to evaluate all prospective zones high on the structure, before plugging back and sidetracking to drill a high-angle deviated well some 600 - 800 metres throught the Toro reservoir. This will be the development well. The planned total depth of the well is 3,270 m True Vertical Depth (TVD) to basement and the Toro reservoir is expected to be encountered approximately 3,000 m TVD.

PRL 5, Elevala / Ketu (50.00%) - Papua New Guinea

Horizon Oil’s interest in PRL 5 is now 50.00%. PRL 5 is located in the forelands of the Western Province of Papua New Guinea, lying in close proximity to the Fly River, approximately 65 km from PRL Recoverable P50 resources are estimated at 480 bcf of gas and 25 mmboe of condensate.

Reprocessing of some 120 km of 2D seismic data across the Elevala structure was carried out, in order to better define the potential closure and assist in selection of an appraisal location. The success achieved in reprocessing the seismic has led to the decision to process a further 232 km on the Licence area. New mapping and the potential for a sizeable gas and condensate (50 barrels condensate per million cubic feet of gas) resource underlines the need to develop a commercialisation scheme.

The joint venture has been advised by the Minister of Petroleum and Energy that he has refused to approve the application for an extension of the licence. The advised weas provided by letter, received after the close of business on 5 November 2010.

Several options remain open to the joint venture to gain the requested extension of PRL 5, including taking action under the laws of Papua New Guinea and / or the Agreemnent between the Government of Australia and the Government of the Independent State of Papua New Guinea for the Promotion and Protection of Investments. The joint venture intends to meet shortly to determine the appropriate course of action.

Horizon Oil and Talisman, as the continuing partners in PRL 4 and PRL 5, had already rescheduled the drilling program for Parker Rig 226 to account for uncertainty of the timing of renewal of PRL 5. The drilling of the Stanley-2 well on PRL 4 (and any subsequent development of the field) will be unaffected by the delay in the renewal of PRL 5. The joint venture has been granted a one year extension of PRL 4. Rig 226 has been assigned to other operators for the drilling of one or two wells after Stanley-2 is completed and before moving to Elevala-2 and Ketu-2 in PRL 5.

Mine For

oil, gas

Location of operation(s)

Papua New Guinea, China, New Zealand

Address

Level 7, 134 William street
WOOLLOOMOOLOO, NSW, AUSTRALIA

Phone

(02) 9332 5000

Email

Website

http://www.horizonoil.com.au/

Last Updated

14/1/2011