MOLOPO ENERGY LIMITED - ASX: MPO

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Description

Molopo Energy Limited is an ASX-listed petroleum producer focused on the exploration, appraisal, development and production of coalbed methane (CBM) and other on-shore petroleum products. Molopo holds a 50% interest in several CBM sites located in the Bowen Basin, Australia, a 100% interest in a shale gas project in Quebec, Canada, an interest in the Bakken and Spearfish oil projects in Canada, a 100% interest in two South African projects and a 50% interest in a US gas project.

SPEARFISH UNCONVENTIONAL OIL, Canada (Williston Basin, Manitoba 65-100%)

Molopo acquired its interests in the Spearfish project in September 2009, and quickly initiated a multi-well drilling programme consisting of seven horizontal wells and five vertical wells, with drilling completed by the end of the march Quarter 2010. Net production from this initial round of drilling peaked at approximately 700 BOPD in may 2010, from a base production of approximately 75 BOPD at acquisition. An additional three horizontal wells commenced drilling prior to year end, with initial completions and evaluations now in their early stages.

This initial drilling programme confirmed the oil potential of the Spearfish on the Company's lands, expanding the area deemed prospective from 14 gross sections to 30 gross sections. At 30 June 2010, Molopo had 59 gross sections of land in the play, equating to some 37,760 acres (gross).

Subsequent to period end, certified recoverable 2P reserves expanded from 0.475 mmstb to 8.7mmstb net, evaluated as at 30 June 2010.

The initial drilling programme was designed to preserve and prove up as many prospective sections as possible, as a portion of the Company's acreage required drilling to avoid lease expiries or loss to major industry participants. Drilling results to date have been excellent, particularly considering that land retention and delineation were the primary drivers. Molopo expects to maintain largely all of its core acreage through its planned drilling activities in FY 2011.

As at the end of August 2010, Molopo plans to drill approximately 25 wells through to October 2010 utilising two to three drilling rigs. Results from these wells will assist in determining the forward programme, with the possibility that a further 25 wells may be added to the 2010-11 programme. Should the full year drilling programme be implemented, Molopo is targeting production levels of approximately 2,000 BOPD by the end of CY 2010 and 3,000 BOPD by 30 June 2011.

The forward work programme is designed to create value not only by building reserves, production and cash-flow, but also through expanding the number of prospective sections of land, reducing the development capital associated with the project through more focused development drilling, optimising drilling and completion techniques, and adding production facilities that are targeted to reduce operating costs from >$20.00/bbl to ~$10.00/bbl over several years. The economics of the project are looking robust at or around current oil price levels, with the Spearfish now considered amongst the more attractive resource plays within the western Canada Sedimentary Basin.

BAKKEN UNCONVENTIONAL OIL, Canada (Williston Basin, Saskatchewan - 100%)

In September 2009, the Company acquired approximately 70 sections of land (42,240 acres) in the Bakken tight oil play. This land position has since increased to 82 sections. The Bakken is considered one of the pre-eminent unconventional oil resource plays in North America. The introduction of multi- staged fracced horizontal well technology has delivered attractive results for many operators in the play.

As part of the acquisition agreement, Molopo drilled six horizontal Bakken wells to earn its 100% working interest. Of the six wells, five have been completed, resulting in four oil wells and one well which tested nominal quantities of oil and large volumes of water. The sixth well is likely to be completed in September, which will satisfy the Company's acquisition obligations.

Average peak flow rates for the four wells were 94 BOPD with combined production from the four oil wells at July 2010 of 96 BOPD. Given the Bakken wells were completed just prior to the spring thaw period (where activities were severely curtailed), none of the wells have been optimised. Planning is underway to re-enter the well bores over the next several months to increase production from the current configuration.

During the year Molopo undertook a 13km 3D seismic programme over two of the Steelman-area oil wells and, subsequent to period end, was acquiring an 18km 3D template over a producing oil pool to the south of the Company's Estevan-Taylorton acreage. Results from this programme are anticipated in late November 2010. Molopo also acquired an additional 11.5 sections of land on one other Bakken prospect with a horizontal well drilling commitment that requires commencement prior to 30 November 2010.

Plans for the current year are to finish the acquisition of the seismic data and to utilise it in conjunction with well results to evaluate optimisation opportunities to improve production rates and reserves.

Overall results are encouraging based on finding oil in all six wells that covered a very broad area and where the well locations were selected on the basis of the minimum number of wells to convert land from licenses to leases. Lease terms give the Company five more years to explore, develop and optimise production results. This period of time is very important given most resource plays take several years to achieve optimum results.

QUEBEC SHALE GAS, Canada (100%)

Molopo controls 2.2 million acres of shale gas exploration acreage (also with conventional hydrocarbon potential) in Quebec, Canada. Of this, about 1.8 million acres was purchased from Amque LLC in January 2008 and 0.4 million acres was added later in 2008 and 2009 on application to the Quebec ministry of Natural Resources.

The purchase came with a very large database of well, seismic and aeromagnetic data. On the basis of this information, three new 2D seismic surveys of approximately 100km each were undertaken at Richelieu, Lyster and Pintendre. Following acquisition, it became clear that the new seismic data resolution is much improved over the old and as a consequence two exciting new play types emerged. Well locations have been selected in each of the three areas and are ready to drill.

The first planned well, St. marc sur Richelieu-1, is located 20km northeast of montreal and will target both the Utica Shale and channel sandstones. A drilling application was submitted to the Quebec Agricultural Commission (CPTAQ) on 20 November 2009 and as of 15 August 2010 the application had still not been approved. The Company is taking the opportunity to address the concerns expressed by local residents regarding the subsurface reservoir fracturing process.

Interpretation of new seismic data at the Lyster and Pintendre areas during the year generated attractive gas targets. At Lyster, a second new play type was identified, namely tight gas in the Potsdam formation siltstones. With modern stimulation techniques, Molopo believes this formation has the potential to produce gas at commercial rates and is analogous to some tight gas plays currently producing in the USA. The structure mapped at Lyster is very large at 118 sq km and is estimated to contain gas- in-place of over 4TCF. Approximately 30% of this structure lies within Molopo's permits.

At Pintendre, a deep Utica shale prospect of 12,000 acres is mapped with estimated gas-in-place of 2.7TCF. Molopo will consider opportunities for partners to participate in drilling both Lyster and Pintendre. Very encouraging Utica Shale test results continued to be recorded by other operators in the play. A Talisman/ Questerre well reported a stabilised rate of 5 million standard cubic feet per day (mmscf/d) from a 1,000m lateral with an 8 stage fractrure stimulation. In addition, Gastem Inc. announced results from two vertical wells in an exploration licence contiguous with Molopo's Richelieu East licence where an initial flow rate of 1.8mmscf/d and a stabilised flow rate of 0.2mmscf/d were reported.

The focus of the Company's programme over the next 12 months will be the drilling, completion and testing of St. marc sur Richelieu-1, drilling and testing follow-up wells as required and the acquisition of 70km of 2D seismic in the Bedford area. Relinquishment of some non-prospective acreage is also anticipated.

GREATER TIMMY AREA, Queensland Australia ATP602P (62.9%) and Northern ATP564P (67.1%)

A reserves upgrade was also achieved for the Lilyvale/ Oak Park area in April 2010. These reserves will now be used to support a Production License Application (PLA) over the Lilyvale area. An exploration and appraisal campaign was planned for the Timmy area to support a maiden reserves certification over this area as a logical extension of Molopo's significant reserves position in the Mungi Field. The sale by Anglo of its interests in this area delayed the start of the programme until July 2010, but the five cored well programme will seek to provide sufficient data to establish initial reserves by the end of CY 2010.

HARCOURT GAS FIELD, Queensland Australia (ATP564P/PLA210) (67.1%)

A reserves upgrade was achieved for the Harcourt Gas Field as a result of the development drilling trials in the adjacent Mungi Field (the fields have similar coal attributes). These reserves are being used to support an application for a Production License (PLA210) over the Harcourt area.

With the sale by Anglo of its Queensland CBM assets, the previously planned three well exploration campaign was delayed until the second half of CY 2010. Now that the Company has been appointed Operator, this programme has been expanded to a total of five wells and is targeting a further reserves expansion in the first half of CY 2011.

MUNGI GAS FIELD, Queensland Australia (PL94 Sublease) (67.1% in sublease and 71.8% in reserves)

During the year, the Company gradually assumed a greater role in the operations of the Mungi Field, transitioning into full operatorship in July 2010. The Company also announced a major reserves increase for its Mungi Field, as a result of its Sole Risk drilling and technical activities.

The Company's share of gas sales for the year was 447 TJ (2009: 345 TJ), generating gas sales revenue of $1,170,014 (2009: $724,853). Production was boosted by a full year of flow from Mungi 20Va and half a year of production from Mungi 20V.

The Mungi-20V well system was brought on line and established a new production record for a well in the Mungi and wider area with a peak rate of 1.9 mmscf/d. The Company developed revised work- over practices for its new Sole Risk wells and with their implementation was able to demonstrate stable production from both Mungi 20V and Mungi 20Va from early in 2010, after both wells suffered blockages late in 2009.

The Company completed the drilling of its remaining Sole Risk trial development wells with the successful drilling of Mungi 21 (7,800m of net coal in six laterals) and Mungi 23 (8,100m of net coal in eight laterals). Both wells had commenced de-watering at the end of the financial year and are expected to significantly boost Mungi Field production in the second quarter of FY 2011.

Once the results are available for the entire five well trial development programme, the Company will assess the results with the objective of designing the optimal well for future development activities.

Molopo extended its Gas Sales Agreement with Anglo (subsequently assumed by Westside) for a further two years through to the end of calendar year (CY) 2012. The Company also signed options to acquire sites for the construction of a gas-fired electricity generation plant at Moura as part of its ongoing gas commercialisation strategy for the area.

The gas fired generation project moved into the feasibility stage during the year with a commitment decision expected in late CY 2010.

VIRGINIA GAS FIELD, South Africa (Free State - 100%)

Exploration work and production monitoring activities continued throughout the year in support of the Company's Production Right Application in the Virginia Gas Field, which was submitted in June 2010. Granting of the Production Right is expected to take approximately nine months. Approval was received to sell currently venting blower gas in advance of the grant of a Production Right and a contract was signed with Novo Energy for the initial sale of approximately 600,000 standard cubic feet per day (scf/d) of gas as Compressed Natural Gas (CNG) for use in vehicles.

Gas flow rates remain stable with Virginia production averaging 1 mmscf/d over the year. A well intervention programme designed to increase production is planned for the first half of FY 2011 that will involve the re-entry and clean out of a number of old blowers.

Three new shallow core holes were drilled during the period. All encountered gas and recorded low flow rates. These wells are now scheduled to be deepened in 2011.

An airborne hyper-spectral survey was completed in October 2009 over an area of 520km2 in the Virginia exploration area. Processing and interpretation of the data is in progress. The results of this survey and a related soil geochemistry sampling programme, completed in November 2009, will be used to select future drilling targets.

EVANDER GAS FIELD, South Africa (Mpumalunga - 100%)

Exploration activities continued with Molopo participating in three cored holes in co-operation with Harmony Gold Ltd, with wireline log data collected from the Karoo Super Group being evaluated. Planning and land access approval negotiations continued for the 2010 Evander seismic survey, which proposes to acquire approximately 30 line kilometres of 2D seismic over five lines. Production from all monitored bore holes in Evander was approximately 0.2 mmscf/d at the end of June 2010.

INDIA

Molopo continued to work with a Coal India Limited (CIL) affiliate relating to the production and utilisation of methane gas from CIL's coal mining lease in the Raniganj and Jharia Basins in eastern India. The project, which is funded by a CIL associate, is being undertaken in association with the Central Institute of Coal mining and Fuel Research. To date the project has focused on the assessment of gas and geological data with the objective of identifying gas- rich areas associated with planned underground mine development.

Mine For

oil, gas, coal seam gas

Location of operation(s)

Queensland, South Africa, Canada, India

Australian Basins

Bowen

Address

Level 14 , 31 Queen Street
MELBOURNE, VIC, AUSTRALIA

Phone

(03) 9618 8722

Email

Website

http://www.molopo.com.au/

Last Updated

20/04/2011