Australian junior Petsec plans to sell its minority stake in the WZ6-12 and WZ12-8 West oil fields in China's Beibu Gulf to fund its push into US shale oil operations, Chairman Terry fern said Tuesday at the company's annual general meeting.
"The board has decided that the $37 million of funding required for the China development of a net 2.94 million barrels in the 6-12/12-8W oil fields, would most likely deliver superior and earlier returns if applied to shale oil operations in the USA," Fern said in a statement. "Consequently, the company proposes to put the China asset up for sale, the process and completion of which could take four months."
Chinese state-controlled CNOOC Limited has elected to back-in for the maximum 51% of the Beibu Gulf project. Petsec holds 12.25% of the joint venture, alongside fellow Australian juniors Roc Oil (19.6%), Horizon Oil (14.7%) and Oil Australia (2.45%).
The development plan for the fields was approved in January and the partners took a final investment decision in February. The planned development would comprise the drilling of 11 wells from two unmanned wellhead platforms at the fields, to be connected by pipelines to a new CNOOC processing platform.
The project will have access to 20,000 b/d of processing capacity, from which crude oil will be transported through CNOOC's pipeline 32 km (20 miles) to a storage and export terminal on Weizhou Island. First oil production is expected in the fourth quarter of 2012.
Previously, Petsec's business plan was focused on exploration and production from small gas fields in the shallow waters of the Gulf of Mexico. But the model has become uneconomic in the wake of the global financial crisis, a halving of US natural gas prices and the impact of Hurricane Ike and the consequences of the Macondo oil spill, Fern told the meeting.
US gas prices have fallen from around $8/Mcf to less than $4/Mcf over the past two years due to the emergence of new supply from the development of the domestic shale gas industry.
"We take the view that gas is unlikely to move much above the $4 to $5/Mcf price range within the next three years so we are directing our attention more to oil," Fern said.
Petsec has formed a joint venture with an experienced Eagle Ford shale participant and has been conducting a regional review over the past nine months to identify areas of shale oil potential which are not being actively explored.
"We expect to be in a position to start acquiring leases in the next few months and to be drilling within six months," Fern added. "Clearly the play and location of the acreage is not something that we can discuss openly until our position is secured."
Petsec has set itself a target of adding net reserves of more than 35 million barrels of oil from its shale oil plays in Louisiana and Texas over the period from 2011 to 2013.
At its conventional gas plays in the US, Petsec has relinquished all its exploration prospects with a target size of less than 20 Bcf of gas equivalent, reducing its lease inventory from 60 to 18. The company's remaining 10 prospects, which are rich in liquids and have mapped potential of between 400 Bcfe and 750 Bcfe, are scheduled to be tested over the next three years.
"These and the subsalt plays we are developing will provide us with the potential to achieve our target objective for the period of adding net reserves of greater than 100 Bcfe," Fern said.
