Sydney-based oil and gas exploration company Gas2Grid Limited (ASX: GGX) was formed in 2004 with the principal aim of buying SC44, a 750-square-kilometre petroleum service contract onshore Cebu Island in the Philippines. Following unfruitful attempts to find gas there, the company changed tact and now has an estimated resource of 20.4 million barrels of oil in place there, in addition to an exploration licence in the Aquitane Basin in France.
Dennis J. Morton, Gas2Grid co-founder and more recently Managing Director, explains that he and Chairman David A. Munns were drawn to the Philippines partly by their extensive experience in the country. “David’s been there for 40 years now and I’ve been working there since early 1981, so over time we’ve built up knowledge of the opportunities there,” says Dennis.
“The first attraction is that the Philippines is a good place to do business due to its low sovereign risk and fiscal terms, which we believe are the best in Southeast Asia. The country’s prospectivity wasn’t recognised for a long time because its many volcanoes threw people off the scent. However, during my time working there as a geologist, I was able to piece together the clues and realise that it is part of Indonesia geologically, with good oil and gas source rocks.”
When Dennis helped found Gas2Grid he was still the Managing Director of Eastern Star Gas Limited (eventually acquired by Santos), meaning he could only have limited involvement in its IPO and initial exploration activities. Gas2Grid raised A$5 million in its initial IPO, but its initial well was too shallow to maintain commercial production. When Dennis left Eastern Star Gas in 2007 he became free to take the lead at Gas2Grid and get the company back on track.
The Malolos field
SC44 on Cebu Island contains the Malolos oil field, in which Gas2Grid has mapped numerous large anticlines at surface. These have confirmed oil bearing intervals in quartz sandstone reservoirs that are likely to be replicated in other anticlines across the service contract. Last year, Gas2Grid recorded a ‘best estimate’ (2C) contingent resource of 20.4 million barrels of oil in place and the Philippines Department of Energy officially recognised Malolos-1 as an oil discovery.
An extended production test in 2014 confirmed that sandstones at a depth of 7,100 and 7,300 feet were oil bearing, and that oil production of 100-200 barrels per day was possible at short-term oil influx rates. However, oil production was severely restricted by fines migration and sand production. This is a common problem in most tertiary-age oil fields producing from sandstone, not only in Asia but also in West Africa, the USA’s Gulf Coast and Australia.
The Philippines Department of Energy has granted Gas2Grid a two-year technical moratorium until January 2017 in which to study the problem, find a solution to it and drill a new well to demonstrate sustained oil production. Gas2Grid will attempt to achieve this goal by applying technologies already used to limit sand production and maximise oil production elsewhere in the world. It will be the first company to utilise these technologies, which include screens, gravel pack and frac-pack, in the country.
Despite the challenges, Dennis is very optimistic about SC44 and says that it has many competitive advantages. “Its location onshore means the operating costs are low: they’re less than US$10 per barrel, compared with the current market price of $50-60 per barrel,” he remarks.
“It’s also very attractive geologically. The reservoir targets on which we’re focusing are extensive and well developed. Furthermore, all the wells we’ve drilled on Cebu have been on outcropping surface anticlines and discovered oil. So we have a very high strike rate. The only challenge is minimising the sand production, and we’re confident that we will succeed in that respect.”
Gas2Grid has taken steps to limit its operating costs already by choosing to buy and operate its own rigs. These are the Gardner Denver 500 Drilling Rig with 800 horsepower and capacity to drill to 2,740 metres with a 4.5-inch drill pipe and 3,650 metres with a 3.5 inch drill pipe; and the Brewster 200 Workover Rig.
Gas2Grid’s secondary focus is the Aquitane Basin in France, where it is targeting several exploration licences. This basin is a prolific hydrocarbon province that has produced more than 13 trillion cubic feet of gas and 450 million barrels of liquid hydrocarbons to date. Dennis explains that the field was initially developed by Total S.A. back when it was still owned by the French government, but has since lain dormant for around 45 years.
“We saw an opportunity to go in and do a second round of exploration in an area that hasn’t seen a seismic survey or drill in almost half a decade,” he says. “We are confident that we’ll be able to pick over the data from the original work done there and use it to find significant smaller oil and gas fields within the basin.”
Gas2Grid’s first acquisition within the Aquitane Basin is the St Griede licence. This licence lies adjacent to four existing oil and gas fields and just 20 kilometres from under-utilised oil and gas infrastructure. The company’s first target here is to acquire new seismic data for the licence, before proceeding to drill one well in it over 2015/16. At the same time, Gas2Grid will be waiting for three more licence applications it has made within the basin to be approved. The company is considering the possibility of farm-out arrangements on these properties.
Gas2Grid may still be at the beginning of its journey but Dennis, enlightened by his extensive experience in the field, is confident in the company’s chance of success. “I’ve been in the oil industry for a long time and I know that without good assets you can’t really go anywhere,” he remarks. “But we believe we have two good assets in SC44 and St. Griede, and we’re very fortunate to have an oil discovery that we’re in the position to develop.”