With a net footprint of over 2800km2 in Western Australia’s proven Perth Basin, Norwest Energy is in a favourable position for a junior explorer. The ASX-listed company holds seven onshore and nearshore permits in the region, which itself is a proven hydrocarbon province with multiple producing oil and gas fields. Norwest is coming to a turning point as it progresses three of its wells: Xanadu-1, Lockyer Deep-1 and Arrowsmith-3. CEO Shelley Robertson is leading the programme and is on the hunt for partners.
Roberston has been with Norwest for nearly six years and knows the portfolio inside out. Having acquired postgraduate qualifications in petroleum engineering and business, she spent over 20 years in the resources industry. Before becoming CEO at Norwest she acted as the asset manager, managing all the technical and operational matters for the company.
Before delving into the respective attributes of each prospect it is important to understand how strong the Perth Basin is as a prospective oil field. Firstly, it is in close proximity to pipeline infrastructure servicing the Western Australian domestic gas market, which is a huge advantage for new discoveries. According to Norwest’s company presentation, since 1990 the Perth Basin records a 1 in 4 chance of commercial success, further proven by recent drilling success at Waitsia, Warro & Red Gully highlighting the opportunities for major discoveries. Finally, the basin has attractive economics due to the wider industry climate of falling service and drilling costs and a strong gas market.
Robertson was appointed CEO in July this year and one of her first announcements was Norwest entering into a strategic alliance with Transerv Energy (ASX:TSV). The alliance included a share placement of $200,000, whilst the company separately raised through sophisticated and professional investors and directors an additional $630,000 which is ear-marked to be used to establish the three aforementioned projects to drill-ready status and ensure they are best positioned to attract investment.
“The real focus of the alliance is around their [Transerv’s] interest in a number of our projects,” said Robertson. “They are coming in and enabling us to work with other companies who are interested in our projects. We’ve also got a cost-saving model in place and share some of our resources.”
The first target on the agenda is the Xanadu prospect. While Xanadu is located offshore in the northern Perth Basin, it is a nearshore conventional oil play that can be drilled from onshore utilising a deviated well.
The prize at Xanadu would be, in Robertson’s words, a ‘game changer’ for Norwest. The prospect has an un-risked best estimate prospective recoverable resource of 160MMbbls and once that is out of the ground it is close to existing infrastructure, sitting only 250km north of Perth.
“The timing for the well at this stage is mid-2017, we just need to finalise our joint venture and get our regulatory approvals completed,” says Robertson.
“I expect to see the joint venture finalised within the next three months.”
At a cost of $6 million to drill, the well is relatively low cost, especially considering this area has resulted in four oilfield discoveries since 2001: Cliff Head, Jingemia, Hovea and Eremia. To progress the Xanadu prospect Robertson knows finalising the farm out process remains a priority.
The next target coming up is the EP368 permit which contains two prospects: Lockyer Deep and North Erregulla Deep. The onshore gas plays contain 58bcf and 55bcf respectively and Robertson is hoping to find something similar to AWE’s Waitsia discovery nearby.
“The Lockyer Deep target is just to the northeast of Waitsia; AWE made that big discovery in the Perth Basin in 2015 from the Kingia / High Cliff Sandstone (HCSS) formations that flowed over 50 MMscf/day unstimulated. What we are looking for in Lockyer Deep is an actual lookalike or extension of that Waitsia play into EP368.”
Norwest holds 20% of the block and the joint venture partner Empire Oil & Gas is the operator holding 80%. The Lockyer-North Erregulla trend was proved to be oil bearing at the Dongara sandstone level by historic wells but the deeper Kingia and HCSS levels were not reached and remain untested.
Empire Oil & Gas has reported that the Lockyer Deep well is expected to be drilled in 2017, subject to funding, and the North Erregulla Deep prospect will represent an immediate follow-up prospect based on success at Lockyer Deep.
The EP413 permit contains the Arrowsmith project, likely to contain the third well to be progressed in the sequence. The Arrowsmith-2 well was drilled in mid-2011 to test the shale gas potential of the unconventional play. Testing was completed in 2014 and resulted in high grading two intervals for development – the Carynginia Formation and the Irwin River Coal Measures.
Robertson and Norwest are currently going through a process of joint venture meetings for the partners to finalise where the best location to drill the well is.
“For the other two projects [Xanadu and Lockyer Deep] we have our location defined, we have our target defined and they are ready to go,” explains Robertson.
“At Arrowsmith we have a couple of different options that we can target going forward regarding where we are actually going to drill the well. The 3D did turn up some conventional prospectivity at the southern end of the block which is something that we are certainly considering for our upcoming drilling commitment.”
The location of all three prospects is advantageous if they are all successful to the point of production. From the Arrowsmith location, Norwest will need to build a 13km pipeline to transport gas to the nearest compressor station, and the situation is similar for Lockyer Deep.
“From that perspective it’s easy connecting to the market – and there is a predicted shortfall from 2020 in the domestic gas market,” says Robertson. “By the time we drill this well and hopefully follow through to development, we are looking at that window of opportunity of the domestic shortfall in gas, and subsequent higher gas prices in a more solid market.”
If Xanadu is successful, it is located close to nearby producing oilfield, Cliff Head. Robertson says that if they produce from Xanadu, Norwest can either pipe the oil to the Cliff Head facility, process it there then truck it to the Kwinana refinery around 300km south or there are a number of potential customers nearby.
“There are big mining companies and other companies that are interested in directly buying the product from oil companies as a diesel substitute. That’s a pretty solid market for oil as well.”
The next year or so represents a crucial period for Norwest. It is make or break based on success at the three targets. Robertson wants to get a joint venture for Xanadu on the table, and to build some value for the shareholders.
“Our primary deliverables are finalising the joint venture for Xanadu because that’s our first well. Subsequently we would be securing the funding to participate in the other wells that we’re committed to,” she says.
“The ultimate outcome is obviously success in one or more of those projects leading to increased shareholder value, because we’ve got a lot of long-suffering shareholders that have been with the company for a long time. We have over 4,000 shareholders in total, and I’d love to see them get some value from their loyalty to the company.
“Based on success at Xanadu, we’re looking at a full-field onshore development with a fast-track to commercialisation. So we would have turned Norwest into a fully-fledged production company, be able to fund our own development and go forward to participate in other exploration programmes and other permits in the basin and perhaps elsewhere.
“It’s a matter of getting some cash flow and working the portfolio up with strategic choices that provide value to our shareholders which is what it’s all about.”