Pilot Energy - September 2016 Quarterly Activities Report & Appendix 5B
Pilot Energy (ASX:PGY) reported a busy December quarter, with prospectivity updates at Leschenault, renewal of EP416, the identification of numerous oil & gas prospects in WA-481-P, receipt of $65m in PRRT credits as well as confirmation of the drilling of the Wye Not-1 exploration well in 2017.
- Leschenault gas prospect independently confirmed to have potential for up to 1.6 Tcf gas
- Renewal of EP416 exploration permit, and variation of EP480 work program
- Receipt of $65 million WA-481-P PRRT credits greatly reduces tax liability for future discoveries
- Numerous oil and gas prospects confirmed in WA-481-P
- Receipt of WA-507-P R&D rebate
- Drilling of Wye Knot-1 exploration well confirmed for 2017
EP416 & EP480 Exploration Permits (Operator, 60%)
As announced on 7 November 2016, RISC Operations Pty Ltd (RISC), completed an audit of the Company’s internal estimate of prospective resources for the Leschenault prospect, located in exploration permits EP416 and EP480.
RISC’s report confirms the prospective resources of the two main reservoir target intervals, as follows:
The Leschenault prospect is located across permits EP416 and EP480, within the southern Perth Basin and less than 10 km from the DBNGP regional gas distribution pipeline. RISC confirm the presence of a very large, structurally robust prospect, with up to 240 km2 of structural closure. Leschenault is a “three-way dip” feature that relies on closure to the west by a major bounding fault and exhibits two culminations, either of which is a potential drilling location for a vertical well to test the two conventional reservoir targets, being the Permian Sue Sandstone and the Triassic Lesueur Sandstone.
The main geological risk associated with Leschenault is one of cross-fault seal, i.e. whether the western bounding fault has sealing capacity to retain hydrocarbon gas migrating in to the structure. In order to address this risk, a geochemical survey will be conducted during the coming months, with results expected early Q3 2017. The aim of the survey is to identify anomalies due to micro-seepage of hydrocarbon gas components from depth, that are broadly conformable to the prospect’s area of structural closure. This would suggest that either or both reservoir targets are gas-bearing, de-risking the prospect for future drilling.
Also during the reporting period, the West Australian Department of Mines & Petroleum (WADMP) granted a renewal of the EP416 exploration permit. The permit was renewed for a five-year term, with the primary term work commitment (two years) comprising of geochemical surveying, advanced processing of the Falcon airborne geophysical survey data (acquired in 2015), and geological/geophysical studies. An optional exploration well is required in year four.
The WADMP also agreed to vary the work program for the current permit year of exploration permit EP480. Previously the EP480 permit carried a commitment to acquire 50 km of 2D seismic data, with an associated financial commitment of A$1,500,000. The replacement work program now constitute geochemical surveying, advanced processing of the Falcon AGG airborne geophysical data, and geotechnical studies with a financial commitment of A$350,000; providing consistency of work programs across both EP480 and EP416. At the time of the work program variation application, the Joint Venture also voluntary relinquished the seven northern-most graticular blocks of EP480, which are considered to be non-prospective for hydrocarbonss
WA-481-P (Operator, 60%)
As announced on 20 December 2016, the Company has completed its preliminary interpretation of technical data in exploration permit WA-481-P.
WA-481-P is located adjacent to existing oil and gas infrastructure, within shallow waters to the west of the onshore Dongara/Beharra Springs/ Waitsia gasfields, and the Jingemia/Hovea/Cliff Head oilfields. The permit is very large (17,475 km2 ) and covers a major portion of the offshore extension of the north Perth basin. The primary petroleum plays are for oil and/or gas within the Dongara Sandstone and the Irwin River Coal Measures. Both oil and gas are proven within the permit, with the Frankland gas and the Dunsborough oil discoveries representing contingent resources.
The permit is well covered by both 3D and 2D seismic data, which confirms the presence of thirteen structural prospects across a variety of geological plays. In addition to the Frankland, Cliff Head and Leander Reef trends previously announced by the Company, a fourth trend has been upgraded in the vicinity of the Dunsborough oil discovery.
Pilot Energy is presently finalising its estimate of prospective resources for each prospect, and anticipates announcing the results by early February 2017.
As announced on 16 November 2016, Pilot Energy received a transfer of Petroleum Resource Rent Tax (PRRT) credits, as the final step in completion of the acquisition of exploration permit WA-481-P. The undeducted exploration expenditure of $65,518,292 represents the previous titleholder’s net exploration cost during the primary term, and the Company will now assign 40% of this sum to joint venture partner, Key Petroleum Limited.
The effect of the PRRT credit is to greatly increase the value of any commercial discovery, as the undeducted expenditure is uplifted on an annual basis and available as a deduction against assessable petroleum sales income for determination of PRRT. With PRRT levied at a rate of 40%, the tax liability associated with development of future discoveries in WA-481-P could be reduced by as much as $75 million, greatly enhancing the value of the permit and its prospects.