http://www.falklands-oil.com/

http://www.rockhopperexploration.co.uk

http://www.argosresources.com/




Rockhopper was established in 2004 with a strategy to invest in and undertake an offshore oil exploration programme in the North Falkland Basin. It was floated on AIM in August 2005. Rockhopper was the first company to make a commercial oil discovery in the Falklands. Today Rockhopper is the largest acreage holder in the North Falkland Basin, with interests in the Greater Mediterranean region.

A few thoughts on the initial results of the Sea Lion DST.

The RNS contained some surprises. However the Declaration of Commerciality to the markets was not one of them.

The test rate was relatively modest but my previous post

http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3ARKH.L&fromdate=02%2F07%2F2010&threshold=0&todate=02%2F07%2F2010&pageno=5&it=le

pointed out that test rate would be dependent on the pressure draw down achievable without any form of artificial lift and that the Gas Oil Ratio of Sea Lion might limit the draw down and therefore rate.

Hence it may be that 1000 psi drawdown is not achievable in a DST and hence the rates may be lower. This should not be of concern. With their track record RKH will be quick to point out potential for improvements in rate in a development scenario.

It was pleasing to see just such a comment in the RNS.... Rockhopper anticipates that the additional equipment that would be incorporated into any future test, when combined with a more optimal well location, would result in a significantly higher flow rate.

Unfortunately it is difficult to provide insights on the rate because essentially no supporting information was provided in the RNS. This was surprise number 1 because at the very least they could have supplied a choke size and wellhead pressure and of course the interval tested. We do not know if they tested only the Main Fan or only the Lower Fan (unlikely) or both together. Quite extraordinary that they did not indicate the interval(s) perforated!

I am hoping that RKH will run true to form however and release more information beginning next week as it becomes available. From the wording of the RNS..

Downhole pressures were recorded and their analysis will inform the Companys development scoping plans. It appears as though they want a little more time to analyse the pressure gauge information. Given that RKH just managed to announce the results prior to COB on Friday I would not be surprised to learn that they had only just completed the test and not had the opportunity to study the pressure information. A Technical Update along the lines of the 4th June RNS would be much appreciated.

Surprise number 2 was that there appears to have been only one DST. RKH had previously announced ...
Pressure data suggest the possibility of two separate oil columns, although this will have to be confirmed by a full well test. The main Sea Lion fan has a net pay interval of 34.5 metres. Additional underlying sands have net pay totalling approximately 18 metres. Approximately 16m of this lower pay appears to relate to a Sea Lion lower fan, which had been previously recognised, but not included as a primary prospect. A further 2 metres of deeper pay has also been encountered.

Running a separate DST on the lower fan would have provided the opportunity to characterise the lower fan independently of the main Fan and potentially obtain indications of up dip pinch out or thickening down dip. However I suspect there were a couple of concerns about conducting two tests:

1. Concerns that the flow rate from the Lower Fan would lead to wax issues at low rates
2. The reference to additional equipment that would be incorporated into any future test could refer to a number of things* but makes it clear that RKH was not entirely satisfied with the test set up. Hence it may have been decided to test the lower fan in a more optimal location down dip in a future test with an enhanced test set up.
* Limited wax suppression capability or perhaps decision not to flare on environmental grounds and inadequate storage capacity to handle produced crude or the need for an ESP to boost rates.

3. The additional cost of a second test even though RKH raised funds on the basis of up to 45 days required to re-enter test and P&A and that suggested two tests would be conducted.

Surprise number 3 whilst not entirely unexpected was a pleasant one. No H2S and negligible CO2. This will avoid the burden of additional costs associated with significant CO2 and H2S content and the previously announced low sulphur content will help with marketing the crude.

Surprise number 4 was the comment from Pierre Jungels on the size of Sea Lion We believe that Sea Lion is the largest fan sandstone body in the North Falkland Basin and, given this successful flow test, that the Sea Lion discovery will be commercially viable.

On the face of it it seemed early to be making that assertion. However as a reminder the initial preliminary volumetric assessment of Oil Initially In Place and estimates of recoverable resources from RPS was completed on 2nd June. It said Further detailed work has been commissioned by Rockhopper to calibrate the seismic with well data and characterise the hydrocarbon sands. As a result these preliminary volume estimates may be subject to change following the more detailed technical review. Sounds to me like that work has progressed and the results are going to be highly favourable when published.


SEA LIONS DISTANT COUSINS IN THE WEST OF SHETLANDS
It is always useful to look for analogues to a new discovery both in terms of geological setting, rock and fluid properties and development type to obtain an understanding how things could turn out, especially in this case since we have such little information on the test. Whilst the analogy is not perfect (perhaps someone can provide details of a better one) I think it is useful to look at the Foinaven and Schiehallion Fields, West of Shetlands UK.

Firstly Foinaven .. a basin opening discovery, in a remote province in 440m water depth, early post-rift, Cretaceous age stacked slope and basin floor submarine fan sands with initially estimated reserves of about 250 mm bbl.... sound very familiar?

Take a look below at how closely some of the other key parameters compare.
Water Depth: F 440m, SL 451m
Reservoir Depths: F 2100m SS, SL 2440m SS
Reservoir Pressure: F 3242 psi, SL Main Fain ~ 3500 psi
API Gravity: F 24 27API, SL 26 29API
GOR: F 350 scf/bbl, SL 265 scf/bbl (MDT samples)
Viscosity: F 3.5 4cp, SL 6.5 8.5 cp
Permeability Average (Range): F 800md (500 2000md), SL N/A (preliminary 200 900md from CMR log interpretation ref Volumetric assessment by RPS 2/6/10)

We can conclude there are a lot of similarities between the fields. Foinaven has a significant advantage in terms of lower viscosity which would lead to higher rates from Foinaven wells for a given reservoir thickness.

So what did Foinaven well rates look like? The field was discovered with a well that encountered a limited reservoir section of 11m; RKH did rather better...lol!

The second well was drilled to find the OWC and tested 3800 bbl/d through a 1 choke from about 35m of pay out of a total of 48m net pay. Sea Lion tested up to 2300 bbl/d. The interval tested has not yet been announced but the Main Fan has 34m net pay and well total pay is 53m.

The higher in situ viscosity of Sea Lion crude, about double that of Foinaven, would appear to be the major contributor to the difference in rate.

So how did the Foinaven development turn out? It was a resounding success. There were some initial teething problems with a new subsea connection system and some cost over runs but in truth the targets were unrealistic and driven by a crude price around $15 20/bbl.

The reservoir performance has been very good. Many of the development wells were horizontals as the net:gross was high in the main sand channels. Wells typically produced at 20,000 bbl/d initially before declining. The field started up in late 1997 and within 2 years was producing at 90,000 bbl/d. 13 years later is still going strong with satellite discoveries being made and ultimate reserves likely to be higher than initial forecasts.

There is every reason to be confident that Sea Lion will be an equally successful development. Whilst development well rates of 20,000 bbl/d may not be possible due to the viscosity, from what we know to date there is good reason to believe 10,000 bbl/d will be achievable from horizontal or high angle wells located in the reservoir sweet spots. That will ensure commerciality.

And Schiehallion? It is Foinavens big brother with 450mm bbl reserves and the potential for an increase to 600+mm bbl. The really exciting thing... Sea Lion has the potential to exceed this!
Regards and GLA

From Gramacho on iii

Fox Davies flash note

Oil & Gas Corporate News

Rockhopper Exploration (LON:RKH) (BUY, 5.00) (RKH, 468.5p, ▲ (11.55%)) reported the successful test of well 14/10-2 "Sea Lion 1. Sea Lion 1 was drilled in a water depth of 451m during April and May 2010 and suspended for future testing, having encountered a gross oil column of 217m with net pay of 53m. Initial MDT samples were confirmed as medium grade crude oil of 26.4-29.2o API gravity. Sea Lion 1 was re-entered during September 2010 and was flowed for 18h. The well tested at sustained rates in excess of 2,000 barrels per day with a maximum rate of 2,304 barrels per day. The flow test results are in line with Rockhopper's pre-test expectations and were significantly limited by downhole and surface equipment. The well produced no water, no H2S and negligible CO2. Downhole pressures were recorded and their analysis will inform the Company's development scoping plans. A number of downhole and surface samples were collected and will be further analysed in the UK. The test was carried out with limited equipment owing to the length of the logistics chain and timelines involved in securing such equipment. Rockhopper anticipates that the additional equipment that would be incorporated into any future test, when combined with a more optimal well location, would result in a significantly higher flow rate. Rockhopper now intends to plug and abandon the well as planned.

Comment: Those are decent flow rates even though such a sand body should be able to flow at much higher rates given the reservoir characteristics and the quality of the oil. Given the limitations imposed by the equipment, we agree with the Company that much higher rates should be achievable. We are encouraged by those results and are raising our probability of success for Sea Lion from 50% to 67%, resulting in an increase in our price target from 350p to 500p.

Rockhopper Exploration shares much higher on Broker coverage

Shares in Rockhopper Exploration plc (LON:RKH) continued to trade much higher today on the back of broker upgrades following the flow test results from their Sea Lion 14/10-2 discovery well. At 10.30am the shares were trading up 50.25p (+12%) at 470.25p having been up as high as 483p earlier in the morning.

Bank of America Merrill Lynch in their broker note set a price target of 700p, Fox Davies set a target price of 500p and Evolution Securities price target is 450p.

Desire Petroleum plc (LON:DES) down 2.5p at 150.75 was initially trading as high as 180p boosted by the positive Falklands oil sentiment and by a positive note from Evolution Securities with a target price of 166p.

Another upwards move,,,,

The order book/level 2 has gone slightly positive than earlier, and most of the MMs have also moved their prices higher since 12.01pm

Just had to take some profits.....risen so much with news perhaps all in for some time.....perhaps too early....but a profit is a profit....

Well done rf but I think you excited too soon.

as i keep saying, no one ever went broke taking a profit - but plenty do and will through being stupid and greedy

I just had to.....won't say how much I made...but for me ...it's a lot....

Well done Rf, now plough it all back in to DES!!!! ;o)

Not yet Harry...has to settle first....and no way am I putting the whole lot on DES.....that would be like a casino....

My generation baby.

To me the sp is up with events now.....would not pay 480p for them now....later towards christmas, perhaps ....

Oh dear RF has sold, now we are going to get bombarded with "its over valued" kind of posts until RF buys back in again.......

Deja Vu ? ;)

Yep !....

It's up with events.....but this will go further when more wells are announced....hey !....crikey it's done incredibly well so far and more to come later...I might have sold too early but had to take some profits,....thanks once again Proselenes....keep posting great posts......

oh no, not more reminders.....please

RF - you were quite right ... if you had a target and met it, that's the right action ...... Mr P can spout all the shit he likes, and just possibly sp has a lot further to travel within the very near future, but no one has that kind of 100% foresight

You have to laugh at the nerve of Papel Power.

For 10 years i've watched him ramp stocks on many boards none stop then
the moment he sells he himself "bombards" the threads with deramps and he
has a go at RF, i think we can all see RF is just a day trader and rarely holds
a stock for more than one day, plenty of them around at the moment.