+++++++++++++++++++++++++ On behalf of the Board of Directors of Carnarvon Petroleum I welcome you to this Annual General Meeting of the Company.
The past year has seen significant strides forward by the Company and I would like to take the opportunity of summarising our recent achievements. These included:
1. The SW1A Joint Venture completed the Phase 1 development program at the Wichian Buri Oil Field in Central Thailand in which all three northern wells discovered oil. These discoveries resulted in an increase in Proved and Probable Reserves from 2.6 million barrels of oil to over 23 million barrels of remaining recoverable oil. This is a near tenfold increase in oil reserves in less than two years.
2. The Company and its Joint Venture partner committed to the Phase 2 development program. Planning of the program included detailed assessments of geological, engineering and drilling data leading to the selection of optimal well locations, and the procurement of an experienced drilling contractor and the required materials. This planning, together with the implementation of procedures which instilled strict measures of operational and cost control, delivered outstanding drilling success;
3. The Company and its Joint Venture partner secured limited recourse funding for the Phase 2 development from Gemini Oil & Gas Limited, an internationally respected oil and gas financier who invested US$2 million in exchange for future royalty payments. The commitment of this funding by Gemini provided an independent confirmation of the potential for the Oil Field; and
4. The Company completed a significant capital raising in very difficult market conditions which has to date delivered all participants a 50% increase on this investment.
Since the end of the financial year, the Company and its Joint Venture partner have carried out the significant Phase 2 development program at the Wichian Buri Oil Field. This development program consisted of drilling three new appraisal wells in Production Licence 1 and hydraulically fracturing two existing production wells that were previously drilled as part of Phase 1. The three new wells were designed from the outset to enable long-term optimum levels of production in the event oil was discovered.
The drilling of the three new Phase 2 wells, WB-N4, -N5 and -N6, was an operational success with drilling and casing of the three wells performed within eight days and without incident. Most importantly for Carnarvon and its shareholders, all three wells found the targeted F Sandstone reservoir as oil bearing.
In addition, two other oil bearing reservoirs, the E and G Sandstones, were discovered. Preliminary results from these new wells indicate that the quality of the sands is better than anything previously seen in the Wichian Buri Oil Field. The successful drilling of WB-N5 also confirmed oil in a new fault block in Production Licence 2. The three new wells have extended the known presence of oil in the northern portion of the Wichian Buri Oil Field. No boundary is as yet evident to the north.
The Company, with its Joint Venture partner, has in the past 18 months now drilled six wells that have all discovered oil. This is an exceptional result by industry norms.
The results of the hydraulic fracturing of wells WB-N2 and -N3, whilst not meeting expectations, has delivered a sustained 50% increase in production to about 60 BOPD. Initial production rates when the two fracced wells were brought back on stream indicated production rate potential in excess of 200 BOPD but oil output during the following weeks was erratic. The flow rate has now stabilised. The fracs enabled the Joint Venture partners to better understand the reservoir behaviour and characteristics in the area surrounding these northern wells. The payback period for this investment is less than a year.
Testing of the three new wells is now under way. The Company's Managing Director & CEO, Ken Tregonning, was in Thailand last week when the initial natural flow and production tests were performed. Two of the three wells flowed oil naturally to the surface. The other well is expected to flow oil to surface when pumped.
Pressure gauges have just been placed in the WB-N4 well to measure the pressure response of the reservoir under both natural and pumped flowing conditions. The results of these pressure measurements, together with accurate surface flow rate data, will enable the reservoir parameters to be determined. In addition the tests will assist with optimising the operation of the jet pump equipment. These tests will be repeated for WB-N6 and -N5.
WB-N6 is in the process of being brought into production using a jet pump, a tried and proved method of pumping oil in fields similar to Wichian Buri. WB-N4 will follow and thereafter WB-N5. The Joint Venture partners will jointly provide flow rate information once reliable and sustained production data has been obtained under both natural and pumping conditions.
It should be noted that only the F Sandstone reservoir has been perforated in these three wells and current production is solely from this reservoir. The Joint Venture partners will need to production test the F Sandstone reservoir for an extended period of time to determine its reservoir and production parameters. It is important to understand these parameters properly in order to plan for the next stage of development.
The E and G Sandstone reservoirs will be perforated and tested within the next few months. Incremental oil production from these new sandstone reservoirs will not be subject to the royalty impost.
Once all the sands have been tested and are in production, reserves for the Wichian Buri Oil Field will be recalculated, but it is fair to say that a further significant increase in reserve estimates is anticipated. We expect to release these estimates in the first quarter of calendar year 2003.
Subject to successful production rates being achieved from the three new wells, the Joint Venture partners will turn their attention to the Phase 3 development program which will target the prospective Huai Phai prospect to the west, as well as continue drilling the northern structure of the Wichian Buri Oil Field. The Operator and the Company have initiated discussions to use the same drilling contractor for the Phase 3 development program following on from the successful Phase 2 operations.
You may also be aware that since the end of the financial year the Joint Venture has been awarded the long-awaited second production licence, PL2, as well as Exploration Block L44/43, which completely surrounds the Wichian Bun Oil Field and encompasses a significant portion of the Phetchabun Basin of which the Wichian Buri Oil Field forms part. The Huai Phai prospect is in PL2.
Whilst we are encouraged by the recent success at Wichian Buri, the Company recognises that there are significant risks associated with any oil and gas development project. However, we do have a management team with the technical expertise to mitigate the geological and operational risks.
The Company's development plans are behind the schedule we set ourselves twelve months ago. This was in part due to the limited availability of drilling equipment that met the specifications for the more extensive and technically demanding program undertaken, specifically drilling multiple large bore wells from a single location capable of higher levels of production. In addition, the Company and its Joint Venture partner needed to secure sufficient funding to finance the more extensive Phase 2 Development Program. However, the time has been used to great effect by allowing us to increase our understanding of the Wichian Buri Oil Field and put in place guidelines and procedures for field operations that have set the scene for the success of Phase 2.
Your Company will soon know whether it has made the transition to a successful oil producer. The next few weeks are vital to achieving our primary objective of a self-sustaining profitable company enjoying strong cash flows from a quality asset.
My fellow Directors and I thank you for your continuing support as we look forward to delivering results which we are confident will increase shareholder wealth.
CVN Price at posting:
0.0¢ Sentiment: None Disclosure: Held
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