From zero to 2,000 barrels per day
Nearly a decade since Canada’s last foray in the country, Emperor Oil Ltd. [EM:TSX.V] looks to lead a Canadian return to Sudan. The Company signed a Memorandum of Understanding (MOU) in September, 2012 to acquire a 42.5 per cent interest in the 10,000 square kilometres of property known as Block 7. Since that time Emperor, along with partners State Petroleum Overseas Inc. and SUDAPET (Sudan’s stateowned oil company) have completed a reserve report that confirms over 94 million barrels of oil equivalent, and together they are poised for production by the end of Q1 2013.
Seen as a sign of the times, the Sudanese opportunity falls in the same hot East African region that includes Kenya, which vaulted African Oil Corp. last spring. Now Emperor is set to start the New Year with a fourwell program that includes the recompletion of three previously drilled wells within the Rawat Oil Field, and the spudding of a fourth. Beyond these initial four wells, Emperor has also identified an inventory of six additional undrilled prospective oil fields within Block 7 that are worthy of further development.
Emperor initiated a public financing at the time of the announced MOU and has received subscriptions for over $12 million dollars to date. Once the financing closes Emperor and its partners will have secured the financial ability to develop the infrastructure required to achieve commercial production and cash flow in early 2013. Initial production will be trucked to the country’s main pipeline until a new conduit is constructed that will tie the concession block to a gathering system 60 kilometres away. Current estimates on the time of completion for the pipeline (which will connect the wells to Port Sudan for export) are pegged for Q3 2013, thus making the partnership’s reliance on trucking only temporary.
Andrew McCarthy, President and CEO of Emperor is pleased with the progress his company has had with its partners getting to this point.
“Getting this resource calculation together was a big step for us as a partnership,” says McCarthy. “Upon approval of the TSX we will have the financing to complete the transaction and get moving on recompleting the three shut-in discovery wells that will provide production in the short term. We can expect only a slight discount to Brent prices, while the trucked barrels provide some solid cash flow.”
Bringing the company from zero to production of over 2,000 barrels per day in under six months is no small feat. The Block 7 project as a whole is helped significantly by the wells completed by the two previous state-owned operators (CNOC and Petronas). Estimates of possible full production capabilities for the wells have been pegged as high as 10,000 barrels a day per well thanks to public data on over 200 analogous wells on the South Sudan side of the border.
Conservative cost estimates on the wells have been tallied at $750,000 for each of the recompleted wells and an additional $3 million for the fourth well. McCarthy and his team point to multiple factors that lead these particular wells to be so much less expensive compared to other East African plays.
“Our location allows us to mitigate a lot of the problems that are associated with some of the more remote drill programs in other parts of East Africa. Block 7 has already seen enough activity for us to know that we’ll have easier access through a more muted terrain and a shallow reservoir; while water and the country’s major pipeline are also within reach,” says McCarthy.
Running through Block 7 is a major gathering line that extends into South Sudan. Since the separation of the newly formed nation, both Sudan and South Sudan have had to work together in order to ensure smooth transportation of crude supplies. A six week disruption in the spring was resolved through negotiations between the two countries, and revenues resumed upon the solution.
“It was quickly settled and in many ways I think the resolution showed a willingness to form a common goal. We’re seeing a lot of the bigger companies of the world starting to enter this region and assist with development of their resources. It helps knowing that negotiations were successful and that production produces more peace and prosperity for the region,” says McCarthy.
Upon separation the northern portion which remained as Sudan was left with far less of the production rates. Of the previously combined 460,000 barrels a day of production, South Sudan took 76 per cent. Since the allocation was decided upon, government officials in Khartoum have been incentivized to recoup their share of production.
Phase 2 of the Block 7 project will involve the construction of a pipeline tie-in that will cross 60 kilometres.
Once the pipeline is complete, the spout will be fully opened, allowing a significant upgrade in production rates over trucking. Removing the trucks will allow these wells to produce an expected 4,000 to 10, 000 barrels per well. At 42.5 per cent net interest, this estimate, if correct, would bring Emperor’s net production to as high as 17,000 on the first four wells alone.
Compared to the large-scale production last seen by a Canadian company (Talisman in 2003 with three partners), which was 250,000 barrels a day, Block 7 provides quick production turnaround on built-up reserves.
Despite the long hiatus of Canadian interests in Sudan there is plenty of familiarity with the country within Emperor’s boardroom.
Director John McLeod is no stranger to Sudan, and the city of Khartoum. He played an instrumental role in developing a 250,000 barrel a day operation in the country, and has consulted on multiple East African operations since.
McLeod’s legacy in Sudan is highly regarded within Khartoum. Many in the present government saw his previous foray as the best operation that the country has ever seen. Along the way McLeod had a hand in mentoring a lot of the operational managers that helped advance many successful projects in the country. Now, a lot of those who developed their skill sets under McLeod’s tutelage are in positions of power within Sudan’s department of energy.
While McLeod brings engineering experience and important political acumen, another notable member of the team is George Fulford, who brings over 30 years of geophysical expertise. Over his career, Fulford was instrumental in the site selection of over 75 oil well locations in Sudan. His role in each of these previous forays has been in developing and spotting exploration drilling locations.
After the first four wells have been brought on stream, Fulford will be looked upon to help with the identification and targeting of the six undrilled prospective oil fields within the 10,000 square kilometres area of Block 7. Along with the development of the first four wells, a significant seismic program will be engaged by Emperor in order to aid Fulford and the geo team in future site selections.
McLeod and Fulford have worked together before in Sudan, and should bring important credibility to Emperor’s future dealings with partners SUDAPET. Due to the past successes of companies that these two have been associated with, SUDAPET has a very high regard for teams coming from Canada.
Also entering Sudan from Canada is Statesman Resources on Block 14. Due to more remote nature of the targets, the turnaround time on production for Block 14 is likely to be far greater than on Block 7.
Upon exchange approval, Emperor and its partners are set to begin drilling in early February, while also undertaking a sizeable seismic program to determine future targets on the large block.