Shares in Kea Petroleum (LON:KEA) slumped by nearly 19% to 15p this morning on news that the AIM listed exploration group had decided to re-drill part of its onshore Beluga-1 well in New Zealand’s Taranaki basin. The company stock soared to 29p earlier this month after the company reported positive early results from the well. However, Kea now wants to deviate the well in order to reach other areas of the all-important Tariki sands after finding that the current location may not offer the necessary commercial production rates needed to supply its off-take partner, Methanex.

Earlier this month Beluga-1 intersected the Tariki sands, which electric log analysis indicated as gas charged and over-pressured. However, the well location appears to be sub-optimal and too close to the up-dip pinchout of the sands. Kea said the well had established two future objectives both of which could be accessible from a relatively short side-track: downdip to the east, Tariki sands are expected to thicken, with improved reservoir quality, while updip to the south, Mangahewa Sands appear to form a closed structure that could also trap gas.

As a result, Beluga-1 will now be suspended at the 7 inch casing shoe, several hundred metres above the Tariki sands and the rig will be demobilised from the site ahead of what is believed to be a straightforward re-drilling exercise. The Beluga-1 well was fully financed by Methanex with a back-to-back 15 year gas offtake agreement that envisages the sale of up to 90 billion cubic feet per annum. Methanex is understood to be supporting the company's decision to suspend the well and to conduct further analysis for a prospective deviation.

Kea’s chief executive, Dave Bennett, said: “This strategy gives us the option to drill to a better intersection of the Tariki sands than was encountered in Beluga-1. The evidence from Beluga-1 supports the probable entrapment of a substantial resource within the Tariki sands trap, and a deviation of a few hundred metres should enable us to establish whether this is so. It also enables us to better test the deeper Mangahewa section than we could with this rig at its current subsurface location. Overall, Beluga-1 was operationally very successful and its suspension allows us time to review all information in an orderly manner, and to define optimal future drilling operations from this well bore.”

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