Miran...

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20th Apr '09 by rpcroft

10 comments 4140 reads

Some reasons to be optimistic?

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Rpcroft

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10 comments

rpcroft

20th Apr '09

I have been looking for a tip off from the market as to the results of the first Miran well, which should now be imminent.

Todays buying provides some reasons for optimism.

The RNS on 25 March mentioned Oil shows over 1.1 km , 500m of the most prospective are being stem tested...These are extraordiary lengths of oil shows.

Couple that with "excellent shows" over 3 proven reservoir formations and the regions 82% hit rate on exploratory wells and there are clear reasons to be excited.

Even a small find on the licence area would pay as all the pipeline infrastructure is already there, but 1.1 km of oil show in elephant country allows thoughts of billions of barrels.

Awaiting the announcement with interest.

MrT

20th Apr '09

Iraqi Kurdistan's natural resources minister, Ashti Hawrami, apparently commented on Friday or Saturday that drilling in northern Kurdistan has discovered 3bn to 4bn barrels of oil said, with potential for reserves of 40bn to 45bn barrels! I haven't seen the detail but sounds promising for HOIL...

http://www.forbes.com/feeds/afx/2009/04/17/afx6304461.html

rpcroft

20th Apr '09

Yes...it is intriguing to know where exactly he was talking about. I dont think Miran can be said to be in Northern Kurdistan sadly...

It is astonishing there is so much undrilled land to the north and east of Kirkuk.

The political risk is huge of course. The US withdrawl may leave Kurdistan vulnerable. And concessions were given by the Kurds not the Iraqi government.

MrT

23rd Apr '09

Acccording to the Times, talk of a bid for Heritage Oil from Chinese interests was stoked by Credit Suisse, which began coverage with a “buy” rating and a 471p price target. According to them, Heritage "could not afford to develop its landlocked Ugandan discoveries on its own, while their sale would trigger a hefty tax charge, leaving a takeover as the likely option".

http://business.timesonline.co.uk/tol/business/markets/article6151011.ece

rpcroft

6th May '09

http://www.heritageoilltd.com/resource/n3r7su08wb2fkl0gwmvzwivz.pdf

Miran West: 2.3 to 4.2 Billion Barrels in place. 50% to 70% recovery. Estimated flow rates 10,000 to 15,000 bopd per well. Production by year end.

Very very good news which is very likely to be duplicated on Miran East.

I expect Heritage to be a takeover target, it is very cheap.

Gradders73

6th May '09

Seem like a very nice find. Shame they didn't find the WMDs there as well! What's a realistic price target for this stock, if oil gets back to north of $80?

rpcroft

7th May '09

The stock's valuation is all about political risk.

Here is a rough valuation of Miran.

KRG's oil regulations work like this:

10% oil taken as royalty. Then contractor costs are paid (up to 45% of oil). Then there is a KRG/ Contractor split which varies from 65%/35% to 84%/16% depending on the "R" factor..which is calculated according to an investment / return ratio. Heritage will get 56% of the contractor's share. Which works out at about 8% to 16% of profits, depending on "R". ( better explained here: http://www.westernzagros.com/operations/psc.html )

Taking base case assumptions of: No Miran East find or further discoveries. 2.3 Billion Barrels. 50% recovery. And a 84%/16% KRG/ Contractor split.

Then assuming 400,000 barrels per day production for 8 years

I get: NPV(10) of Heritage's share at $50 per Barrel: $3.1Billion

at $80 per Barrel: $4.9 Billion

Using more optimistic assumptions: 70% recovery, 4.2 Billion Barrels and a similar find at Miran East but still assuming base case 16%/84% split. Each field producing 400,000 barrels for 20 years

NPV(10) of Heritage's share at $50 per barrel is $9.9 Billion

at $80 per barrel is $16 Billion

The market cap has increased 400m pounds since the announcement of the discovery, which just goes to show what the market thinks of Kurdistan.

davjo

21st May '09

I see from the recent IMS that Miran West is estimated to have oil in place of between 2.3 - 4.2 billion barrels based on fracture porosity alone. I'm glad they cleared that up because I was somewhat mystified how Oriel referred to zero matrix porosity in their note, particularly when HOIL's prospectus last year indicated pre-drill low/med/high STOIIP estimates of (mmbbls) as :-

Matrix porosity           670   1430   2550
Fracture porosity       230     520    950
Total                            900   1950   3500

It's interesting to note DNO's comments on the geologically similar Tawke field The reservoirs are fractured carbonates with high productive fractures and a relatively tight matrix. The drainage of the matrix is crucial for the overall recovery from the field. Clearly, the fractures provide a crucial interface with the matrix, so, if HOIL have found 4 to 10 times more fracture porosity than initially estimated, one assumes that greater recoverability from the matrix will follow. What number would HOIL conjure up now if they factored in the matrix for public dissemination I wonder?

Note DNO reckon on 18% dual reservoir recovery rate for Tawke(mean 235mmbbls from OIP of mean 1300 mmbbls) vs HOIL's 50%-70% from fractured reservoir. I'm sure the context is exactly the same, except for the extent of seemingly greater fracture porosity in Miran....note Tawke wells proving up 5k+ bpd vs HOIL's Miran expectations of 10-15k bpd, so far greater overall dual recoverabilty might be expected.

Whatever, there are some caveats to viability or extent of this discovery. For starters, I'm aware of calcite cementation blocking the fractures in some fractured carbonate reservoirs, although I've no idea how prevalent this might be in Kurdistan. Also, fracture distribution is likely to vary. If they are talking about 0.8% fracture porosity(Oriel), it wouldn't take much variation to halve or halve again the outcome [or increase I suppose? ;-)]. This figure seems a bit low to me anyway, compared to fractured non porous basement where micro/macro fractures (in Cuu Long Basin) are said to be 0.5% to 3% and up to 8% in weathered zones. I have read mind, that carbonate fracturing is commonly found to be in communication over many kilometers in Kurdistan reservoirs. I do find that a little puzzling but Mid-East fields are obviously exceptional to the global norm. Without doubt though, several appraisals will need to be drilled on such a large structure to get a decent handle on what's actually there.

All in all on the face of it, the results so far look pretty spectacular...unless anyone cares to disagree? Lets see what sustained flows can be achieved in the next round of tests. A nice 12,500 bopd result would be great...I sincerely hope we don't get an ambiguous result with blame put on some t**t* at the wellhead!!

*oh the luxury of feeling free ;-)

emptyend

22nd May '09

I sincerely hope we don't get an ambiguous result with blame put on some t**t* at the wellhead!!

Why would the blame be put on some tests at the wellhead ? ;-))

Clearly, the fractures provide a crucial interface with the matrix, so, if HOIL have found 4 to 10 times more fracture porosity than initially estimated.....If they are talking about 0.8% fracture porosity(Oriel),......

As you say, the 0.8% figure of Oriel's looks somewhat low - but does your HOIL comment indicate that 3-8% is the range that they have found? 50-70% recovery rates sound rather ambitious, even in that case, and I would have thought that if the fracture network is in communication over many kilometres (which I'm prepared to believe in carbonate) there may perhaps be a greater risk of recovering lower than expected percentages of OOIP due to trying to produce too fast for the matrix porosity to keep the fracture network full [that, in case you didn't spot it, is entirely a non-technical guess but hopefully SW10 will be along with a borrowed reservoir engineer hat on and put us all straight!].

rgds

davjo

22nd May '09

Morning ee

As you say, the 0.8% figure of Oriel's looks somewhat low - but does your HOIL comment indicate that 3-8% is the range that they have found?

No, the company have said nothing other than "highly fractured". The comment came from Oriel :-

When the results of Miran West-1 were announced we were sceptical that the
high recovery factor of 50-70% could be achieved along with the oil in place
(OIIP) estimate of 2.3-4.2bn bbls. However since then we have met
management and are reassured by the estimation approach which assumes
zero matrix porosity and c.0.8% fracture porosity.
This approach looks realistic as Addax currently assumes 0.2-0.5% fracture
porosity on Taq Taq (the closest analogue) and believes a recovery factor of
80-90% is achievable from the fracture network. Based on current data Miran
West appears to be a more compressed anticline than Taq Taq which should
increase the fracture density. This interpretation appears to be backed up by
the available 2D seismic and well log data.

I previously overlooked the Taq Taq analogue...must be the sun ;-)

there may perhaps be a greater risk of recovering lower than expected percentages of OOIP due to trying to produce too fast for the matrix porosity to keep the fracture network full

I'm sure that is a risk, although judging from Taq Taq, not much of one. It's something they'll have well covered in the upcoming tests I should think.

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Rpcroft

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