Annual Report & Accounts 2013

 

OPERATIONAL REVIEW ALGERIA

Highlights

Formation of a joint operating organisation to conduct field development operations

Production facilities Front End Engineering and Design studies tender issued

Receipt from Enel of a $26.9m contingent reserves bonus

Pre-emption by Sonatrach of a divestment of an 18.375% interest in the field




Algeria Map

During 2013, Petroceltic made significant progress towards the development of the strategically important Ain Tsila gas condensate field through the achievement of a number of key milestones.

An experienced project team has been established and the joint operating organisation (or ‘Groupement’) which will be responsible for executing the field development plan has been formed with secondees from Sonatrach, Petroceltic and Enel. The invitation to tender for the Front End Engineering and Design (‘FEED’) studies was issued in December and commercial work finalising the detailed terms of the Gas Sales Agreement is near completion. The Group also agreed a farm-out of a further 18.375% interest in the field to Sonatrach.

2014 will see the award of FEED and Drilling contracts and the establishment of forward operations bases in both Hassi Messaoud and in the field. During the course of the FEED studies, the project cost estimate and schedule will be updated and the major project related construction contracts are expected to be tendered and awarded in 2015. Subsurface engineering and geoscience activities will focus on optimising the development plan prior to the commencement of drilling in early 2015. The divestment of the second 18.375% interest in the Production Sharing Contract (“PSC”) to Sonatrach is also expected to be concluded during 2014.

Background+-

Petroceltic was awarded operatorship of the Isarene PSC in April 2005 with a 75% equity interest, this was subsequently reduced to 56.625% through the divestment of an 18.375% interest to Enel SpA in early 2012.

After the initial Ain Tsila discovery in 2009, Petroceltic applied for a two year extension period, through to 26 April 2012, to allow time for the appraisal of the gas accumulation. During this period, the Group successfully drilled six delineation wells on the Ain Tsila structure.

Approved development plan+-

Following the completion of the appraisal drilling campaign, all the geophysical, geological and engineering data available for the field were integrated into reservoir models which were used to optimise the development plan. This plan was approved by the Algerian authorities in December 2012 and envisages the production of 2.1 Tcf of sales gas and 175 MMbbl of liquids (comprising 67 MMbbl of condensate and 108 MMbbl of liquid petroleum gas or “LPG”) from the field during the 30 year PSC exploitation period. The plan will result in a recovery factor of 24% of the Gas Initially in Place (‘GIIP’) in the field and the Company anticipates that the recovery factor is likely to grow over time with additional well data and the potential installation of additional gas processing facilities.

The planned plateau production rate is 355 MMcfpd gross of wet gas for a period of 14 years. The plan involves the drilling and completion of 124 vertical development wells, of which 30 are now scheduled to be available prior to first production. The facilities will comprise a gas processing plant with water separation, condensate and LPG recovery equipment, gas compression, export pumps and metering facilities. The gas will be evacuated via a 95 kilometre pipeline which will tie into the main Algerian gas transmission network near the Tin Fouye Tabankort field. Dedicated condensate and LPG export lines will also be constructed to tie into liquids transmission infrastructure.

The gross project cost prior to first production is expected to be in the region of $1.6 billion with the majority of the expenditure incurred from 2015 through 2017. The capital estimate and phasing will be confirmed in more detail after the FEED studies have been completed in 2014.

Gas commercialisation+-

Following the execution of a legally binding Heads of Terms for the Gas Sales Agreement with Sonatrach in 2012, the comprehensive Gas Sales Agreement detailing operation procedures and processes required for nominations and payments is expected to be signed mid 2014.

Liquids+-

Condensate and stabilised LPG form a significant part of the reserves and revenues from the Ain Tsila field. Based on data from similar developments, the Company anticipates that both condensate and LPG will be sold at a price related to Brent.

Second farm-out+-

A process to divest an additional 18.375% of Petroceltic’s equity in the Isarene PSC was initiated in 2012 as part of the Company’s strategy to manage its overall financial and operational commitment to the Ain Tsila development. In early 2013, Petroceltic agreed a farm-out to an international oil company and initialled a Sale and Purchase Agreement. However, in July 2013, Sonatrach exercised their right to pre-empt the transaction and acquire the interest on similar terms. The consideration includes a $20m initial cash payment, a cost carry of up to $140m and potentially two further $10m payments contingent on the achievement of certain key project milestones.

The amendment to the Isarene PSC allowing the transfer of the interest to Sonatrach was signed in February 2014. Formal completion of this assignment remains subject only to final ratification by the Algerian government authorities and the transaction has therefore not been reflected in the financial statements for 2013. Petroceltic will retain a 38.25% interest in the project through the development and production phase.

Future exploration licencing round +-

Pursuant to improvements announced in 2013 to the licencing regime, the Algerian government has recently launched a new exploration licencing round. The Group intends to evaluate the blocks which will be tendered and retains the flexibility to participate in the round if the opportunities are attractive.

Isarene concession timeline

2005

- Award of Isarene Production Sharing Contract

2006

- First exploration drilling of two wells

2008

- 3D seismic acquisition

2009

- Five wells drilled, resulting in the Ain Tsila discovery, the year’s 9th largest worldwide

2010

- Two year delineation licence extension awarded

2011

- Successful six well drilling campaign

2012

- Farm-out of 18.375% interest to Enel

- Declaration of Ain Tsila field commerciality

- Development Plan and Gas Sales Heads of Terms approval

- Award of 30 year exploitation licence

- Booking of 304MMboe of proved plus probable reserves

2013

- Formation of joint operating organisation to develop the field

- FEED tender issued to market

2014

- FEED studies to complete

- Drilling and major project contracts to be tendered

2015

- Major contracts awarded and project execution phase commences

2015 - 2017

- Project execution phase including the drilling of 24 wells and construction of gas processing plant and related infrastructure