Canning Basin Permit 5/07-8EP (Derby Block)

General

The Application for the Canning Basin Permit 5/07-8EP is presently pending advanced Native Title negotiations with the Traditional Owners represented by the Kimberley land Council (KLC).

Upon award Oil Basins Limited (OBL) will become the Operator of Coal Seam Gas (CSG) exploration and Unconventional Shale Gas (USG) exploration. Backreef Oil Pty Limited is the designated operator conventional oil exploration with a number of prospective relatively shallow areas of interest in the east of the Permit.

• Oil  50% 5/07-8EP (Non-Operator)
• CSG  50% 5/07-8EP (Designated CSG Operator)
• USG  50% 5/07-8EP (Designated USG Operator)

The Permit 5/07-8 EP is a very large permit encompassing some 5,062 km2 and is very much under-explored with only 3 deep petroleum exploration wells in the permit area or nearby todate.

Location

Figure 1:  Oil Basins interests in 5/07-8EP are nearby the Proposed James Price Point LNG Hub

Prospectivity Conventional Oil Exploration

Geological Review

The area consists almost entirely of Fitzoy Graben sediments.  The northwestern half of the area lies under King Sound and associated tidal flats.  As this area is not more prospective than the southeastern half, but is far more expensive to explore, this review will concentrate on the southeastern half.

The area has a thick sequence of Fitzroy Graben sediments.  There is a broad syncline trending northwest southeast centred on the mouth of the Fitzroy River.

Only three wells have been drilled in the area, or immediately adjacent, in this graben sequence.  They are Booran-1, East Yeeda-1 and Millard-1.

Figure 3:  Location of Oil Basins interests in 5/07-8EP

Booran-1 was drilled by Exxon on a large anticline on the Derby Peninsular.  East Yeeda-1 was drilled by Bridge Oil on a faulted anticline with the Anderson Formation as the primary target.  Millard-1 was drilled on a large, simple anticline to target the Grant Formation.

Reservoir

In both Booran-1 and East Yeeda-1, porosity was about 20% in the Poole Sandstone and uppermost Grant Formation, at about 1,200 metres.  Porosity then reduced at about 1% per 100 metres of depth to reach about 10% at the top of the Anderson Formation at about 2,200 metres.

Reservoir quality then continued to become further sub-commercial. 

Seal

The best reservoir/seal combination in the area is the Poole Sandstone/Noonkanbah Formation, followed by the sands and shales of the uppermost Grant Formation.

The lower two thirds of the Grant Formation appears to be devoid of intraformational sealing shales.

Source

This part of the Fitroy Trough contains a large thickness of source rocks in the oil window, and below that a larger thickness in the gas window.  As such, it has generated oil and gas.  The bulk of this generation may have occurred before the Triassic structuring event.  Nevertheless, oil may continue to have been generated and migrated post the Triassic event.  The presence of oilfields in the Grant Formation in the Sundown area point to long distance migration.

Structural Style

The Booran structure is an elongate, high relief structure generated near to the northern edge of the graben.  The Millard structure is a low relief anticline located in weakly structured part of the graben.  East Yeeda is a culmination on an east-west trending high, cross-cut by northwest-southeast trending normal faults.  Mapping of the East Yeeda area by Bridge Oil in the mid-1980s suggests that these faults are approximately 2 km apart.  Fault independent closure appears to be rare.  The most common type of prospect is a rotated fault block with seal provided by downthrown Noonkanbah Formation.

Prospectivity

Exploration will target the Poole and Upper Grant Formation sands as reservoir properties below this level are quite poor, or in the case of the lower two thirds of the Grant Formation, the sands lack seals.

There do not appear to be any drillable prospects generated from the existing seismic data set over the area.  Based on the structural style, seismic could be directed at finding large anticlines similar to Booran and Millard, on trend from these structures, or defining rotated fault blocks on the East Yeeda high and to the northeast from there towards the Sundown Oilfield.

The latter approach is more likely to generate drillable prospects than the former.  Although they will be smaller, there will be a lot more of them.  The Bridge Oil mapping of the East Yeeda Ridge suggests a prospect density of one per 100 sq km.

Prospectivity CSG Exploration

Previously OBL was appointed CSG operator designate 5/07-8 EP Coal Seam Gas (CSG) Rights (announced to the ASX on 25 March 2010) and a number of Independent Expert Reports were finalised during 2010.

Independent Coal Measures Assessment Report

On 31 May 2010, Oil Basins Limited (“OBL”) received an Independent Expert Report prepared by Westby Consulting Pty Ltd in response to OBL’s request to complete a desktop study of the coal potential of 5/07-8 EP and the Backreef Area (Figure 1), particularly at depths and the thickness required for Coal Seam Gas (“CSG”) the specific criteria used for CSG are seams >3 m thick and at depths >300 m and some 250 boreholes and coal stratigraphic holes were assessed.

In addition during the study the major structural and regional faults we also assessed as follows:

Figure 3:  Location of Major Faults

Key conclusions of the Coal Measures Study were as follows:

• Esso Exploration’s Booran-1 (1982), one of only four wells drilled within the 5,062 sq km of 5/07-8 EP, has recorded coal over a 20 m interval within the Lightjack Formation. It also displays a similar pattern in the downhole geophysics, over the coal unit, to that in Petaluma 1 - indicating the potential for coal depocentres in the style of the Duchess-Paradise and Myroodah deposits in this area.
• The proximity of Booran-1 to Derby would make the immediate region a priority exploration target for CSG.
• The downhole geophysical logs in vintage petroleum wells Booran-1, East Yeeda-1, Millard-1 and Puratte-1, within 5/07-8 EP, as well as nearby wells Kora-1, Runthrough-1 and Whitewall-1 all display a similar geophysical signature to Petaluma-1 indicating that the coaly unit of the Lightjack Formation is present over the entire permit. The base of the Lightjack coal unit varies from >350m in Wonjil bore at the south-west corner of 5/07-8 EP to 710 m in East Yeeda-1, 750 m in Millard-1, 665 m in Booran-1 and 615 m in Kora-1. It is stratigraphically located 15-40 m above the top of the Noonkanbah Formation within 5/08-8 EP - this is consistent with previous findings.
  Thus the coal unit of the Lightjack Formation is present at depths required for CSG across the entire Permit.

Figure 4:  OBL Interpretation CSG Potential of Permit 5/07-8EP

Independent CSG Potential Prospectivity Assessment Report

An Independent Expert Report on the CSG Prospectivity in the 5/07-8 EP Permit Area (released to the ASX on 8 July 2010) concluded that there was some gross 80 billion tonnes of low grade Permian thermal coal risked in-place (in the onshore segment of the Permit), which when assessed for CSG gas potential.

Summary

Report suggested that the best estimate CSG risked recoverable prospective 2P potential at circa gross 6.8 Tcf (based upon standard assumptions albeit without access to any comprehensive modern coal core laboratory test data).

• Independent expert coal measures study commissioned & completed assessed historic data.
• 2 coal depocentres delineated considered highly suitable for CSG thick & deep coal.
• 1 petroleum well, Booran-1 (only 3km from Derby), max coal thickness 20m > previous perception of 4m across entire coal province.
• Historic coal exploration concentrated on shallow coal near known out-crop of Permian Lightjack Formation (eg Rio Tinto 2004 & Rey Resources 2009/2010 to South & South East & Cullen Reso2011 (current) to the East within Kimberley Downs Embayment.
• Canning Basin Permian coals more deeply buried than presently & suggested high average vitronite values measured for these coals indicate that gas saturation maybe higher than occurring in Surat Basin Permian coals.
• Risked insitu Permian Coal Measures were independently assessed at:  
  • High Estimate 118.2 Billion tonnes
  • Best Estimate 80.2 Billion tonnes
  • Low Estimate 50.6 Billion tonnes

Estimated risked prospective potential resources are as follows

Prospectivity USG Exploration

Independent USG Potential Prospectivity Assessment Report

An Independent Expert Report on the USG Prospectivity in the 5/07-8 EP Permit Area (was also released to the ASX on 8 July 2010)

In summary, the Independent Expert states that there are many extensive intervals of mature, organic rich marine shales present in the Canning Basin. These include:

• The Ordovician Goldwyer Formation
• The Devonian Gogo Formation
• The Carboniferous Laurel Formation
• The lower Carboniferous Anderson Formation
• The Winifred Formation of the Permian Grant Group
• The Permian Noonkanbah Formation (where buried deeply enough)

With the exception of the Noonkanbah Formation, all of the above potential gas shale units are expected to be mature within OBL’s acreage are known to have contributed to the sourcing of hydrocarbons shows and flows in the Fitzroy Sub-basin.

The Company wishes to emphasise that is very difficult to attempt to quantify the potential shale gas resource that could be present within Permit 5/07-8 EP as there is no nearby production to use as an analogue and consequently investors are recommended to read the entire report including the key assumptions.

The Independent Expert indicates that a nearby operator is using estimates that one km2 could produce between 20 100 Bcf / km2 gas in place, and has based his volumetric estimates on a range of gas/km2 (adopting similar assumptions).

The Independent Expert estimates an approximate range of gross USG unrisked gas initial in place potential GIIP from 106 527 Tcf within Permit 5/07-8 EP.

Nonetheless, notwithstanding the inherent uncertainties and the assumptions, the independent expert concludes A large shale gas resource could be hosted in Oil Basins Canning Basin acreage, in the order of 25-50 times that of CSG potential undiscovered resource

Figure 5:  USG Potential of Permit 5/07-8EP (OBL Interpretation Top of Noonkanbah Formation)

Summary

• The un-risked USG prospectivity assessment based upon only ‘one’ of ‘six ’ evident shales
• Backreef Area circa net 10 to 21TCF GIP potential
• Exploration Permit 5/07-8EP circa net 51 to 253 TCF GIP potential
• Recently New Standard Energy (NSE) farmed out to ConocoPhillips
• Transaction was for circa USD$108M or circa USD$1.1m per point
• NSE’s assessed Goldwyer Shale Play (circa 120km to south of Permit 5/07-8EP) based upon 40 to 460 Tcf GIP potential
• Permit 5/07-8EP has both shallow oil and CSG prospectivity & is closer to infrastructure & James Price Point.

Inferred prospective potential unrisked Gas In Place (GIP) resources were estimated by the independent expert as follows

Current Status

Both the Operator Backreef Oil Pty Limited and the Company attended compulsory mediation proceedings with the relevant stakeholders. 

A large number of meetings have progressed in Perth and Broome over the period 12 May 2011 to present and the Company is very pleased with the progress to date

By negotiation with Backreef Oil Pty Limited, OBL was appointed USG operator designate 5/07-8 EP Unconventional Shale Gas (USG) Rights (announced to the ASX on 20 June 2011).

OBL is presently seeking to attract third party expressions of interest from experienced USG Operators to the deeper USG rights