Carnarvon Petroleum Ltd (ASX:CVN) is an oil and gas exploration company with projects located offshore off the north-west coast of Western Australia and in the Timor Sea. Carnarvon has a market capitalisation of A$555 million.

Carnarvon main project of significant interest is the Dorado/Roc project (located 160 kms north of Port Hedland, Carnarvon’s 20% interest and Santos 80% interest).

What are the key features of Carnarvon’s December quarterly report?

  1. Exceptional flow tests from both intervals tested in the Dorado-3 appraisal well.
  2. Dorado concept select and development planning advanced.
  3. Buffalo project progressed under Timor-Leste jurisdiction.
  4. Strong cash balance of A$119 million to comfortably fund 2020 expenditure.

The main point of interest of Carnarvon is the Dorado project. On 8 October 2019, Carnarvon and Santos (ASX:STO) announced the results of the Caley flow test for Dorado-3. The test was very successful. It was reported that the Caley reservoir flow test exceeded 11,000 barrels of oil per day plus associated gas. Carnarvon notes that the potential flow rate is even higher, but the flow rate was limited by the capacity of the test equipment on the rig. This is a significant oil discovery. The test indicates very high potential flow rates of around 30,000 barrels per day from each production well in the Caley reservoir.

Carnarvon’s management note in their report that:

The Dorado project is currently in the late stages of concept selection work. The work to date supports the development of the Dorado liquids accompanied by gas-reinjection through a miscible flood which is expected to considerably enhance the oil recovery rates. A secondary development of the gas resources would then take place once the liquids production has commenced.

Another important point to note is that Canavan and Santos are expected to commence the Front-End Engineering and Design (FEED) phase in early calendar 2020. After the completion of the FEED phase, Carnarvon and Santos are expected to make a final investment decision, with a production target in late 2024 early 2025.

Carnarvon is a relatively small company compared with the major oil and gas companies such as BHP Group Ltd (ASX:BHP), Santos (ASX:STO) and Woodside Petroleum Ltd (ASX:WPL). The Dorado discovery could allow Carnarvon to become an established oil and gas company with significant earnings.

Carnarvon’s other main project of interest is the Buffalo project (located in the Timor Sea, 100 per cent interest). The main update for this project is that the Buffalo project is moving from Australian to Timor-Leste jurisdiction. Following this development, Carnarvon’s management signed a Production Sharing Contract with the Government of Timor-Leste. Currently, Carnarvon does not have a partner for this project. However, Carnarvon’s management note they are actively pursuing to secure a partner to join the project.

What is the market reaction?

The initial market reaction to Carnarvon’s announcement is positive. Carnarvon share price is up around 3% and is currently trading at A0.36 cents.

 


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January 22, 2020