ARC originally was up to pay 20% of the well costs to earn a 15% stake. However, when Mitsui came looking to get into the permit, ARC, along with a number of the partners, in turn farmed a portion of its acreage out with the net effect of paying 5% of the costs to earn a 7.5% stake. Given the drilling costs had more than doubled from initial estimates, it reduced the cost exposure “to a more appropriate level for a company of ARC’s size," Streitberg said at the time.
The partners, led by Roc, successfully drilled the sidetracked Cliff Head 2 well finding an initial 17.5 metre net oil column, immediately after discovering a 5m oil column in the initial Cliff Head 1 wildcat well. Roc’s estimates after drilling the two wells range between 80 and 100 million barrels of oil in place (mmboip) with recoverable oil reserves possibly being in the range of 20 mmbbls to 35 mmbbls, according to Roc.
A satellite structure, located immediately to the north of the initial discovery and which may prove to be part of the field, is estimated to have a further 20 to 30 mmboip.
The wells confirmed the presence of reasonable to excellent reservoir quality sandstones; a minimum gross oil column of 28.5m and a net to gross ratio between 60% and 65%. Reservoir porosities up to 28% were encountered in the reservoir section at Cliff Head-1 and average reservoir porosities of 23% and 18% have been calculated for Cliff Head-1 and Cliff Head-2 respectively.
The follow up program of five possible wells will be kicked off at the end of this year, pending rig availability. The first of the wells will further appraise the Cliff Head discovery while a second exploration well will test one of the several undrilled prospects in the vicinity of the field,
The major crisis ARC faced this year was in the form of the merger proposal turned hostile takeover from Tap Oil. Initially Tap proposed a merger – unsolicited by ARC – which Tap said would have exploited the synergies of both of the groups, while protecting the ARC shareholders from their uncertain financial position with Tap’s balance sheet strength.
The pace was frantic in the ARC offices at the time. The exploration department was shooting and processing seismic over the Hovea discovery, trying urgently to fit this new piece into the rapidly unravelling Perth Basin geological jigsaw puzzle. The Cliff Head follow up drilling program was being designed by operator Roc Oil while in the ARC boardroom Streitberg and fellow executive director Alex Forcke strategised to keep Tap at bay.
Their argument was simple – 'let us get on with making the most out of what we have already discovered, before selling the company out.' At this stage, with the first Cliff Head and Hovea discoveries under their belts, the shareholders stuck by management and in the end, Tap only managed to snare less than 1% of ARC’s issued capital.
The fast tracked geological work over Hovea identified deeper targets based on the Cliff Head discovery. With the takeover tic-tac in full swing, the ARC geologists revealed their seismic studies had indicated a deeper gas-prone target, beneath the Hovea-1 oil discovery. This news and the associated upside was probably enough in hindsight for the ARC shareholders to give their management the mandate to continue their independent growth.
Coming into play at this crucial time was the result of some corporate alliancing done some time earlier with fellow Perth Basin producer, Hardman Resources. Hardman were cashed up and, linked through neighboring Perth Basin production, lent ARC $2.5 million in the way of a convertible note, exercisable at 16c. Given the ARC shares were trading at around 8c, the deal was excellent value for both companies.
The Cliff Head and Hovea wells came through, Tap put their bid together and with the resulting 200% increase in share price, Hardman exercised their note which gave them 10% and a blocking stake in ARC.
With the revitalised ARC, and 20% of the stock locked up between Hardman and the ARC directors, Tap’s aim of achieving 80% acceptances was doomed.
Understandably, some of the ‘blue sky’ Timor Sea acreage ARC has interests in – more risky and definitely more expensive – has lost its appeal, considering what the company has on the books in the near future. It and fellow permit holders Daytona Energy, recently agreed to swap their respective 50% interests in AC/P27 with recently listed Bounty Oil and Gas, in exchange for stock in Bounty. The interests in the permit had reverted to the two companies when the operator Anadarko withdrew after drilling two unsuccessful wells in 2001.
