New kid on the block Matrix Oil has emerged as the fifth largest Australian-based oil producer, just two years after listing.
In late November last year production from the company’s two shallow water fields in the North Sumatra Basin, off Indonesia, commenced at a combined rate of up to 7000 barrels of oil per day (bopd). Matrix plans to ramp up to 10,000bopd in the first half of this year via a third re-entry well.
In late December the operations had a hitch when a leak of hydraulic fluid in the subsea collection system caused the L1 well to be shut down for just over a month while repairs were carried out. Production over the downtime was halved.
At press time Matrix had started a drilling program on another shallow water region in the North Sumatra Basin that has the potential to contain over 4 trillion cubic feet (tcf) of gas and 400 million barrels of condensate.
While the production wells in Matrix’s 90%-owned Langsa offshore contract area will see the Perth-based petroleum stock achieve its initial goal of early cashflow, the drilling in the Glagah-Kambuna block could ultimately transform it into a $1 billion dollar company.
The two areas are part of a package of acreage that Matrix has rapidly built up in the North Sumatra Basin and that currently has reserves of over 60 million barrels of oil and condensate and 400 billion cubic feet (bcf) of gas.
Some of the majors are already believed to have approached Matrix about an equity stake in the exploration. However, Matrix managing director Brian Hockney is keen not to dilute the group’s interests until the acreage is further tested.
The North Sumatra Basin is a well-known hydrocarbon province and hosts the fields that set the Royal Dutch Shell Group on its path to becoming a super giant in the late 1800s.
To date, the region has yielded about 25tcf of gas and 1.4 billion barrels of oil but large tracts of the basin have had little exploration activity since the 1970s.
Matrix picked up its oil reserves at the bargain basement price of only $US3.2c a barrel equivalent. In comparison its predecessors spent closer to $US2.50/barrel finding the hydrocarbons.
The two Matrix wells, L1 and L2, which marked the company’s first production, were originally drilled by Exxon-Mobil during a three-well program in 1979-80. At the time, due to the low oil price and combined with less favourable government incentives, the fields did not hold the attraction of development compared to the trillions of cubic feet of gas Exxon had discovered sitting to the north-west.
However, Exxon held onto the ground for a number of years until the Indonesian Government-controlled oil and gas company, Pertamina, was finally convinced that some new blood as the operator would lead to fresh exploration.
Exxon was forced to relinquish the fields, and a well-known explorer and 23-year English expatriate, Phillip Davies, bundled the fields into a fresh portfolio that required exploitation by a company with some funds. The answer was Maple Oil, an Australian explorer that had some market favour in the late 1990s (but which didn’t quite come up with the goods).
It wasn’t a great time to list petroleum companies. Davies and his backers were left with the problem of raising a few million dollars and during the hunt for cash a prominent Merrill Lynch advisor, Brian Hockney, was asked to assist with a $2.4 million float.
“A few months later we had found a dormant shell company and raised $5 million, of which $2.4 million went into the company with the rest going to fees and to Maple Oil’s largest creditor,” Hockney recounted.
A day after the float Hockney was asked to join the board and take on the position of chief executive officer. Davies was on the board and could have taken up the role but there was unanimous agreement that an MD with finance and commercial expertise could better manage the fiscal side of the business.
“He (Davies) was the one that was adamant they needed an MD with finance and administration skills,” Hockney said. “As an explorer himself he knew that exploration guys just … drill until they go broke; they love drilling wells.”
Davies has been credited with a number of large discoveries in the Asia-Pacific region and he helped put together the original parcel of assets that went into the 1995 float of Novus Petroleum.
He did not assume a management role with Novus and instead has been running his own consulting firm. This allowed him to remain in constant touch with his Indonesian contacts, culminating in the agreement that saw the North Sumatran assets bundled into Matrix.
Hockney’s role involves handling contracts and government issues and doing deals, as well as maintaining a healthy balance sheet and a hand on the purse strings.
“Matrix has the possibility in four or five years to be a $1 billion company; you don’t see that very often in broking,” said Hockney.
His skills are evident from the $130 million financing arrangement he struck that enabled Langsa to be developed. It began with a $12.7 million capital-raising to fund the re-entry drilling program. That was followed up with a $US47 million turnkey lease contract with Modec/Itochu for the FPSO and subsea flow lines to produce the oil over an initial three-year period. (The fields have an expected life of 4-5 years but Hockney believes a more realistic lifespan is 8-9 years. Daily operating costs are recoverable from oil revenues.) The final component was a $20 million letter of credit and royalty package provided by a major investor and payable over the life of the project. At the end of the day Matrix has entered their production phase largely debt free.
But while Hockney is excited about the group’s assets in North Sumatra he is not wedded to them. Matrix has no intention of selling off a percentage of its operations, up to a certain level of production. The group wants to be operator and get the bulk of the cashflow from developing small and medium-sized oilfields. However, if a big discovery is made, Hockney said Matrix would probably sell it and find another situation that gave it access to cheap production on the back of someone else’s exploration work. Geography is not an issue but cheap production costs are an imperative, according to the Matrix manifesto.
Part two continued tomorrow
