In August, Caspian announced it had managed to bring Australia’s third largest petroleum company into a joint venture in Kyrgyzstan in what was Santos Limited’s first move into Central Asia.
Santos has already proved to be an energetic partner, Carson says.
“The deal was finalised on September 23, but by mid September Santos were on the ground in Kyrgyzstan with three teams – eight to 10 people,” Carson says.
“Other companies were interested in farming into our blocks, but Santos dedicated resources to the project which enabled them to act quicker than the competitors. We were impressed with their professionalism and had no hesitation in going with them.”
Under the farm-in deal, Santos is earning an 80% operated working interest in 10 exploration licences currently 100% owned by Caspian that cover 16,500 square kilometres. The farm-in deal excludes the shallow potential down to 1,000m in four of the licenses. But Santos has an option to farm into these shallow development prospects as well.
All but one of the leases are in the Fergana Basin, an established petroleum province with a production history dating back more than a century. Caspian and Santos say the basin is in part analogous to the prolific hydrocarbon province of the Tarim Basin in western China, which has many large fields.
Under the terms of the agreement, Santos will solely fund and operate a phased work program of up to US$28 million over all of the licences within a four-year period.
In addition Santos has taken a 17.7% direct equity placement in Caspian by investing $5 million.
Santos is currently working on a feasibility study of the four excluded shallow blocks, all of which are in the northern Fergana Basin. It has until the end of January to decide whether it will farm in to these blocks, Carson said.
“We excluded these areas because we thought they might be of much more interest to a small company like Caspian rather than a big player like Santos,” he says.
Caspian is confident that if Santos chooses not to opt into these shallow prospects, it can find another farm-in partner.
There is clearly petroleum in these blocks – oil seeps to the surface in many places and local farmers scoop it up by the bucket load to use for their domestic heating.
But while the oil seeps make shallow exploration in this area a low-risk proposition, they also ensure that flow rates will be relatively small as the reservoirs will have low pressure due to the very shallow depths and poor seal.
“We are looking at innovative ways to fast-track cheap production and get some quick cashflow,” Carson said.
“It would make a big difference to us but might not be that attractive to a major outfit such as Santos. So we kept it separate as we didn’t want Santos just coming in and concentrating only on the big structures that will take longer to come to fruition.”
These big, deep structures are what both partners are most excited about. While one of Santos’s three teams that visited Kyrgyzstan is assessing the shallow prospects in the northern Fergana Basin, the other two are conducting a review of the deeper prospects.
“We have some targets of a hundred million-plus barrels of recoverable oil, and several others in the 10 to 50 million barrel range,” Carson says.
“Just one 30 million barrel discovery with our 20% equity would lead to a significant revaluing of Caspian.”
