L&M will earn a 32.5% stake in licence PEP 38521, an area between the towns of Greymouth and Hokitika on the West Coast of New Zealand’s South Island, by funding 65% of the cost to drill a well to a depth of no more than 500m to test Fireball Creek.
The permit contains the mapped Fireball Creek and Pounamu prospects, as well as several leads and the joint venture has plans to drill a shallow well before the end of the year, according to managing director and chief executive John Bay.
"This is significant for the company in that it is our first farm-in, the permit has multiple prospects, and it extends our operations beyond the Western Southland Basin and into the West Coast," Bay said.
Bay told PetroleumNews.net that it was exciting to explore an area where there had been some previous petroleum exploration.
He said L&M would drill Fireball Creek in the same area as two wells, SFL-0 and SFL-1, drilled in the 1940s that blew out and flowed uncontrolled gas to surface.
“I believe that’s why the locals called the nearby stream Fireball Creek, because that’s what it looked like during those blowouts,” he said.
“If the company achieves success in the drilling of Fireball Creek, it will present an opportunity to establish early production.”
Bay said it seemed the area was gas-prone. He also said L&M was not dissuaded from targeting gas by the New Zealand Energy Strategy that effectively bans new baseload gas-fired power stations for the next 10 years.
“There’s industry on the West Coast, dairying, maybe forestry, where gas-fired cogeneration facilities or even a gas-fired peaking plant could well be viable,” said Bay.
Bay said the farm-in agreement gave L&M the option to increase its equity to 48.75%, in exchange for funding the farm-out partners’ share of the cost of undertaking certain additional exploration activities before March 2009.
He expected L&M and partners to spud the first well, to be drilled to a depth of about 450m, before the end of the year.
“An early commercial development creates the possibility to generate a revenue stream for the company.”
Bay said the Fireball Creek anticline could contain up to several tens of billion feet of gas, together with other likely gas-rich stratigraphic traps in the area.
In 2005, joint venture partner Pacrim Energy said soil geochemical samples from the permit exhibited the highest methane values ever recorded by a US specialist lab in its 23 years of operation.
Ballarat, Victoria-headquartered Pacrim said then that its sampling program revealed methane concentrations with a mean value of 3081ppm and a maximum value of 15,451ppm. The samples were analysed by specialist Denver laboratory, and joint venture partner Gallagher Research & Development Company (GRDC).
Under terms of the farmout, GRDC and fellow US company Labrador Oil Company, EF Durkee and Associates (Philippines), and private New Zealand company McKenzie Petroleum have each halved their respective 16.25% interests. Pacrim has retained its 35% stake.
The new PEP 38521 participants will be: L&M Petroleum (operator, 32.5%), Pacrim Energy (35%), McKenzie Petroleum (8.125%), EF Durkee and Associates (8.125%), GRDC (8.125%), and Labrador Energy (8.125%).
