Warro is a massive potential resource, tipping the scales above 11 trillion cubic feet of gas-in-place, but in six wells to date, most funded by the aluminium giant as part of a 65% farm-in with junior Transerv Energy, the gas has proved hard to win from the Yarragadee Sandstone.
Alcoa said the exploration activities to date no longer supported the carrying value of the field, and that the non-cash, after-tax charge was appropriate.
Operator Transerv said this morning it would review its own valuation for Warro as it prepared its half-yearly financial statements.
Despite 2016's disappointments, which saw low flow rates from the Warro-5 and Warro-6 wells, but enough encouragement for a re-test of Warro-4, the JV is continuing with attempts to figure out a way to establish commercial flow rates while keeping water production to manageable levels.
The pair has approved a new work program that will initially review the past four wells and identification of a sand that is considered likely to flow at commercial rates using an alternative drilling technique.
Work at Warro-5 and Warro-6 in late 2015 and into 2016 focused on small-scale fracs to ensure the fracs can be reliably focused into the zones of interest and avoid the deep-seated faults that resulted in water flows in Warro-3 and Warro-4.
Warro-6 flowed at a peak rate of seven million cubic feet per day, with an average flow rate of 2.4MMcfpd, and 140bwpd.
The work suggested the testing of Warro-4 had been too short, and that there was a promising zone higher in the well.
Transerv said the fact that Warro-4 flowed 300% higher than previous testing, at almost 1MMcfpd, was encouraging and in line with outcomes seen in other tight gas fields in the USA where particular sweet zones are targeted for early production.
The junior said the door was open to further fraccing of the untapped, upper C Sand at Warro-6 or horizontal drilling of the reservoir, if it can figure out how to handle the gas-water ratio and it can define sweetspots in its review.
The role of natural fractures in the area is unclear, and the source of the water could be matrix, the fracturing, interbedded water sands or a combination of factors.
Transerv said that if the technical review supported new wells, the JV would consider how best to move into the next drilling phase.
However, Transerv would likely be on the hook for meeting its share of costs, or it would need to find a new farm-in partner.
Alcoa has now spent the bulk of the $100 million needed to earn its 65% interest, and now sits at 63.5%.
The prize at Warro is potentially massive.
RISC calculated the total recoverable gas resource of between 2.6-5.4Tcf, which is far in excess of the 50-75 billion cubic feet minimum economic field size.
Even at the lower P90 level, if Transerv can establish commercial flow rates, Warro would easily be the largest single gas field developed in the Perth Basin, and potentially the largest gas field developed onshore in Australia.
Transerv had just $1.59 million at the end of the last quarter, and is considering funding 20% of the166 million barrel Xanadau-1 well this year, assuming Norwest Energy can fund 40% of the well by mid-February.
Shares in the company last traded at $0.008, and they have been in a downward slump since Origin Energy terminated its Perth Basin sales process, where Transerv and its backers had expected to be in with a shot.
That led to the resignation of founder Stephen Keenihan as managing director.
Also this week Alcoa announced the closure of the Suralco alumina refinery and bauxite mines in Suriname, which had been mothballed since 2015.
It will continue to operate the Afobaka hydroelectric facility, which supplied power to the Suralco operations, while it finalises the terms of its exist with the Suriname government.
It will take a $90 million impairment on the closure, and will spend $151 million over the next five years in cash.
Both Warro and Suralco were owned by Aloca (60%) and Alumina (40%).
