Santos has said Jeruk is greater than 170 million barrels and some analysts are estimating recoverable resserves of between 300 and 500 million barrels. Merrill Lynch has “conservatively estimated” the discovery at 250 million barrels.
“The Indonesian government recently said it would like to see development of Santos’ Jeruk oil discovery accelerated,” Merrill Lynch said.
“The government intimated the field could be producing by 2007/2008 at a rate of 150,000 bopd.”
Given this government support, near-term drilling at Jeruk was likely, the report said.
“The joint venture is currently conducting a 3D seismic study of the Sampang PSC and its surrounding area,” Merill Lynch said.
“The aim of the seismic is to further assess the field and determine positioning for the drilling of four appraisal wells later this year [October].”
Meanwhile Cue has said Santos was likely to re-enter Jeruk-2 in mid May to further sidetrack, core and production test the reservior.
“This will be an important test that will go a long way to allevaite market concerns about reservior permeability and more importantly potential field size,” the report said.
The report said Jeruk partners Cue Energy Resources and Singapore Petroleum decisions to buy back into the discovery were significant endorsements of the project.
“Market concerns about the field’s producing capabilities and perceived harsh fiscal regime are mitigated by [this],” the report said.
Santos would benefit greatly from its partners the cash reinstatement costs, which were likely to total US$413-430m according to Merrill Lynch.
Following its partners buying back into Jeruk, Santos has a 45% stake. But if the Indonesian government also exercised its back-in rights, this could be diluted to 40.5%. Singapore Petroleum currently has a 405 interest, while Cue now has 15%.
Merill Lynch said volatility risk at this project was low and maintained a neutral rating on Santos shares.
“Whilst in the longer term recent discoveries (Jeruk and Hiu aman) and the PNG Gas Project may unlock significant value, we believe the share price may mark time in the short term,” the report said.
Santos opened at $925 today and was trading at 9.13 at 1pm AEST.
