Last week, the Melbourne-based company said the well would only be suspended for production if a flow test, expected to be run over the next fortnight, was successful.
But yesterday, Nexus announced it had changed its mind after completing a preliminary evaluation of well results.
“The decision to complete the well as a production well has been based on the fact that the company is highly confident that reserves will exceed the economic limit, a contract exists for the sale of 350 petajoules of Longtom Gas, and that front-end engineering and design (FEED) for the Longtom field development has recently been completed,” the company said.
Subject to a successful flow test, Nexus said it was confident the Longtom gas field in Vic/P554 would proceed to full field development.
“We believe that the Longtom-3 well has helped to define a substantial reserves base and a full field development decision is likely to be made by late 2006,” it said.
“It is expected [the] reserves base will continue to be further enhanced by the drilling of a second Longtom development well planned for late 2007.”
In addition, the company expects to book reserves for the Longtom field over the next one to two months.
To determine the revised gas volumes for the field, Nexus will map and then simulate the depletion characteristics for each individual reservoir unit in order to confirm the optimal well development plan. This is still expected to involve three wells (including Longtom-3); one to be drilled before first production and another about three to five years after first gas.
Upon conclusion of Nexus’ reserves estimation, an independent auditor’s report will be commissioned, after which Longtom gas and condensate reserves will be formally booked.
Nexus now plans to provide all relevant Longtom-3 information to Apache according to the terms of its joint venture agreement so the company can decide whether to back-in to the Longtom project.
The terms of the Apache buyback rights are the repayment of its proportional share (62.5%) of appraisal costs, plus a penalty multiple of six times this share.
As part of the gas sales agreement between Nexus and Santos, Santos has an option (providing Apache does not elect to back-in) to purchase an interest of up to 35% in the field for $2 million per percentage point in the Longtom reservoirs encountered to date.
Under this agreement, Nexus will submit a preliminary field development plan (FDP) to the Victorian Government before the end of this year. The FDP will detail Nexus’ plans for Longtom gas field development, with this being the first formal step towards obtaining a production licence for the field.
