DRC - Congo (K)

a) rig costs are around $30k/day.
You are normally quite accurate on these things, so I guess it must right; although it seems to me that this is very very cheap.

Don't forget that it's a land rig, which is a rig.

As opposed to an offshore rig which is a rig and a Formule 1 hotel* built onto a hull containing Very Big Engines and a range of other equipment.

SW10

*Quality varies a great deal to be honest. Saunas are nice, though...

In reply to emptyend, post #66

Obviously there are other costs, over and above the rig (such as road/bridge construction etc and paying for various sorts of technical input). Perhaps SW10Chap can guesstimate some of these, but it doesn't sound unreasonable to suppose that the all-up costs are likely to be less than previously indicated?

I don't know about building roads and briddges, but your other services would come in for a modest 7 figures all-up. However, it's very difficult to guess with any accuracy - and may even be considerably less. Ulitimately, it depends a lot on Mr Porter's 5-forces and availibility of equipment. I'll stick my neck out and say that the service companies probably have the whip-hand in this area, but don't hold me to it...

Say between $500k and $1.5m.

SW Vague

Not sure what the Aminex day rate was for their Caroil onshore rig but $30k/d for rig hire seems like a number I have seen used before. In any case drilling consumables, site prep, labour ...etc are all extras that would mean you apply a factor of 2 for the full day rate cost of drilling. Then the rig has to be mobilised to DRC but seems only 50km or so inland (from what I can see) so not so bad as a deep interior drilling location.

Cant seem to find the intended TD but as its oil that is being targetted then I assum its in the 1000 to 2500 m range. Drilling rates (metres per day) vary but assuming a conservative 60m/day then TD up to 42 days or so, with other unforeseen delays not factored in. So...whats that then for each well $2.5M to drill,$1m to test? Still seems like good value for your risked drilling money.

JPGH   

In reply to thebuffoon, post #69

I'm not guessing, Buffy....

Land rigs are substantially cheaper than jack-ups (note that Afren recently contracted a jack-up at $84k/day) and the Caroil rig is a 1500hp electric rig that recently worked for ENI at M'Boundi, I think (Caroil is owned by M&P). Mob/demob costs are also at the same rate (sometimes they are excluded but the day rate is higher).....so it is perfectly possible that the day rate for a different contract duration/configuration might have been say $40-50k.

There's no point in getting hung up on matters of small print.

ee

In reply to JPGH, post #72

Cant seem to find the intended TD but as its oil that is being targetted then I assum its in the 1000 to 2500 m range. Drilling rates (metres per day) vary but assuming a conservative 60m/day then TD up to 42 days or so, with other unforeseen delays not factored in.

I'd guess 70m per day (minus SW10's) is a fair guess, based on other Caroil rig figs.

I'm not sure how the full costs would break down but the recent GBP/TRP well in Uganda is a decent marker, because GBP's 25% cost them AUD2,550,000, according to their half-year report ("Subsequent events"). That was equivalent to USD9.4mn total cost for a well that took only 10 days drilling time to TD at 764m, but a further 5 days or so to P&A and 12 days to mobilise (over 500kms). Pro-rating that might suggest something like USD18-20mn all-in costs for each of the first two wells at Nganzi, though of course the all-in costs depend very much on whether you run your operations like a luxury hotel or a Formule 1 [per SW10's comments]. Certainly there would be a view that some operators are more expensive than others - though in this case SOCO (if they sole-risked) would be paying all the bills....so perhaps something like $12-15mn per well might be nearer the mark?.....

...which would be lower than first thought - but not as low as a simple inspection of dayrates and multiples would imply!!

ee

ps....it is also worth bearing in mind what was said about Nganzi on the conference call for the Placing in Jan:

We're confident [of] the structures, we're confident of the hydrocarbons. We've done a lot of hydrocarbon indication work. The thing that we cannot be confident about -- and we're also confident of the kitchen by the way and our interpretation, this is the same kitchen that's sourcing the Mboundi field.

What we can't be confident about is if there is a reservoir there, although we're very confident of the structures. And keep in mind, even though we talk about three independent structures over 200 million barrels each, these are very much independent. They're a different geological time and when one's successful the -- the success or failure of one really doesn't weigh on the success or failure of others.

So beside the reservoir, the other unknown here is migration. We're confident we have a kitchen, we're confident we have a structure, but geologically in time do the two match? So we don't know that until we drill a well........

we have had farm-out discussions with two extremely interested parties. I won't name them, but they're major players in that part of the world and have interest in that country. The good news is they are extremely excited about the prospects which always makes you feel comfortable that other people look at your stuff and like it too. They are not so enamored with the terms of which we're offering their opportunity to participate.

There is a lot of sentiment in our boardroom to drill this thing by ourselves. And if you look at the risk reward ratio in terms of a potential of over 600 million barrels for right now what we estimate to be $50 million to $60 million of capital expenditure, the risk reward ratio looks pretty good.

Having said that, this is not a business where many people do it by themselves.....

Re the roadbuilding point, the same conf call makes reference to "only" a few miles of new road needed - and it also puts the total mob/demob costs to get the rig in and out of Nganzi at $15-20mn (out of the original guesstimate of $50-60mn)

In reply to emptyend, post #73

I'm not guessing, Buffy....

Given my comment that you are usually right, it should have been obvious that I didn't think you were!  I thought you may have missed a zero off.

When I remembered it was a land rig, it was too late. I actually tried to cancel the post but didn't know how to, so I just edited it.

That damn oil bloke from Chelsea was just too quick off the mark. :^}

At £300,000 per day, the small print would have been worth getting hung up on!  As it is, I can't see why we would even consider farming out a piece of the cake.

Buffy

If the Rig costs and drilling for these wells in the DRC are so low then why did management initially cite $50-60mn?

How have they managed to reduce the costs so significantly?

In reply to Isaac, post #76

Isaac,

I think if you read ee's post again you will see that the figures are not much lower.

a) it also puts the total mob/demob costs to get the rig in and out of Nganzi at $15-20mn

b) so perhaps something like $12-15mn per well might be nearer the mark?.....

Doesn't this give a range from $39mm to $50mm (lowest for both a) and b) to highest)?

Alan20 - Thanks

Putting the cost and potential of this field aside, what kind of impact can one expect from say Soco bringing in a partner from one of the Top Oil companies?

Say Soco brought on Total as a farm in partner and the field is a success would it make it easier or more difficult to sell the asset by having Total on board?

I think it would be easier to sell it to say Total as they will have a very good understanding of what is down there and it may strengthen Soco's ability to make decisions and get things singned of from the government from having such a partner on board. The outside world comments made by Total would be more credible as they have a reputation to hold up.

What would work against Soco's favor is potential buyers who would'nt want Total involved.

FWIWI I like what the management is doing which is showing the data on this field to potential farminess, getting them all excited and in the end will not let them farm in but would have gauged their attention so that when the time comes to sell their will be plenty of buyers who will pay a decent price.

Personally, I would advocate a farmout, principally for two reasons :-

a) The introduction of an experienced regional player, such as ENI, would add considerable geological advantage, enhancing the CoS.

b) The chances of drilling all four wells would be much more likely in the event that the first two delivered 'in-between' results, increasing the chance of early success.

In reply to davjo, post #79

Hi dj,

I think this is a point of rare disagreement between us. I've little doubt ENI was approached and are/were "interested"......but I doubt they would add very much at this point in time, given that there would be no additions to the seismic or any change to the drilling locations planned.

Totally different matter "down the track" though....when an ENI would be a great candidate to farm-in and develop any finds, given their M'Boundi interest and the belief in a common kitchen.

I don't rule out a farm-out of course....though perhaps it may have to come with (for example) a slice of M'Boundi attached??

rgds

ee

In reply to emptyend, post #80

Morning ee

I think this is a point of rare disagreement between us

Perhaps we're not trying hard enough ;-))

Apart from M'boundi, I'm thinking ENI will have detailed knowledge of Loufika. This shallow field, 30+ miles away, failed to deliver in the target Sendji formation. As an aside, I imagine this relates to the "poor nearby results" comment by one or two analysts.

In reply to davjo, post #81

Perhaps we're not trying hard enough ;-))

LOL!

You might enquire on this topic at this year's AGM? It looks as if I am going to be unavoidably detained elsewhere (though might make the post-match debrief)

rgds

ee

I doubt there will be a farmout for simply a carry on some of the costs. As we all seem to agree the risk / reward is too good on these wells so there seems little point.

On the other hand if the other party could offer some equivalent exploration acrage elsewhere in Africa (or other regions) then I think the farm out option is very much alive. This would fit in with Soco's strategy and also Roger's comments that they are looking for other prospective areas. i doubt they would swap it for a stake in a producing field (eg Mouriboundi (sp?)) because that is not consistent with the company strategy to explore then sell on.

I would be happy swapping 20-30% (or more) of Nganzi for a similarly prospective stake elsewhere. And I trust management to only accept it if there is a positive effect on the risked NAV for the two areas combined (or at the very least it should increase the chances of a good find by increasing the number of times to drill significant prospects).

JL

Interesting report regarding the PSA terms for Blocks 1 and 2, detailing the differences between the 2006 TLW/HOIL agreement and the 2008 Divine etc agreement (unbelievably favourable in respect of TLW/HOIL, slightly less so for Divine but almost certainly the reason why the PSA's never got Presidential ratification.)........

http://www.platformlondon.org/carbonweb/documents/drc/A_Lake_of_Oil_Congo_DRC_Tullow_PLATFORM_May_2010.pdf

Mentions government's intention to get things moving this year with expectation of production getting under way within 4-5 years. Note there is new Petroleum legislation going through Parliament right now. Whether finalisation will precede awards being made and contracts signed/ratified, remains to be seen. Depends how committed they are to transparency I suppose (hoho!). For sure though, Soco are in a rare priveleged position in respect of Nganzi terms having already been signed, sealed and delivered. No wonder they command tough terms for a farmout! Quite possibly, farminees are waiting on Parliament to see what evolves?

As to DPL/SIA Block 5, not much said but indications given that peripheral terms are more favourable to government but, as we know, they're rather better overall than that of Uganda. Better chance of squeezing through then. We'll see!

An article in the FT featuring Ed Story

http://presscuttings.ft.com/presscuttings/s/3/viewPdf/36604472

One should type the following into google search engine if they have issues accessing the article on the FT wesbite

One frontier attracting increasing attention from investors is the Democratic Republic of Congo, where London-listed Soco International is preparing to

In reply to Isaac, post #85

Interesting article - not for what it says, but for the fact it appears at this juncture.

The sub-text here is that the sort of technical risks that have been adopted by the likes of BP are now starting to be fully appreciated (well-controlled though they generally have been hitherto) and SOCO's alternative approach of taking greater political risk, but coupled with a very strong social responsibility angle, may be a more attractive way forward for oil explorers.

There is, of course, no question of SOCO having "followed" Tullow's lead - the work on getting into the DRC and other countries in Africa started as far back as 1999...

ee

Fomr DJNW

Finally, Presidential decree issued for Soco and Dominion.

Presidential Decree for Block 5 in Democratic Republic of Congo

 

The Company has been informed by its wholly owned subsidiary SOCO Exploration Production DRC SPRL that the Production Sharing Agreement for Block 5 in the Albertine Graben area of the Democratic Republic of Congo ("DRC") has received the Presidential Decree, the final step in the concession award of the block.

The Block, operated by SOCO Exploration Production DRC SPRL, is located at the southern end of the Albertine Rift system and includes part of Lake Edward. During the initial five year exploration period the Block 5 partnership have committed to acquire at least 300 km of seismic data and drill two exploration wells.

 

The Block 5 partnership consists of SOCO Exploration Production DRC SPRL holding 38.25%, Dominion Petroleum Congo SPRL with 46.75% and the state oil company of the Democratic Republic of Congo Congolaise des Hydrocarbures ("COHYDRO") with 15%.

http://www.investegate.co.uk/Article.aspx?id=201006280700203058O