Oil drillers hope

trade winds

Oil drillers hope for ‘the big one’

After years of painful di sappointment, the first real oil discovery in the Pacific islands may be at hand.

In the remote, largely unde veloped Southern Highlands Province of Papua New Guinea, a drilling program has been widely tipped as an indi cator that the declaration of the country’s first commercially vi able field may be very near even allowing for today’s de pressed prices.

Only last year, oil analysts were pinning their hopes on the abortive Mananda 3 well which failed to flow sufficient quanti ties of oil after highly encourag ing discoveries nearby.

Now attention has turned to the lagifu 3 well.

Announcements following lagifu 2 in the permit area known as PPL 17 suggest that lagifu is a major new oil discovery.

Some of the companies in volved in the program believe that the discovery contains re

coverable oil reserves of at least 150 million barrels with the liklihood of doubling or tripling this reserve through further drilling.

Among the distinguishing fe atures of the lagifu basin is the high densities of hydrocarbon liquid compared to the high gas ratios in the previously explored Juha field. lagifu, with an estimated 450 barrels/acre foot, rates at ten times Juha’s oil levels.

The reason why lagifu 3, budgeted at $l7 million, is so important is that it could lift the reserves above the 200 million barrel level, at which point the field could become commercial even at a world price low of $l5 per barrel.

The impact on PNG’s eco nomy would be spectacular, outranking any of the boom revenues from Bougainville Copper.

For a start, a major pipeline costing at least US$5OO million would have to be built to the sea, most likely to Madang or

Wewak on the north coast.

The total capital cost of the development at lagifu is esti mated at US$1.11 billion.

At present the shareholding in the lagifu field is split be tween the American oil major, Gulf, recently taken over by Chevron (25 per cent), BP (25 per cent), Pioneer Concrete (15 per cent), Merlin (25 per cent), BHP (12.5 per cent) and the Sydney-based PNG explorer Oil Search (10 per cent).

Pioneer Concrete owns 23 per cent of Oil Search and is expected, in the long term, to make a bid for the company.

Despite the world price col lapse, the exploration partners decided in May to press ahead with a further series of explora tion wells.

The site at lagifu 3 is 3.5 km north west of lagifu 2 and down-dip. Drilling to target depth is expected to take until the end of this month after which another month of testing is expected.

Some analysts are predicting

that this could well lift reserves to 300-plus million barrels.

In addition, yet to be drilled are the Hedinia and Kutuba features which lie within 20 km of lagifu. There is even a suggestion that the three struc tures might be one huge oil basin.

Informed circles told PIM that Chevron considers its PNG acreage around lagifu to be the company’s best prospective area for a large oil discovery anywhere in the world.

Meanwhile the related drilling partnership at Juha appears to have reached the conclusion that a reigning world price of US$2O per barrel would be needed to justify development.

This project was costed as a separate development from lagifu, although the two might share some pipeline facilities.

Studies recently prepared for the PNG government suggest that oil could yield as much as US$l.l billion in tax revenue by the turn of the century.

Denis Reinhardt.