Tuesday, June 07, 2011
OGX S.A.
OGX announced the Company's business plan for the Campos and Parnaíba discoveries.
"Following OGX's discoveries and successful appraisal campaign in the Campos and Parnaíba basins, we are pleased to announce our business plan for the development and production of OGX's resources portfolio. The pro-forma liquidity of approximately US $5.1 billion of cash and cash equivalents that we have on hand will enable us to reach stable positive cash flows in 2014 and secure an estimated production of 730,000 boepd by the end of 2015," commented Paulo Mendonça, OGX's General Executive Officer and Exploration Officer. "We remain confident in our ability to continue executing our exploration and production plan in the coming years, while efficiently managing our cost base," added Mr. Mendonça.
In order to fund its exploration and production activities, OGX raised approximately US $8 billion, including US $1.3 billion through an equity private placement in 2007, an additional US $4.1 billion in the 2008 initial public offering (IPO), and a further US $2.563 billion through the senior unsecured notes offering announced on May 26, 2011.
Since its IPO, OGX has made the following important achievements in executing its business plan:
- A significant increase in its portfolio's potential resources from 4.8 to 10.8 billion boe;
- The drilling of 52 wells in the past 20 months with an overall success rate exceeding 90%;
- An increase in the number of concessions from 21 to 34, of which 29 are located in Brazil and five in Colombia;
- The expansion of the Company's concession acreage from approximately 7,000 km2 to 41,000 km2; and
- A growth in the current number of employees to more than 250, while leveraging a total workforce of over 6,100 professionals.
As a result of the Company's financial discipline, OGX has maintained strong liquidity throughout all of its exploratory activities, with cash and cash equivalents of US $2.5 billion as of March 31, 2011. OGX expects that this level of liquidity, plus the US $2.563 billion of proceeds from the debt offering and its operating cash flows from production, will enable the Company to fully fund its production development of the discoveries already made and to reach stable positive free cash flows in 2014.
OGX's successful exploratory campaign has been followed by an intensive appraisal campaign in order to gather more information on the accumulations discovered and optimize the execution of the development plans, which were based on 4.2 billion boe already discovered in the Campos and Parnaíba Basins. Since the beginning of 2011, OGX has focused increasingly on the drilling of wells primarily in the contingent resource and delineation areas with the intent of converting 3C contingent resources into 2C and 1C, and ultimately into reserves.
In the Campos Basin, production will begin in the first project (Waimea complex) in October 2011, with anticipated production of up to 20,000 barrels per day (bpd) from the OGX-26 well. The second project (Waikiki complex) production is expected to begin in the fourth quarter of 2013. In 2013, the Company expects to have three Floating Production Storage Offloading "FPSOs" (OSX-1, OSX-2 and OSX-3) and two Wellhead Platforms "WHPs" (WHP-1 and WHP-2) in place with a total of ten horizontal production wells on-stream in these two projects.
The Company will adopt the best practices in the oil and gas industry in its production in order to avoid reservoir damage. OGX expects to achieve 150,000 bpd of production from the Campos Basin in 2013 in these two production complexes from 10 horizontal wells producing an average of 15,000 bpd each.
In addition to these three FPSOs, OSX has acquired two very large crude oil carriers (VLCCs), which will be converted into two FPSOs (OSX-4 and OSX-5). These equipment will be leased to OGX, with delivery expected in 2014. It is anticipated that both of these FPSOs will have approximately 1.3 million barrels of storage capacity and approximately 100,000 bpd of installed oil processing capacity.
The gas production ramp-up in the Parnaíba Basin is expected to begin in the second half of 2012. OGX has one project covering two accumulations in the PN-T-68 block, which is 46.7% owned by OGX, and is expected to achieve gross production of 5.7 million m3 of natural gas per day (approximately 200 million ft3 of natural gas per day), or approximately 36,000 barrels of oil equivalent per day (boepd) in 2013 (approximately 15,000 boepd net to OGX).
The Company anticipates that the Campos and Parnaíba current discoveries will be sufficient to support a production level of over 730,000 boepd. Considering OGX's estimated total potential resources portfolio of 10.8 billion boe, the Company forecasts that additional potential projects will enable it to reach a production level plateau of approximately 1.4 million boepd from 19 onwards. By 2019, when it is expected that OGX will utilize a total of 19 FPSOs, 24 WHPs and 5 TLWPs of offshore production equipment to reach the production levels depicted in the graph attached.
"We are excited to begin our production this year in the Campos Basin, having already secured the necessary equipment, staff and funding to produce the already discovered accumulations. In addition to our efforts in the Campos Basin, in April we submitted to the ANP our declaration of commerciality for two accumulations in the Parnaíba Basin, where we currently expect production to begin in the second half of 2012," commented Reinaldo Belotti, OGX's Production Officer. "At the same time, we continue to plan proactively for the long-term development of our diversified portfolio," added Mr. Belotti.
Campos Basin Development and Production
The general development concept for the Campos Basin shallow waters envisions that each development well will be dry-completed in a WHP producing to an FPSO. Given the significant number of OGX's discoveries and their similarities, the Company benefits from an accelerated procurement process through the use of FPSO flex production units which enable the processing of different oil qualities. In order to expedite the drilling process and accelerate production ramp-up, OGX has a strategy of pre-drilling an average of five horizontal wells per accumulation prior to the arrival of the WHPs using semi-submersible rigs. The remaining development wells in each accumulation will be drilled through the WHPs upon their arrival. The connection from the WHP to the FPSO will be made through a subsea flow line package, including production, electrical, gas lift, service, water injection and test lines.
OGX has thus far discovered several oil accumulations in the Campos Basin. From these accumulations, the Company expects to produce 4.1 billion barrels. To develop these accumulations, OGX expects to use 12 FPSOs and 11 WHPs.
For these accumulations, the Company anticipates a projected average field life capital expenditure of approximately US $2 per barrel and projected operating expenditure lower than US $16 per barrel.
Project 1 – Waimea Production Complex
This project is located at the BM-C-41 block, which is 100% owned by OGX, at a water depth of 140 meters and approximately 80 kilometers from shore. OGX expects to have three FPSOs and two WHPs operating at the Waimea complex, and production is expected to be achieved through a total of 42 development wells, including 28 production and 14 injection wells. In 2013, OGX expects to have the FPSOs OSX-1 and OSX-2, as well as the WHP-1 (all of which have already been secured), already under operation. The Company has acquired all of the necessary production equipment to be used in the initial production at the Waimea complex, including wet christmas trees and flexible lines. OGX anticipates the production for OSX-1 in the Waimea complex to come from three subsea production wells. Additionally, two subsea injection wells will be directly connected to this FPSO. The Company forecasts the average productivity from the horizontal wells in the Waimea complex to be in the range of 10,000 - 20,000 bpd.
Production is expected to begin in October 2011 through an extended well test (EWT) at the OGX-26 horizontal well. Until the expected arrivals of the WHP-1 in the first quarter of 2013 and the OSX-2 in the second quarter of 2013, the Company intends to produce from three horizontal subsea wells and from four pre-drilled horizontal production wells during 2012 and 2013. OGX expects OSX-2 to begin operations in the third quarter of 2013. In 2013, the Company expects to have 180,000 bpd of installed capacity and seven horizontal production wells on-stream, with three wells producing for OSX-1 and four wells producing for OSX-2.
Project 2 – Waikiki Production Complex
This project is located in BM-C-39 and BM-C-40 blocks, both of which are 100% owned by OGX, and is located at a water depth of 110 meters and approximately 90 kilometers from shore. OGX expects to have one FPSO and one WHP operating at this project, and production is expected to take place through a total of 22 development wells, including 14 production wells and eight injection wells. The Company expects to allocate to this project the OSX-3 and the WHP-2, which have already been secured, and anticipates an average productivity from the horizontal wells in the Waikiki complex in the range of 15,000-20,000 bpd.
Production in the Waikiki complex is expected to begin in the fourth quarter of 2013. In order to ensure a strong production ramp-up, OGX intends to pre-drill five horizontal production wells during 2012 and 2013, prior to the anticipated arrivals of the WHP-2 in the second quarter of 2013 and OSX-3 in the third quarter of 2013. The Company expects the OSX-3 to arrive and commence operations in the fourth quarter of 2013 and, as a result, by 2013 expects to have 100,000 bpd of installed capacity and three horizontal production wells on-stream producing to OSX-3.
Campos Basin Typical Development Project
Given the similarities between OGX's discoveries in the Campos Basin, the Company has established a replicable conceptual development project that should be considered as a reference for our future projects in the basin.
For OGX's replicable project in the Campos Basin, the Company has considered the following assumptions:
- A location that is approximately 80 kilometers from shore in shallow waters ranging from 100-150 meters in depth;
- A recoverable volume of 500 million bbl;
- Due to the low gas-to-oil ratio, all of the produced gas will be used to generate energy on the platform;
- Development through one FPSO of 100,000 bbl per day and one WHP with a drilling package on top and a drilling capacity for 30 wells (with the utilization of 25 wells);
- Production through 16 horizontal production wells and nine injection wells, all to be completed from the WHP; and
- Pre-drilling of five horizontal production wells from a semi-submersible rig prior to the drilling of the remaining 20 wells from the WHP.
The estimated capital expenditures unit cost for OGX's replicable project is approximately US $2 per barrel based on: (i) average drilling cost of a semisubmersible pre-drilled well will be approximately US $50 million; (ii) average cost of a WHP drilled well will be of approximately US $20 million; (ii) drilling time of 75 days for all wells; (iv) average of US $15 million per completion on the WHP; (v) completion time of approximately 30 days after the drilling of the wells; (vi) average of US $65 million for a package of subsea flow lines, including production, electrical, gas lift, service, water injection and test lines.
The estimated operating expenditures unit cost for OGX's replicable project is lower than US $16 per barrel based on: (i) one leased FPSO, constructed with high local content, at an estimated average day rate of approximately US $350,000; (ii) one leased WHP at an estimated average day rate of US $160,000; (iii) operating and maintenance of these equipment, mostly relating to the operation of the FPSO, at an estimated average day rate of approximately US $85,000; (iv) variable unit costs that are estimated at US $3.50 per barrel; and (v) expected abandonment cost that is estimated at US $100 million.
Once the development concept is in place, OGX expects each project to achieve a production plateau in three quarters, to maintain this plateau for an additional four years, and to have a 20 to 22 year production decline period following the plateau years.
Parnaíba Basin Development and Production
For OGX's onshore natural gas discoveries, the development concept includes vertical wells connected to a gathering system that will transport the gas to a gas processing unit through connection lines. Since the gas from the Company's initial discoveries has demonstrated characteristics of dry gas, the gas processing unit will be designed accordingly, making it simpler and less costly than a typical facility.
Project 1 – Gavião Azul and Gavião Real Fields
Project 1 is expected to begin producing gas in the second half of 2012, and OGX intends to ramp up production to achieve a gross flat production rate of 5.7 million m³ per day by 2013, which will correspond to a total production of 1.1 Tcf of gas. The Company plans to develop production with vertical wells connected to a gathering system that will take the gas to a dry gas treatment facility. This treatment facility is expected to be directly connected to the gas thermal power plants that are expected to be constructed by OGX's affiliate, MPX, which holds a 23.3% stake in these concessions.
Twenty months after the Parnaíba Basin concessions were granted, OGX declared to the National Petroleum Agency ("ANP") the commerciality of two accumulations (Califórnia and São José) in the PN-T-68 block, each of which are 46.7% owned by OGX. The Company expects Project 1 to include 23 production wells, some with re-completion during the production period, with a total estimated cost of US $340 million (including re-completion costs) and an estimated drilling and completion time of 55 days. The facilities involved in the development are estimated to cost approximately US $110 million, including a gathering system (lines and manifolds), a production facility for dry gas, and a very short pipeline.
The Company estimates the average operating cost for the field life to be less than US $0.30/1,000 ft3 (including operation and maintenance of production facilities, lines, gas pipelines, wells and gas variable costs). OGX anticipates that there will be 18 production wells on-stream in 2013.
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