Doriemus PLC (ASX: DOR) - Another Woodside?
In December 2018, I did a write up on Doriemus PLC and the Fishbones Technology. Once I understood all the terminology, I was wondering if Doriemus could potentially be another Woodside in the making. I decided to contact the management of Doriemus to try and understand the whole process and was subsequently given a bit of oil geology and production 101 lecture. I began to appreciate all the numbers and the potential of the Butler prospect or The Derby Block as referred by Rey Resources Limited. With my new found knowledge, I did my research and subsequently took me to the light bulb moment of “Could this be another Woodside in the Making?”.
What Do We Know Already?
For the readers who are not oil and gas savvy, one would need to understand some of the definition. There is a saying that “oils ain’t oils” and boy did I find that out. As I write this, I am still trying to understand everything I have read.
Let’s try and summarise what we are talking about first. In December 2018, Doreimus PLC (ASX: DOR) announced a JV with Rey Resources Limited in regards to their The Derby Block/ Butler Prospect located in the Canning Basin. The project is east of the township of Derby.
The Butler prospect sits within the license EP487 which is owned by Rey Resources. Buru Energy and Mitsubishi hold the adjacent tenures. Buru has the EP to the northern boundary, and Mitsubishi is towards the southeastern border.
According to Buru in their 2017 presentation, they stated that the Butler prospect has multi-TCF potential. Buru pointed out that the key is the prospect is newly defined and with recent seismic work, the management is feeling confident that the potential of the field may be able to be realised soon. This field of thought is consistent with the beliefs of the current Doriemus management.
In June of 2015, the Butler prospect or EP 487 was “operated” between Rey Resources Limited and Oil Basins Limited (now called Emperor Energy Limited, ASX: EMP). I assumed that relationship did not last, and somehow Rey Resources found a new partner in Doreimus in 2018. In 2013, the US Energy Information Agency reported that the Canning Basin has the most substantial unconventional (shale) gas potential in Australia and eighth most significant in the world (source: OBL 2016 AGM).
By all accounts, this seems to be still the case.
Potential of Resource
EP 487 has been around for a long time. As I mentioned it dates back to at least 2015. As usual, a lot of these kinds of projects take time and funding has always been the issue. The fact that the current management is talking drilling in 2019 is a good sign. Management being proactive is a good asset of a company for shareholders. In October 2018, the Japanese oil and gas company Inpex had their first shipment of condensate from their Ichthys LNG project in Western Australia’s Bowen Basin.
To give a proper perspective on how long these projects can take, Inpex had the exploration permit in 1998, and they first discovered the Ichthys field 18 years ago. It took them six and a half years to complete the construction. Now they are producing 100,000 barrels of condensate per day. At a conservative price of USD70/barrel, that’s USD7M per day.
Looking at the diagrams below, EP 487 is in the right zone. The “Fitzroy Trough has been explored for a while now, and I would suspect it will just be a matter of time before a discovery is made that will make the world take notice. Buru Energy is lead by the old Arc Energy management, and they appear to believe in the area, and that is encouraging to know.
All the focus is on the Butler prospect as shown in the broad red region in the diagram below. Now Buru has the bit that is not in EP487 so I would see these companies will be working closely together in future. Form my understanding, the nearology issue in oil and gas is more consistent and more applicable that the mineral resources. Just because you have a gold mine in your tenement does not mean that it will be in present in my adjacent project, that kind of thinking. However, in the oil industry, this occurs more often. IT seems that in the oil game, being neighbours could mean that we are taping the same reservoir.
The table below is from a presentation by Doriemus PLC which shows the potential of the Butler Project. As explained in the previous blog, the Fishbones Stimulation Technology will be used to help with production when and if the project gets to that stage. From what I have heard and learned, this new technology is doing what Fracking is trying to do without the fracking. I am sure there are more qualified people out there that can explain this better, but as far as I am concerned, it allows more oil to be produced with the old conventional ways.
What do all the do numbers mean? What is a TCF? What is a condensate you ask? I will try and explain that later but it is the premium product from the suite of oil products.
What is a TCF?
TCF (Trillion Cubic Feet) is a volume of measurement of natural gas used by the US oil and gas industry. A TCF is worth about USD3 billion at the wellhead, although this is dependent on many factors which could increase or decrease that figure. So if you look at the table above, you start to understand the potential upside.
What is a Condensate?
Condensate is a very light hydrocarbon with an American Petroleum Institute (API) specific gravity of greater than 50 degrees and less than 80 degrees. In underground formations condensate can exist separately from the crude oil or dissolved in the crude oil.
Some oils are light and can be used almost immediately and are therefore very valuable. Other oils are heavy and have to undergo additional refining processes before they can be used practically. One of the lightest and most valuable crude oils is condensate which is used to produce products like petrol, jet fuel, diesel and heating fuels.
Condensate comes in various colours, from clear like water to yellow or even brown. Compared to conventional crude oil, condensate is much thinner and has a similar consistency to regular water at room temperature.
What is API?
The American Petroleum Institute gravity or API is a measure of how heavy or light a petroleum liquid is compared to water. If its API gravity is higher than 10, its lighter than and floats on water. If it is less than 10, it is denser and sinks.
Although API gravity is mathematically a dimensionless quantity (see Wikipedia), it is referred to as being in ‘degrees’. API gravity is graduated in degrees on a hydrometer instrument. API gravity values of most petroleum liquids fall between 10 and 70 degrees.
Typically, the characterisation of API gravity in regards to petroleum are as follows,
Light – API > 31.1
Medium – API between 22.3 and 31.1
Heavy – API < 22.3
Extra Heavy – API < 10.0
So What do all these TCF and MMbbl mean?
Let’s start with Western Australia’s North West Shelf. It is estimated to have 130 TCF of natural gas resource. Everyone knows that the North West Shelf is the talk of the resource industry. Its the hotspot for a few decades. Billions of dollars have gone into the development, and the whole Karratha and Dampier area has blossomed due to this investment. There is no sign of any slowdown as the business model is projected into the decades.
In the table above, at P50 EP 487 has recoverable gas of just over 28 TCF. Then there is P50 of 707 MMbbl of Condensate. Granted that these are estimates and the future exploration wells will be the proof of concept, in the oil and gas industry (as I understand), the calculation of the probability of success is much more scientific and precise. I know there are many people out there that will say that they have been involved in more dry wells than they care for, but if you compare minerals and hydrocarbon exploration success, you would understand the difference.
According to the Australian Petroleum Statistics issued by the Department of the Environment and Energy, there were 98MMbbl of crude oil and condensate produced in 2017-2018. The figure is made up of 8,145ML of Crude Oil and 7,512ML of Condensate. In comparison, Doreimus is claiming at P50 that there will be 707MMbbl of condensate from EP487. If that were to be true, I would say we are dealing with something worth taking some notice. Even if they were 10% correct, that would be 70 MMbbl which is almost equivalent to the total crude oil and condensate produced in 2017-2018 from Australia.
How does Fishbones Stimulation Technology help?
The Fishbones Stimulation Technology is applied to increase well productivity and access the difficult geological formations and unconventional reservoirs. Fishbones Technology differs from hydraulic fracturing, and its main advantages are the competitive price and reduced operation time. Fishbone shaped multilateral wells may prove to better productivity than multi-fractured horizontal wells in relatively low permeable reservoirs.
Not all geological conditions are appropriate for this technology. There are specific conditions that are ideal, and apparently, the Butler prospect appears to be suitable for this technology. If this were the case, this would be another reason to be excited. As I had mentioned in my first blog on Doreimus PLC and the Fishbones Stimulation Technology, from a geological point of view, this is like the invention of the bread slicer.
So what does all this mean? Assuming that the management of Doriemus does raise the fund required to do the necessary drilling, I would be pretty confident that you will get a result. When you think about what is available with technology these days, the prospects that were substandard are now producible. Throw in the use of Fishbones Technology and things will get more than impressive.
What is a bit on the unbelievable thought is the size of this field? The size of what Doriemus is talking about is BIG. I have worked in the mineral resource sector since 1992 and have never worked a day in the oil and gas industry. Taking that into consideration, I am just a bit perplexed with the numbers. Let’s take the scenario that those figures were correct and Doriemus and Rey Resources are happily producing those numbers, what kind of money are we talking about? What would their share prices be? Imagine if that just came from the Butler prospect and the Basin Centres Gas System within EP487.
707 MMbbl of condensate
28 TCF of recoverable gas.
Whatever the final figure is, what I can say is that the shareholders of all companies involved will be happy. If the drilling comes up empty, then they are not any worst of… 🙂
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