i3 Energy proves oil in Serenity prospect, agrees rig contract extension with Dolphin

UK independent i3 Energy has reported that its Serenity well, located in the UK North Sea, is an oil discovery, confirming the strong commercial potential of the Serenity area. i3 has also agreed a rig contract extension and payment deferral with Dolphin Drilling.

Borgland Dolphin rig
Borgland Dolphin under mobilization to the current drilling operations for i3 Energy in August 2019. Source: Dolphin Drilling CEO Bjørnar Iversen

In a statement on Tuesday, i3 Energy said that the Serenity 13/23c-10 well was successfully drilled on the company’s 100% owned Serenity prospect and was an oil discovery. Preliminary well results are consistent with i3 Energy’s pre-drill estimate of 197 MMbbls STOIIP for the entire Serenity closure within the company’s license area.

The company also said that the Liberator 13/23c-9 well findings had been integrated with recently acquired seismic data, resulting in Liberator remapping.

After planned plugging and abandonment of Serenity well 13/23c-10, the Borgland Dolphin semi-submersible rig will mobilize back to the Liberator field to drill a pilot hole at a future development well at the remapped L2 structural high, approximately 500 meters north east of the 13/23c-9 well.

In addition, i3 said that the rig contract extension and payment deferral structure had been agreed with Dolphin Drilling.

Majid Shafiq, CEO of i3 Energy commented: “The discovery of the Serenity oilfield, a potentially very large oil resource, is a transformational event for i3 Energy plc. We now have proven oil in a second structure on our licenses. It is the culmination of three years of detailed geological and reservoir analysis and validates our regional model for the Liberator and Serenity oilfields and neighboring structures.

“We will now integrate data from the 13/23c-10 well into our geological modelling as we develop an appraisal and development plan for Serenity, which we believe is connected to the undeveloped Tain oilfield. This result also adds confidence to our revised mapping of the Liberator field, which utilizes the same reprocessed seismic dataset now used to map the Serenity field, and integrates data from the recently drilled 13/23c-9 Liberator well. We now look forward to returning to Liberator where we’ll continue the necessary drilling operations to progress that field towards development.”

 

Serenity well results

 

The Dolphin Drilling-owned Borgland Dolphin rig started drilling the Serenity well in early October.

i3 Energy said on Tuesday that the well 13/23c-10, drilled on the Serenity structure, had reached total depth (TD). The key geologic horizons were encountered within the prognosed tolerances, and data acquisition operations are nearing completion. The well was drilled down dip from the Repsol Sinopec-operated Tain discovery and encountered a sequence of Captain and Coracle sands with oil confirmed in the interval from 4740ft total vertical depth subsea (TVDSS) to as deep as 5252ft TVDSS.

The oil water contact is estimated to be at 5270ft TVDSS based on pressure measurements, the same level as seen in the Blake and Liberator fields. The interval contained circa 339ft measured depth (MD), 165ft TVD of sand in total, with oil in the uppermost Captain sand and in the Coracle sands at the base of the interval, and, if connected to the Tain field as i3 anticipates, represents a mapped oil column of approximately 622ft TVD in the Captain sand alone. The net oil interval in the Captain sand was c.10ft of high porosity (30%) sand and thicker than in the up-dip Tain discovery consistent with the company’s expectation that the Captain sands thicken to the west in Serenity (as demonstrated by the c.150 ft of sand seen in the offset 13/23a-7A well situated to the west of Serenity).

Reservoir quality is expected to be equivalent to that seen in the Tain wells, one of which (13/23b-5Z) tested at an estimated 2750 bopd from a 5ft interval in the Captain sand. Oil samples to be recovered from the downhole sampling tool are expected to be of similar quality to the 32° API oil found in the Tain field. The preliminary results, subject to further analysis, are closely in line with the company’s expectations and confirm the strong commercial potential of the Serenity area, of which i3 owns 100%.

Additional pressure measurements and samples are in the process of being taken and the data recovered will be analysed over the coming weeks to develop further appraisal and development options for the Serenity discovery. The well will then be plugged and abandoned as planned, following which the Borgland Dolphin will mobilize to re-start drilling operations on the Liberator field.

In a separate statement on Tuesday, RockRose Energy said it would be working to understand fully its implications for the Tain development project in which RockRose has a 50% interest, including the possible impact on potentially recoverable volumes.

 

Unexpected result at Liberator

 

Drilling operations at the company’s Liberator field began on August 21 with the spudding of the 13/23c-9 pilot well, the objective of which was to establish the position and optimal trajectory for a future Phase I development well. On September 10 i3 announced that preliminary petrophysical information, obtained from the Measurement While Drilling (MWD) tools in the well, indicated that the targeted upper Captain sands were absent at the 13/23c-9 location. This was an unexpected result. The company thereafter acquired a vertical seismic profile (VSP) and a shear wave sonic log from the well prior to its planned plugging and abandonment.

With the unexpected results, i3 Energy acquired the only other available modern seismic dataset over the area. Unprocessed samples of this data had previously been reviewed by the company and were considered to be too ‘noisy’ for meaningful interpretation. However, the quality of the newly re-processed version of this seismic data was significantly improved and included broadband frequency information allowing an inversion process to be applied, providing a new visualisation of the reservoir architecture. i3 Energy’s initial acquisition of this seismic data covered approximately 50 km2 over Liberator, and the company subsequently purchased an additional 100 km2 of the data which encapsulates Serenity.

The new visualisation of the field closely matches the results seen in the 13/29c-9 well. The dataset has also been validated by predicting the observed results in the Serenity 13/23c-10 well. The inversion analysis, combined with the reflectivity mapping, has been used to generate revised mapping for the Liberator field.

The company’s internal estimate of overall STOIIP in the A1, A2, A3 and A4 areas of the field has decreased from 91 to 63 MMbbls, while in the prospective west of the field the STOIIP has increased from 226 to 396 MMbbls (all volumes on a P50 unrisked basis), although the risk has increased due to the lower relief now being mapped between the A3 area and the prospective Liberator West.

It is likely that i3 Energy will now seek to include the A3 area in the Phase I development and the company’s revised internal estimate of projected P50 recoverable reserves for Phase I is 23 MMbbls. The company is in the process of ensuring permits are in place for the drilling of the next well on the Liberator field, which will be a pilot well targeting the Captain sand in the remapped L2 accumulation – a closure to the north east of the 13/23c-9 well. This region, similar to the A3 and A4 target areas, has significant relief above the prognosed oil-water contact and will provide a good location for a future development well. The LA-03 well, originally planned to be drilled in i3’s 2019 campaign, is now likely to be drilled as a pilot during Phase I development execution to optimize the placement of a production well, as will the LA-04 well.

 

Contract extension for Dolphin 

 

Due to the unexpected well result at 13/23c-9, and standby time incurred in advance of drilling the current 13/23c-10 well at Serenity, the company has been working with Dolphin Drilling to extend its current 94-day contract.

i3 said that, due to Dolphin’s excellent performance to date, i3 and Dolphin had agreed to enter into a strategic operational alliance for the use of Dolphin drilling rigs for i3 operations to August 2023, which would cover potential future appraisal and development drilling on Liberator and Serenity.

Under the contract extension, i3 Energy has secured a right of first refusal on the Borgland Dolphin semi-submersible rig to January 31, 2020 so that the company can continue drilling operations at Serenity and Liberator. Associated with this contract extension, Dolphin has agreed to defer certain payments for drilling costs beyond September 30, 2019, which the company will be due to settle between January and August 2020.

With this payment deferral in place, i3 Energy remains comfortable that it has the cash resources available to conclude its planned 2019 three-well drilling operations, the company said.

 

Funding 

 

The company is preparing to fund the Liberator Phase I development on a 100% working interest basis and continues to explore all options for its future funding requirements while advancing its negotiations for a reserve-based lending (RBL) facility of up to $100 million. Progression of the RBL will require successful drilling at Liberator and the company is obligated to enter the RBL no later than December 2019 in order to remain in compliance with the terms of its Junior Loan Note Facility.

As part of an agreement announced on July 2, 2019, i3 Energy has issued 2,204,574 warrants to subscribe for ordinary shares at an exercise price of 56.85 pence per ordinary share to GE Oil & Gas UK.

These warrants relate to deferred payments for oilfield service (OFS) contracts, entered into between i3 and Baker Hughes. To September 30, 2019, Baker Hughes had performed and invoiced i3 Energy for £1,253,300 worth of oilfield services. GE UK can exercise the warrants via cash settlement or in exchange for payments due to Baker Hughes under OFS contracts with the company.

Junior noteholders will be offered participation in warrants on the same terms as GE UK, pro-rata to their ownership of i3 Energy on a fully-diluted basis, and also pro-rata to the proportion of warrants issued to GE UK under this arrangement.

The company confirms its issued ordinary share capital comprises 93,433,685 ordinary shares of £0.0001 each. All of the ordinary shares have equal voting rights and none of the ordinary shares are held in Treasury.

With the issuance of warrants to GE UK, the company now has notional £8mm warrants exercisable at 40.7p/share, notional £8mm warrants exercisable at 48.1p/share, notional £8mm warrants exercisable at 55.5p/share, and notional £1,253,300 warrants exercisable at 56.85p/share which, when fully exercised in aggregate, will convert into 52,907,024 ordinary shares of £0.0001 each in the company.


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