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Norwest Energy prepares for key tests at its Arrowsmith-2 shale gas well in Western Australia

PERTH -- A number of small caps have had their fortunes transformed in recent years as shale fever has prompted a rethink of legacy assets. The rebirth of ASX stalwart Vic Pet, for example, which now trades as Senex Energy, is largely down to its once neglected coal seam gas acreage. Fellow ASX stock Norwest Energy has also been reinvigorated as a result of its pioneering efforts to prove up the unconventional potential of its acreage in the northern Perth Basin and can claim the distinction of having drilled the first shale well in Western Australia.

That breakthrough well, Arrowsmith-2, is still being worked up and it' s clear that Norwest is increasingly confident it has a commercial find on its hands. Arrowsmith-2 was a follow up to a well drilled back in the 1960s, which flowed 4 MMcfd for a couple of days before being shut in. When tested again 30 days later, the well had recharged with gas. Norwest interpreted this as shale gas and was keen to follow up, successfully landing farm in partner Bharat Petroleum to carry its drilling costs, this left Norwest with a still material 27.945 % interest alongside AWE with 44.252 % and Bharat with 27.803 %.

The well was drilled in the summer of 2011 to a depth of 3,340 m to test four target zones, the Kockatea, Carynginia, Irwin River Coal Measures and the High Cliff Sandstone.The intersected shale and tight gas horizons stretched over 1,000 m, with 450 m in the Kockatea, 250 m in the Carynginia, 330 m in the Irwin River and 22 m in the tight sandstones of the High Cliff. In September 2012, it was fracced in five zones, all of them flowing gas to surface, with testing of the shallowest, the Kockatea, taking the company by surprise when it yielded waxy oil.

This month sees the start of completion operations on the well, designed to establish flow rates for the High Cliff Sandstone, the Irwin River Coal Measures and the Carynginia Formation. This process, which is designed to help high grade the intervals to help with development planning, will take several months. Already a period of flowback from the Carynginia last month delivered gas to surface at a rateof at least 500,000 cfd, higher than the maximum rate of 22,000 cfd seen in August 2012 in the early stages of flowback and the 355,000 cfd of February 2013. It is now reckoned that around 52 % of the injected fluids have been removed from the formation and it is the company' s expectation that during the upcoming completion phase, as more fluids are removed, that gas will flow at higher rates.

To date the highest rate from the Kockatea has been 414,000 cfd while the High Cliff has flowed 780,000 cfd, with the company expecting a higher rate upon well test. In all, as of last month, the progressive total from the well has been almost 1.7 million cfd.If this sounds rather modest, it' s worth pointing out this is a vertical well that is still cleaning up. Indeed, Norwest claims the results to date are “some of the best in Australia per fracced interval for a vertical well, and in line with North America’s experience from the early days of shale gas exploration using vertical wells”.

The company recently released details of a resources report from DeGolyer & MacNaughton, which points to a best estimate gross prospective resource in place of 450 million boe, including 2.6 Tcf of gas for an area of 160 sq km. CEO Peter Munachen said the D&M review “validated the resource potential around the Arrowsmith-2 discovery well and prospectivity of the deep unconventional gas fairway in the EP413 permit”.

As far as the company' s concerned, it' s fair to say this proof of concept well exceeded all expectations. Indeed, Munachen says the “results delivered to date are exceptional”. He points out that not only did each zone deliver gas to surface but there was also oil from the Kockatea, and condensate from the Carynginia. “Norwest has now effectively created an analogue for the northern Perth Basin,” says Munachen. “It is the first real dataset for shale gas exploration in the region.”

It' s quite a coup for a small cap. But therein lies the rub. As always with small companies, the big issue going forward will be funding the kind of work programme required to fully appraise and drill out a resource of this scale and Norwest also has to find the funds to meet its obligations on its other projects, which include conventional targets in Australia, as well as a potentially interesting shale position in the Wessex Basin onshore United Kingdom.

08/19/2013

 

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