Tarfaya PermitTarfaya Exploration Licence
* Island’s interest reduces to 30% if ONHYM, the state oil company, exercises its right to back-in in the event of a commercial discovery The Tarfaya Exploration Licence is located in Southern Morocco and covers an area of 13,434 square kilometres. It is located onshore and borders the coastline of the Atlantic Ocean. The Exploration Licence was awarded by ONHYM in November 2007 and is effective from 14 January 2008 for an eight year term divided into three work phases. ONHYM has the right to exercise a back-in option of up to 25%, reducing Island’s net interest to 30% if ONHYM were to exercise its back-in option to the maximum extent. State participation is carried only through the exploration phase with no reimbursement for exploration costs. The Phase 1 work programme for the licence is of 30 months duration and requires the acquisition, processing and interpretation of 500 kilometres of 2D seismic data and to conduct geochemical modelling. A drill or drop decision will be made at the end of the initial period. Based on the existing seismic and well database in the Licence area, 15 exploration leads have been identified and mapped. There are two primary play types related to Mesozoic age reservoirs: Jurassic marine carbonate platform sediments and Triassic continental fluvio-deltaic red bed clastics. These occur at between 2,500 and 4,000 metres and 4,000 to 5,200 metres respectively. Fault- and dip-closed structures and anticlinal folds with four-way dip closure have been identified to date. On-trend discoveries include the offshore Cap Juby Field and fields in the Essaouira Basin. Cap Juby is the nearest oil field on trend with Tarfaya and lies only 40 kilometres offshore from the Tarfaya Licence. The field was discovered in 1969 by Esso with the drilling of the MO-2 well. The well flowed 10 to 12 degrees API oil at a rate of 2,377 bpd from an Upper Jurassic fractured limestone at a depth of 2,076 metres subsea. A subsequent appraisal well on the flank of the structure encountered a small amount of light 38 degrees API oil from an older Jurassic limestone reservoir, thus proving the light oil potential of the area. Oil migrated and was trapped in the Cap Juby structure during the Middle to Late Cretaceous, however the structure was deeply eroded at the beginning of the Tertiary at which time the oil was biodegraded. The Cap Juby field has not been monetised to date due to the heavy nature of the oil and the complex reservoir distribution. However, this proven oil play extends onshore into the Tarfaya Licence where the influence of Tertiary erosion is much less and the potential for the preservation of light oil in the Jurassic is very high. A total of seven discoveries in the Triassic and Jurassic intervals were made in the onshore Essaouira Basin, north of the licence area, including one oil field and two gas and gas-condensate fields. The principle structural leads in the Tarfaya Licence are the Daora Structure, covering a probable area of 23 square kilometres and prospective for multiple targets in the Jurassic and Triassic; and the J North Structure, covering a probable area of 105 square kilometres with a primary reservoir target in the Trias. Netherland, Sewell and Associates have produced a Competent Persons’ Report for San Leon Energy Ltd, one of Island’s partners in the Tarfaya Licence, as part of that Company’s AIM Listing requirements, which gives, as of 1 May 2008, gross unrisked ‘Probable Prospective’ oil in place for the Tarfaya exploration leads of 2,511.5 mmb and gross ‘Probable Prospective Oil Resources’ of 711.3 mmb. It quotes gross unrisked ‘Possible Prospective Oil Resources’ of 3,878.6 mmb. For the J North Triassic Structure Netherland, Sewell and Associates prepared unrisked economics for the unrisked ‘Probable’ (‘Best Estimate’) development case of 156 mmb of gross oil resources. Using an oil price of US$80/barrel, this gave a gross unrisked value of approximately US$708 million discounted at 10% NPV. Netherland, Sewell and Associates have risked the chances of success for the J North Structure as 0.09%. Island, the operator of the Tarfaya Licence, has currently completed a review of prospectivity and will now embark upon a seismic reprocessing programme Island will continue to prudently manage its exposure to the potential cost of the Phase 1 work commitment through farm-outs or the sale of equity interest in the Licence in order to accelerate drilling activity in this very prospective Mesozoic basin. As part of this process, and in order to secure an interest in this potentially valuable licence, in January 2008, during which time Island’s business growth strategy was constrained by the terms and conditions of Island’s outstanding debt facility with RMB, Island agreed with its partner in the Tarfaya Licence, Longreach Oil & Gas Ventures Limited (‘Longreach’), that Longreach would carry Island’s share of the Bank Guarantee (US$400,000), required to be put in place at the time of execution of the Tarfaya Licence, based on certain agreed terms and conditions as follows: | ||||
