Carnarvon Energy commences drilling at Apus-1 well

Despite announcing the commencement of drilling at the Apus-1 well, trading in Carnarvon Energy (CVN) remained decidedly flat with the share price down -0.78% at 1 pm AEST.

The Apus-1 well is located in the WA-437-P exploration permit that is operated by Santos (ASX:STO) with an 80% stake, while Carnarvon holds the remaining 20% interest.

The latest drilling at Apus-1 is targeting a gross mean combined recoverable volume of 235m barrels of liquids and 408bn cubic feet of gas in the Caley and Milne Members.

The target reservoirs have previously been proved in the Dorado and Pavo discoveries, with the Caley Formation sands having been flow tested at equipment limits of around 11,000 barrels of oil per day in the Dorado-3 well.

Don’t count your chickens

All this sounds pretty exciting, but what my have curbed the market’s enthusiasm over drilling at the Apus-1 well is the probability it may disappoint.

In short, Carnarvon is providing no guarantees and estimates the geological probability of success at one-in-four (23%).

Progress

The Noble Tom Prosser jack-up drilling rig has started with drilling of the surface hole down to a total depth of around 175 metres, and installation of the surface conductor.

Following the setting of the surface conductor, the 17.5-inch hole will be drilled down to a total depth of around 850 metres and the 13.625 inch casing will be set and cemented in place.

The rig will then drill ahead in the 12.25-inch hole to a total measured depth of approximately 2200 metres before setting the 9.625 inch liner.

After setting the 9.625-inch liner, the rig will drill ahead in the 8.5-inch hole section through the expected reservoir interval.

No hydrocarbons are anticipated to be intersected in these hole sections.

Key risks

Key risks for the prospect include hydrocarbon charge (long-range migration) and top-seal (thickness), similar to the key risks of the Pavo-1 well.

The Pavo-1 well has proven long-range migration and effective top-seal at the Pavo structure, which is further from the Dorado field than Apus.

The higher risk for Apus-1 relative to Pavo’s pre-drill estimate of 34% relates primarily to more complex interpreted charge / migration pathways.

Carnarvon Energy has underperfomed the Energy Index over the last 3 months.