Oil in Puntland- Mr Right

Over the weekend I emailed Mr O'Connor,

The gentlemen that carried out the World Bank coordinated study in 1991 which was intended to encourage private investment in the petroleum potential of eight African nations where Somalia and the Sudan topped the list of potential commercial oil producers!

He was kind enough to take the time to reply so I thought id post his message:

Dear Mr O'Connor

Sorry to impose on you like this but I was just wondering if it was possible to ask you a few questions regarding oil in Somalia as I understand you worked with the world bank and International finance corporations ongoing petroleum projects back in 1991. . I'm a large shareholder in Range Resources Ltd whom have an interest in two blocks in Puntland, Somalia where we'll be targeting oil later this year.

http://www.africaoilcorp.com/s/Somalia.asp?ReportID=352284


I wanted to get an Industry professional's view on potential oil in place?
Do you believe that Somalia has similarities to yemen?
Could we expect any problems drilling?

If you have any other information it would be deeply appreciated.

Thank you for your time

Kind Regards

xxxx xxxx

-----------------------------------------------------------------------

Dear Mr. xxxxxxx:

It is a pleasure to hear from you and I am flattered that you have chosen to ask me these questions.

It is true that during the late 1980s and early 1990s I had quite a bit to do with the petroleum sector of Somalia at the time of the Said Barre regime collapse. I supervised a large, nation-wide geological assessment of the petroleum potential of Somalia, undertaken by a very well known and respected US consulting firm in Littleton, Colorado, with funding supplied by the World Bank. The report was completed, but since it was never paid for since no Government followed Barre, and undertook to recognize the previous regime's obligations, its results were never circulated nor directly made use of. Secondly, I conducted a highly regarded seven-nation study of the hydrocarbon potential of the Red Sea and Gulf of Aden, the results of which were issued as a series of scientific papers. This is the long way around of saying that the conclusions which have been shown on the hyperlinked brochure by Africa Oil of its prospects in Somalia are in agreement with current geological scientific thnking.

Through the Energy and Geoscience Institute of the University of Utah, I was asked by Jim Phillips, one of Africa Oil's Vice Presidents, to give a course on Geology for non-Geologists to the Puntland Head of State and most of his Cabinet. This took place in Addis Ababa the three days preceding Easter of this year. Its focus was very much on the type of geology that is to be found in East Africa in general, and Somalia in particular. It was concluded with a one hour presentation by Phillips of the petroleum geology surrounding the first prospect which should be just about started now.

My feeling on the subject of your question is that, yes, there is a functioning petroleum system within the area of both prospects and yes, the geology of Northern Somalia is similar in a great number of respects to that found in Yemen. Therefore the direction of exploration chosen by Africa Oil makes a great deal of sense. This leaves open the time of oil generation/migration with respect to time of trap formation and the effectiveness of the trap and seal. These can only be established through drilling.

It is very difficult to estimate the amount of reserves in place prior to any exploration drilling.

As regards potential drilling problems, yes, there are always problems of this kind and it is quite likely that they will be similar to those found in Yemen, since the geology is similar.
Assuming that the drilling contractor is competent and the drilling department of Africa Oil is well chosen, these types of risks can be offset through careful planning and logistics. Nothing in this business can be taken for granted, but my experience has been that good planning and competent management is in most cases highly successful in offsetting such risks. From what I have seen of Africa Oil's planning, management and logistics, I believe that they are competent.

The bigger problem is likely to lie in what to do if commercial amounts of petroleum are indeed found with these initial wells. It is a very unstable region and the current government of Puntland can be regarded from an investors perspective as speculative at best. That is to say, I view the political risks as being greater than the geological risks. But this goes beyond the question that you asked.

With best wishes for your future success in this venture,

sincerely yours,

Thomas E. O'Connor

Most of you longtermers will remember about a year ago I had correspondence with the gentleman that carried out the World Bank coordinated study in 1991 which was intended to encourage private investment in the petroleum potential of eight African nations where Somalia and the Sudan topped the list of potential commercial oil producers! His name is Thomas O'connor......

To refresh your memory you can see the email/post here:

http://rangeresources.narutorpg.org/t7-oil-in-puntland-mr-right

Today I decided to follow him up and ask him a few questions on whether he thinks it would be possible to drill both exploration wells as set out in yesterdays RNS before the expiry dates. His response was very informative and helpful............Here it is!
----------------------------------------------------------------------

Dear Thomas

I hope you are keeping well and enjoying life.

Do you remember I emailed you a while back regarding oil in Puntland and the complications drilling in such an area could prove to be due to the Geology??

Our Operator Africa Oil have stated that they will drill two exploration wells this year, One must spud before the 27th of July, the second must spud before the 27th of September. Looking at the dates do you think it would be possible to drill the first well and then relocate the rig to spud the second well before the dates set out. How long does it take to drill a exploration well in this kind of Geology? Looking over recent drills in similar ares it takes 5-6months minimum and usually some difficulty occurs due to high gas pressures. What is your View? The basins where we will be drilling are Dahroor and Nugal.

I hope you can offer any information and many thanks for taking the time,

Kind Regards

xxxxx
-----------------------------------------------------------------------

Yes, good morning xxxxxxx:

I too saw the note regarding Africa Oil's drilling plans in yesterday's trade press and had the same thoughts as you have had. On reflection however, my thinking has changed somewhat.

As you recall, Africa Oil had planned to drill its first well, at Dahour, I think, last summer. I have not heard anything direct from Africa Oil since I met with them last Easter, so the remainder of what I have to say is speculation.

Firstly, there appears to have been an issue with commencing the well last year; this could either be a case of rig non-availability, in which the rig had to be used elsewhere first, or something to do with political risk and/or security. Either case is equally possible.

Secondly, in the type of area in which Africa Oil is operating, these things are fairly common and work obligations are often renegotiated with the Government. This appears to be the case here, in which, in return for extending the "Drill before" date for the first well, AO has agreed to drill the second well immediately thereafter, without releasing the rig, evaluating the results of the first well and making fine tuning adjustments to the second well location. Since the two wells are in what are thought to be two different basins, this is a reasonable compromise.

I have briefly seen the seismic from the first location, but not the second; as I recall neither well were programmed to go too deep; something on the order of 9,000 feet comes to mind. This is not a great depth, does not require a large, heavy duty rig and depending on the rocks encountered, 60 days should be sufficient to drill, evaluate, cap/plug the well and move the rig to the second location.

Unless there are major and unanticipated problems with the drilling, I don't see where either well should take longer than 30-45 days from spud to completion. The information which you have referred to, seems to me to be inappropriate. Having said that however, very little is known of the subsurface in Puntland and analogies made from elsewhere such as southern Sudan or Yemen may or may not be relevant. If you could provide me with the general location of the similar areas in which there was high pressure gas, I will provide whatever information I can regarding the appropriateness of the comparison. At the moment, I don't think there is much indication of high pressure gas in either proposed location, but that is of course, speculation.

Having said that, 60 days is a tight schedule; there are likely few roads between the first and second location and considerable work will have to be done on the transportation infrastructure during the drilling of the first well in order to accommodate the rig move.

The worst case scenario is that, should there be a timing problem with the commencement of the second well, the deadline will have to be renegotiated. It is in the Government's best interest to have the second well drilled, rather than revoke the license for non-compliance. In order to achieve governmental concurrence, there will clearly have to be an inducement to the Government to accommodate AO in this case, and that could entail either additional work, or a cash bonus.

My guess is that AO is committed to start the first well by the agreed upon date and it would be very difficult to renegotiate that date, in contrast to the second spud date.

I hope that this has helped you in your thinking. Good luck and please let me know what happens.

All the best,

Tom O'Connor