T-212 at benteq yard at night

Background

Petroceltic was awarded operatorship of the Isarene Production Sharing Contract (“PSC”) in April 2005 with a 75% working interest, this was subsequently reduced to 56.625% through the divestment of an 18.375% interest to Enel Trade SpA (the Italian utility group) in early 2012, and reduced further to 38.25% through divestment of an additional 18.375% to Sonatrach in 2014.

After the initial Ain Tsila discovery in 2009, Petroceltic applied for a two year extension period, from the end of the exploration period in April 2010 through to 26 April 2012, to allow time for the appraisal of the gas accumulation and then a further extension suitable to finalise the declaration of commerciality. During this period, the Group drilled six appraisal wells on the Ain Tsila structure.

Approved Development Plan

Following the completion of the appraisal drilling campaign and technical and economic studies, a full field development plan was prepared by the joint venture, submitted to the Algerian authorities and approved in December 2012. This initial plan envisaged the production of 2.1 Tcf of sales gas and 179 MMbbl of liquids (comprising 69 MMbbl of condensate and 110 MMbbl of liquid petroleum gas or “LPG”) from the field during the 30 year exploitation period of the PSC. The initial plan would result in an average recovery factor of 24% of the Gas Initially in Place (‘GIIP’) in the field with significant upside to be further exploited. First production would occur approximately 5 years after development start.

In 2016, as a result of a combination of new well data provided by the drilling campaign and technical skills brought by new management of the Company, it became apparent that the approved development plan could be improved to achieve an optimum development of the Ain Tsila asset. Petroceltic’s new management elaborated and presented solutions to the partners which would deliver substantially greater reserves at a lower cost and on a faster timescale.

Field facilities will comprise development wells, basic in-field support infrastructure, a gas processing plant with water separation, condensate and LPG recovery equipment, gas compression, export pumps and metering facilities. The gas will be evacuated via a 95 kilometre pipeline which will tie into the main Algerian gas transmission network near the Tin Fouye Tabankort field. Dedicated condensate and LPG export lines will also be constructed to tie into liquids transmission infrastructure.

Gas Commercialisation

Following the execution of a legally binding Heads of Terms for the Gas Sales Agreement with Sonatrach in 2012, the comprehensive Gas Sales Agreement detailing operation procedures and processes required for nominations and payments was signed in September 2014 and approved by the Algerian authorities in November 2014.

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Liquids

Condensate and stabilised LPG form a significant part of the reserves and revenues from the Ain Tsila field. The Company, in compliance with the terms of the PSC, will receive its share of condensate and LPG’s entitlement and will market it either locally or internationally according to the best market opportunities.

Second Farm-out

The agreement to effect the transfer of a further 18.375% interest to Sonatrach was signed in February 2014 and ratified by the relevant Algerian government authorities in June of that year. The consideration included a $20m initial cash payment, a cost carry of up to $140m and two potential further $10m payments contingent on the achievement of certain key project milestones. Petroceltic retained a 38.25% interest in the project through to first gas. The Sonatrach carry of Petroceltic’s development obligations pursuant to this farm-out agreement remains fully effective is forecasted to cover all of Petroceltic’s project costs until beginning of the construction phase.

Isarene Concession Timeline

2005
  • Award of Isarene Production Sharing Contract
2006
  • First exploration drilling of two wells
2008
  • 3D seismic acquisition
2009
  • Five wells drilled, resulting in the Ain Tsila discovery, the year’s 9th largest discovery worldwide
2010
  • Two year delineation licence extension awarded
2011
  • Successful six well drilling campaign
2012
  • Farm-out of 18.375% interest to Enel
  • Declaration of Ain Tsila field commerciality
  • Development Plan and Gas Sales Heads of Terms approval
  • Award of 30 year exploitation licence
  • Booking of 304 MMboe of proved plus probable reserves
2013
  • Formation of joint operating organisation (Groupement Isarene) to develop the field
  • FEED tender issued to market
2014
  • FEED contract awarded and studies commence
  • Farm-out of 18.375% interest to Sonatrach
  • Drilling contracts tendered
2015 Mobilisation of Groupement Isarene to Hassi Messaoud
Rig contract awarded
2016 Commencement of development drilling
Enhanced field development plan proposed
2017
  • Award of major project EPC contract
2018+
  • Project execution phase

Groupement Isarene

When the Isarene PSC was awarded in 2005, Petroceltic acted as operator and conducted all petroleum operations on behalf of the joint venture. During the exploration and appraisal phase of activity, almost 10,000 km of 2D and 900 sq km of 3D seismic were shot, processed and interpreted, supporting the drilling and testing of 13 wells and the preparation of a field development plan for the Ain Tsila gas field. Enel joined Petroceltic as an investor in the field in 2012.

Following approval of that development plan by the Algerian authorities at the end of 2012, Sonatrach became a paying participant in the exploitation phase in respect of its 25% interest. Upon commencement of this phase, the responsibility for the execution of petroleum operations on the Isarene permit passed to a newly constituted Joint Operating Organisation called ‘Groupement Isarene’. This entity was set up in mid-2013 under the control of the PSC parties. It is financed by monthly cash calls to the Isarene PSC partners and is directed by a management council with representation of all the PSC parties.

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The Groupement Isarene is run and managed by experienced personnel assigned to it by Petroceltic and Sonatrach in accordance with an agreed organisational structure. The key management positions have co-heads representing the parties: through the course of 2013, Petroceltic redeployed or recruited more than 50 experienced professionals on behalf of itself and Enel to take up these positions, primarily in management, HSE, supervisory, finance and technical roles. The operation are led and coordinated from the a base located in Hassi Messaoud (the oil and gas operating and logistical centre of Algeria).

Ain Tsila Area 500x393

Through 2014, the Groupement project team concentrated on the preparation of the contract tender packages for the Ain Tsila production facilities and infrastructure FEED and development drilling. The FEED contract was awarded to Chicago Bridge & Iron BV in the Netherlands, and the drilling rig contract was awarded in 2015, to Sinopec International Petroleum Services Corporation.

In 2015, the development operations ramped up with the preparation of the tenders for the main production facilities construction packages and mobilisation of the rig for the commencement of drilling. The newly built SINOPEC drilling rig arrived on the Isarene permit in November 2015 and was assembled successfully on site. During 2016, 7 development wells were successfully drilled on the field.

In line with other operators in Algeria, the Company has prepared and issued a Development Security Philosophy to ensure appropriate security controls for all in-country activities and to ensure that best practice is designed and engineered into all aspects of construction and subsequent operation of the project facilities.