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BNG

The BNG Contract Area is located in the west of Kazakhstan 40 kilometers southeast of Tengiz on the edge of the Mangistau Oblast, covering an area of 1,561 square kilometers of which 1,376 square kilometers has 3D seismic coverage.

Kazakhstan BNG

There are four confirmed structure on the BNG Contract Area. The MJF and South Yelemes are shallow structures currently producing 1,286 bopd from 8 wells.

Airsgahyl is a deep structure with three deep wells A5, A6 and A8 Yelemes is a deep structure with one well drilled 801.

Our development approach

The BNG Contract Area is similar in size to the area bounded by London’s M25 Motorway. It is in a remote region highly successful in oil production, being only 40 kilometers from the world renowned Tengiz field.

The Contract Area has two proven structures above the salt layer and two proven structures below the salt layer.

Development of the shallow prospects is technically far easier than the deep prospects and much cheaper. Shallow well costs have typically been approximately $1.2 – $1.5 million with successful wells repaying drilling costs in little under 12 months even though production may only be sold at domestic prices ($18-$19 per barrel in recent times).

Production from a successful shallow well might be approximately 500 bopd.

Development of the deeper prospects is technically difficult with problems from high pressure and temperature to be overcome. Recently, the costs of drilling deep wells has been between $7-10 million.

The rewards from a deep well are however expected to be much greater with wells expected to flow at rates between 1,500 – 3,000 bopd and oil of a significantly higher quality.

The quantity of oil to be discovered and produced from the deep prospects is also expected to be very significantly greater than from shallow prospects.

We therefore have a mix of shallow and deep development activities. The shallow wells are quick to drill and have an excellent pay back period, which is helping to fund continued development. The aggregate production from these and other shallow wells will in the board opinion be the basis for a very successful company without any contribution from the deep prospects.

However the addition of successful deep prospects materially increases the size of the reserves attributable to BNG and the value of the Contract Area and our company.

BNG Shallow

MJF structure

Six wells (141,142, 143, 144, 145 and 146) have to date been drilled on the MJF structure. Five of these wells are in aggregate producing at the rate of approximately 1,150 bopd.

The success of these wells demonstrates the MJF structure extends over an an area at least 10km2 in size.

Analysis of the results as at 31 December 2015 of the South Yelemes and MJF structures 143 led to Gaffney Cline to ascribe 29.3 mbls of P2 reserves to them, which at time constituted the total of our shallow development activities.

South Yelemes structure

Exploration of the South Yelemes Structure began during the Soviet Era. Caspian Sunrise has re-entered one former Soviet era well, (well 54), and drilled a further 3 wells (805, 806, 807) on the structure. Recently Well 54 was perforated across an interval from 1,961 to 1,971 meters and from which it is producing at the rate of 30 bond. The aggregate production from the others wells on the structure is in excess of 150 bopd.

New structure

In April 2017, we drilled Well 808 to a depth of 3,070 meters to assess whether a new structure similar to the MJF structure existed. The results of limited testing were inconclusive indicating oil bearing intervals with high water saturation.

Recent re-evaluation of the wireline and mudlog data suggests additional untested potential within two intervals shallower in the well. We have now re-completed the bottom of the well to isolate the water and are set to reperforate the well at intervals between 2,033.5 meters to 2,035.5 meters and between 2,250 meters and 2,253 meters.

For the latest information please check our operational updates.

Shallow reserves update

Following completion of Wells 145 and 146 we intend to commission Gaffney Cline to update their reserve estimates including new information on Wells 141, 142, 144, 145 and 146 together with reconsideration of Well 143.

BNG Deep

Our objective to get as many of our existing deep wells onto 90-days tests as soon as possible.

Deep Well A5

Deep Well A5 was spudded in July 2013 and drilled to a total depth of 4,442 meters with casing set to a depth of 4,077 meters to allow open hole testing.

Core sampling revealed the existence of a gross oil-bearing interval of at least 105 meters from 4,332 meters to at least 4,437 meters.

The well was difficult to drill with a salt layer of approximately 130 meters and high temperatures and pressures at the lower depths. The extremely high-pressure in the well required the use of drilling fluids with a high density (2.16 g/cm3).

Removing this high-density drilling fluid to allow testing was problematic, but was eventually completed to allow an interrupted flow test.

In December 2017, the well tested for 15 days at an average rate of 3,800 bopd before the flow reduced by debris in the well to 1,000 bopd leading to the well test being suspended. Since that date we have struggled to clear the well from initially excess drilling fluid and latterly metal objects.

For the latest information please check our operational updates.

Deep Well A6

The second well drilled in the Airshagyl structure was Deep Well A6, which was spudded in 2015 and drilled to a depth of 5,050 meters.

Repeated problems in perforating the well at the interval of interest prevented the well being put on test and for the period under review work on A6 waited on the completion of work being undertaken at both Deep Wells A5 and 801.

Once the drilling tubes and drilling mud in use at Deep Well A5 become free we shall attempt to perforate Deep Well A6, using more powerful explosives than on earlier occasions.

For the latest information please check our operational updates.

Deep Well A8

In November 2018 Deep Well A8 was spudded with a planned total depth of 5,300 meters. To date we have drilled and laid casing to a depth of 4,250 meters.

The well is targeting the same pre-salt carbonates that were successfully identified in the Deep Well A5. We also plan to evaluate deeper carbonate targets of Devonian to Mississippian ages.

For the latest information please check our operational updates.

Deep Well 801

Deep Well 801 To date Deep Well 801 is the only well drilled at the Yelemes structure. The well was spudded in December 2014 and was drilled to a Total Depth of 4,950 meters.

The well is located approximately 8 kilometers from Deep Well A5 and was planned to target prospects in the Middle and Lower Carboniferous The blockages in the well preventing an extended flow test are the result of high temperatures/ pressures and excess drilling fluids.

A combination of invasion by the extensive heavy drilling fluids along with the usual challenge associated with the completion of high temperature, high pressure wells are believed to be hampering successful production test. We have used a variety of techniques including the use of chemicals and the drilling of a side-track in Q1 2018 to establish good reservoir connectivity.

For a period we allowed the natural pressure inside and outside the drill pipe to build in the expectation this would over time reduce the blockage. More recently we have been looking at using the pressure in the well to stimulate activity inside the well by a process of reinjection.

For the latest information please check our operational updates.

Our licences

On 11 July 2019, we announced that the final regulatory consent had been received and that from September 2019, the majority of the oil produced from the MJF structure may be sold by reference to world rather than domestic prices.

This is a big deal. To date all the oil produced at BNG, most of which comes from the MJF structure, has been sold at domestic prices of approximately $19 per barrel, before production, storage and transportation costs as is required under an appraisal licence, and $16 per barrel after such costs.

From September 2019, approximately 70% of the oil produced from the MJF structure will be sold by reference to world prices. For example, at world prices of $63 per barrel we would expect to achieve around $33 per barrel before production, storage and transportation costs and $29 per barrel after these costs.

The award of the MJF licence upgrade, which was entirely merited by the facts, may appear a routine event. However, it demonstrates the vital importance of being present in country, with the negotiations being led by a team of Kazakh nationals who both understand the intricacies of the new rules and have the patience and diplomacy to deal with the inevitable bureaucracy faced.

The award itself was delayed on several times, including; by presidential elections; by expected ministerial reshuffles; and by the introduction of an entirely new licencing system. These delays probably added, in aggregate, 6 months to the process and have cost the company possibly $10 million in lost income. While in the short term this is clearly painful viewed over the 25 year period covered by the licence upgrade it is unlikely to be financially significant.

Operationally, seeking to maximise income while waiting on the MJF licence upgrade led to the five existing producing wells being run harder and for longer than was ideal. The impact being a sharper rate of decline than necessary, with monthly production falling to some 1,200 bopd. On the positive side, as we workover the five existing wells we expect to restore their capacity to the levels we would have expected had the existing wells been run with an eye to the longer term rather than to maximise short term cash.