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Did This Geologist Just Pinpoint This Decade’s Biggest Natural Gas Discovery?

Did This Geologist Just Pinpoint This Decade’s Biggest Natural Gas Discovery? thumbnail

Nearly a decade ago, I got interested in finding oil and gas fields from space.

That odd-sounding strategy came to me while I was living in Canada’s petro-center, Calgary. And met a group of explorationists working with PhD experts in satellite imaging.

 

Skitterphoto / Pixabay

I was fascinated when this team explained how they could filter remote sensing data from proprietary satellites to spot minute amounts of hydrocarbons leaking from the Earth’s surface. Using this cheap and easy data to determine where big oil and pools were located at depth — and where we should be drilling exploration wells.

As it turned out, that group had mixed success. Obtaining satellite data wasn’t always easy — and filtering it to ensure we were looking at real anomalies was a sensitive business.

Since then, I’ve been a little skeptical when people proposed satellite imaging exploration strategies. Although there was enough to the idea to keep me interested — with groups like AuEx Ventures successfully using satellite imaging for gold exploration in Nevada.

But my view on satellite exploration shifted drastically the last few years. After I spent some time with High Power Exploration (HPX) — the new technology-driven exploration company pioneered by mining legend Robert Friedland.

HPX’s exploration and development pros are using a number of different technologies to revolutionize mineral exploration. Including deep-penetrating geophysical surveys — and adding in satellite work, which showed me just how much this field has advanced since I looked at it 10 years ago.

Today, we can actually get geophysical data from space covering almost all the Earth’s surface. With satellite packages like GRACE, GOES, and EMAG2 having collected information and made it available online — largely for free.

Groups like HPX that know how to process this information are using it to push exploration into a new age. Allowing them to quickly scan entire countries or even regions for high-level targets, before they even set foot on the ground.

After seeing what HPX was doing, I started paying close attention to satellite exploration again. And that led to a meeting with a man who is changing the face of this business: Neil Pendock, a PhD remote sensing expert from Cape Town.

Neil was introduced and highly recommended to me at just the right time. While I was struggling to put together a high-level strategy for gold exploration on a large block of land in Myanmar — in a place where alluvial gold workings stretch across a massive scale, but finding the hard-rock source is complicated by widespread jungle that makes it nearly impossible to see the rocks beneath.

When I showed the project to Neil, he put together a strategy to use thermal imaging — looking at the temperature of the surface (reflecting the heating properties of the rock below) to figure out what sort of lithologies were lurking at depth.

Neil had used the same approach in South America — where his quick and easy satellite work actually duplicated, almost exactly, the results of much more expensive ground geophysical surveys.

And the results were equally impressive in Myanmar. With Neil’s survey outlining an interpreted series of northwest-southeast trending quartz veins — which matched not only my knowledge about regional mineralization trends, but also fit exactly my data on local hard rock mines where artisanal miners were pulling out ultra-high grade gold ore.

After that proof-of-concept success, I looked more into Neil’s background — and realized just how big a deal he is in the satellite exploration space.

Not only has he held high-level management positions at Anglo American (where he had a sizeable budget for pioneering advanced exploration techniques), but he’s also worked as a consultant for many of the world’s biggest mining companies — helping, for example, a major miner find not one, but 17 kimberlites as part of a regional diamond exploration survey.

That’s why I was all ears when Neil said he could use satellite imaging to find oil and gas fields. Which led to an intriguing “field test” — that I want to share with you, given how ground-breaking the work could be.

Neil told me how he can use cheap and plentiful data from new satellites to spot hydrocarbon molecules rising from the ground — over top of, or near to, big pools below surface. And so I proposed we use it on one of the most massive exploration prospects in the world.

That’s the East Jabung project in Sumatra, Indonesia. Where junior E&P Pan Orient Energy (TSX: POE) used seismic surveys the last few years to uncover a massive reef and clastics drill target — which could be one of the biggest onshore discoveries of the decade.

Here’s the background. The East Jabung prospect is located in a well-established oil and gas area of Sumatra. In fact, when I stopped in to see Pan Orient’s CEO Jeff Chisholm in Bangkok last month, he told me how Spanish major Repsol has pegged this area as its most profitable producing center on Earth — driven by high natural gas prices in Indonesia (around $10/mcf), and good economics for condensate exports.

Jeff and Pan Orient have been working in Asian oil and gas for over a decade. And in 2011, he managed to grab a swath of prime acreage in this hotspot — which had just opened for acquisition after decades closed as a reserved forest.

He picked up the acreage, shot seismic, and found a massive structure. Which independent engineers appraised as having a best likely size of 149 million barrels equivalent — absolutely huge for an onshore project. You can how big it is in the map below (the orange blob at lower right), as compared to existing big gas fields in the area (red).

Pan Orient Energy’s East Jabung target (orange, lower right) is a huge structure on trend with a big oil and gas basin in Sumatra, Indonesia. A perfect place to test new satellite imaging techniques for hydrocarbons. 

The question is, does it hold gas? Major E&P Repsol believes so — having executed a farm-in deal with Pan Orient where it will pay 100% of the costs for an exploration well in order to earn a 51% interest in the project.

That’s a lot smaller interest than majors usually demand for a carried well. Leaving Pan Orient with a full 49% ownership in the project — equating to 73 million barrels equivalent upside in the best case forecast by reserves engineers — while this junior sits back and watches Repsol pay to test the prospect.

To put in perspective how big this is, consider the old oil field rule of thumb that a barrel in the ground is worth about a third of the current per-barrel price (with two-thirds going to capital and operating costs). At today’s Brent crude price of $56, an in-ground barrel (or equivalent barrel when it comes to gas) should thus be worth just over $18 — which would give the East Jabung target a back-of-the-envelope value of $2.6 billion.

I’ve thus been watching this play closely (and bought shares in Pan Orient to put my money where my monitoring is). And with Repsol planning to spud an exploration well here over the coming few weeks, this seemed like a perfect place to test Neil’s satellite imaging for natural gas.

He was kind enough to oblige — sending back the image below. Which immediately made me sit up and take notice: because Neil’s analysis picked out not only an anomaly on the known Repsol gas fields to the north, but also an even-bigger gas anomaly just beside Pan Orient’s East Jabung prospect.

The East Jabung target shows a very similar signature to known natural gas fields when using satellite imaging. Drilling is set to begin over the next few weeks, which will tell us for sure.

Now take a look at a zoom-in on Neil’s gas anomalies overlaid with the field map from earlier.

Gas anomalies from satellite imaging match up well with both known, big gas fields and the East Jabung prospect. 

Does this mean East Jabung is a guaranteed hit? No — there are still a lot of things that can wrong with a hydrocarbon reservoir, even if gas is present.

But work like this gives valuable information about assessing a prospect. When methods like remote sensing suggest the presence of hydrocarbons, we can downgrade the so-called “charge risk” — the risk that a massive structure like East Jabung has great reservoir rocks and trapping mechanisms, but never got imbued with hydrocarbons.

The best thing is, this satellite work takes hours at a cost of a few thousand dollars — and gives us information potentially comparable to larger-scale surveys that cost hundreds of thousands or even millions, and take months to complete.

We’ll get a definitive idea when Repsol and Pan Orient drill their test well here, scheduled to spud before the end of the month. Watch for results in May or June — and in the meantime, if you’re interested in learning more about groundbreaking satellite imaging for exploration, check out Dr. Neil Pendock’s website or drop him an email at neil.pendock@gmail.com.

ValueWalk



18 Comments on "Did This Geologist Just Pinpoint This Decade’s Biggest Natural Gas Discovery?"

  1. Apneaman on Mon, 6th Mar 2017 1:44 pm 

    The Oil Industry’s Alternate Facts

    “The two articles appeared within 48 hours of each other. One was produced by Bloomberg News, one of the most respected names in traditional journalism. The other appeared in Oilprice.com, a veteran and well respected source of objective news about the oil industry. No one has ever credibly accused either of these organizations of producing “fake news.” Yet when each of them decided to publish an assessment of the state of the American shale oil industry in the first week of March, 2017, the two articles were diametrically opposed in all their conclusions.

    Bloomberg proclaimed “The second Coming of American Oil Shale…” with production “on the rise again.” [This is a piece of unrelieved optimism. Do the headline writers at Bloomberg know that the Second Coming is the end of the world?] Oilprice.com, rather than a trumpet fanfare, sounded a klaxon alarm — “Why Investors Should Beware of the Bakken” (the premier American oil-shale field) — beginning with “It is the beginning of the end for the Bakken oil shale play.” Each article is long, well-written, lavishly illustrated with charts, and serious, meant for serious people making momentous decisions. The articles do not describe the same planet, let alone the same industry.

    According to Bloomberg:

    The number of U.S. drilling rigs has grown 91 percent to 602 in just over nine months;
    production has gained more than 550,000 barrels a day since the summer, rising above 9 million barrels a day for the first time since April;
    Exxon is diverting about one-third of its drilling budget this year to shale fields that will deliver cash flow in as little as three years;
    the election of President Donald Trump, carrying the promise of fewer regulations, added pipelines and energy independence;
    So far this year, U.S. energy companies have raised $10.5 billion in fresh equity, with shale and oil service groups drawing the most investment, the best start of the year since at least 1999 and equal to a third of what the sector raised in the whole of 2015
    According to Oilprice.com

    The decline in Bakken oil production that started in January 2015 is probably not reversible. December 2016 production fell 92,000 barrels per day (b/d)–a whopping 9 percent single-month drop. Over the past two years, output has fallen 285,000 b/d (23 percent). This was despite an increase in the number of producing wells
    New well performance has deteriorated, gas-oil ratios have increased and water cuts are rising. Much of the reservoir energy from gas expansion is depleted and decline rates should accelerate. Estimated ultimate recovery (EUR) decreased over time for most operators and 2015 EUR was lower for all operators than in any previous year (Figure 2). This suggests that well performance has deteriorated despite improvements in technology and efficiency.
    More drilling may increase daily output for a while but won’t resolve the underlying problem of poorer well performance and declining per-well reserves.
    all major Bakken producers continue to lose money at current wellhead prices. Higher oil prices may not help much because the best days for the play are behind us.
    This is why I have not written about the state of the oil industry for over a year — it’s been a year of yin and yang, the-crisis-is-almost over and the-crisis is just beginning, glass-half-full, glass-half-empty stories like these two. To sort out for oneself which narrative to believe — which planet one lives on — requires hours of checking and assessing the writers’ sources, definitions, assumptions and credibility.

    Just take the starting point of the two articles: that shale oil production in the U.S. is going up/down. Only after parsing the Bloomberg piece carefully do you realize that while its headline and lede refer to shale oil, in the middle of paragraph five there is a seamless shift to all U.S. oil production, which is up. The Oilprice.com piece is correct in saying that shale oil production in the Bakken is falling.

    When I do the same, migraine-inducing level of research on every single point, I come back again to the place where I began writing about this stuff ten years ago. The so-called new American oil revolution is not ushering in a triumphant new age of energy independence; it’s a bunch of desperate people clawing the last few drops of oil out of increasingly reluctant ground. None of them is making any money, none of them has ever made any money in the shale-oil patch.

    But, like Kellyanne Conway and Bloomberg News, they can be nimble manipulators of alternate facts, who are well paid for distracting us from the fact that the light and smoke and luxury and ease of the industrial age is fast fading now, to a darkness we have seldom known, on this, the only planet on which we have ever lived.”

    http://www.dailyimpact.net/2017/03/06/the-oil-industrys-alternate-facts/

  2. Midnight Oil on Mon, 6th Mar 2017 2:17 pm 

    Great new…more GAS to let loose in the air to raise AGW to thaw the permafrost, which in turn let loose more Methane to raise the temps even moar. Sounds like a sound business plan.
    Rex Tillerson will help make Canada Great Again

  3. rockman on Mon, 6th Mar 2017 2:31 pm 

    “…production has gained more than 550,000 barrels a day since the summer, rising above 9 million barrels a day for the first time since April…” According to the EIA the lowest US production last summer was in June at 8.714 mm bopd. The latest rate from last Dec was 8.783 mm bopd…not 9.000 mm bopd. IOW an increase of 69k bopd and not 550k bopd. The last time production was more then 9 mm bopd was last March. OTOH the highest production last summer was in May at 8.882 mm bopd which is 99k bopd MORE then the latest number for Dec.

    If Bloomberg has a more reliable number then the EIA it should share it with us.

  4. rockman on Mon, 6th Mar 2017 2:35 pm 

    MO – You’re certainly consistent. I take it you’re one of those very rare individuals for whom no fossil fuels are burned for your benefit. Congrats…a rare breed indeed.

  5. Southwest_PA on Mon, 6th Mar 2017 2:48 pm 

    Always check the source… “ValueWalk” is an investment rag. You’re obviously supposed to buy a bunch of HPX stock on the strength of this SA chappie’s satellite analysis…

  6. Midnight Oil on Mon, 6th Mar 2017 2:50 pm 

    Here in tropical Florida Rockman everything is HOT…no need to burn anything…
    Except Mojo gango.
    LOL…Another Fossilfied Rockhead.
    Watt, AGW is just a hoax dished out by Liberal, leftist, world government, grant seeking egg heads?…Gee..time to make up another climategate scandal.
    Trump will fix it…all right.

  7. rockman on Mon, 6th Mar 2017 3:21 pm 

    MO – So you are a tough SOB. LOL. I grew up in S. La. without AC. Not sure I could handle it now very well without AC like you must do. Especially those long hot walks to the grocery store.

    You’re a better man then I, Gunga Din! LOL

  8. Midnight Oil on Mon, 6th Mar 2017 4:48 pm 

    Temper, temper Rockbrain, don’t lose it here.
    Don’t take this place too seriously, or you will be hurt. You forgot the part about walking your paper route everyday after school and giving money to Mama so you and her could eat.
    Poor little fellow….
    Had to drop out and go to work in the oil fields. What’s the old saying…”You can take the Roughneck out of the black gunk, but you can get the black gunk …well you get the point.
    Now, what does this have to do with Global Warming?

  9. Anonymous on Mon, 6th Mar 2017 6:13 pm 

    Q: How can one tell the difference between ‘minute’ gas leaking from the earths surface, and rockymans and pals normal routine leaks that all their wells, pipelines, and refineries emit? Or one of rockermans ‘shit happens’ spills even?

    It would be kind of awkward if these morons showed with their spades and 3/4 inch pipe to collect all their crude and find the satellite had pinpointed one of BPs or Exxon’s facilities wouldn’t it?

  10. shortonoil on Mon, 6th Mar 2017 6:51 pm 

    How do you see 3000 feet into solid rock. That would take at least a neutrino detector. No body has made one yet that wasn’t buried in a 1000 feet of rock. They detect 4 or 5 particles per month.

    This sounds like quite the story. Calling Captain Kirk! Our DiLithium Crystals are about to blow.

  11. rockman on Mon, 6th Mar 2017 8:00 pm 

    “How do you see 3000 feet into solid rock?”. Easy answer: seismic data. But that’s not what led them to shoot the seismic. Satellite imagery is just one of many approaches used as “reconnaissance” exploration tools. All the techniques (some having been around for decades)deal with the “vertical reduction chimney”: the micro seepage from a reservoir creates a variety of physical attributes. The most obvious would be surface direct detections of oil or NG. The most simple method is checking soil samples. Next a variety of buried absorption devices.

    Then more exotic metrics: shallow magnetic enrichment, increased/decreased amounts of naturally occurring radiation such as radon, gravity measurement variations, electro telluric currents, etc. Can toss them all into “remote sensing”. Handy in areas with very little previous drilling but not in mature regions like most of the US.

    But typically one very rarely drills such anomalies. They tend to produce very rough and very often inaccurate indications of the presence of commercial hydrocarbon accumulations. That’s why the shoot the seismic which has supposed shown a subsurface structure with a potential to from a trap. But that’s still along way from proving there’s a commercial reservoir is there. Only a drill bit can do that. And it might take a number of holes poked.

  12. Northwest Resident on Tue, 7th Mar 2017 1:03 am 

    “How do you see 3000 feet into solid rock?”. Based on rock’s post, not with any assurance at all. It looks like we won’t know if this geologist just pinpointed the decade’s biggest natural gas discovery until they drill a hole, or a lot of holes. And maybe not even then. But it makes for a great headline and is sure to draw in the profit-minded investors.

  13. Cloggie on Tue, 7th Mar 2017 3:40 am 

    You can drill 2000-3000 meter holes and almost always hit the jackpot, by tapping into 60-90 degree Celsius hot water. Rule of thumb: temperature gradient 30 Celsius per 1000 meter.

    Why the detour via fossil fuel if you need hot water anyway for space heating?

  14. rockman on Tue, 7th Mar 2017 9:02 am 

    Cloggie – Actually you don’t have to drill more then 50 to 100 meters. Years ago I saw a great report on low temp geothermal: shallow holes with a rubber piping u-tube arrangement. It was done in Atlanta, Georgia, USA, at the site of a private nursing home under construction. In most places around the world the subsurface water temperature stays constant at that depth and runs around the average yearly temperature for that area,

    So very simple: in Atlanta that cycled water coming out the well would be around 75F. Which doesn’t sound very hot but compared to the outside temp being 40F during the winter at that nursing home they can draw that heat off the 75F water to heat the facility. And pumping water in the u-tube from that depth takes a lot less electricity then running resistance heating coils.

    So yes: you’re not going to generate electricity for Atlanta with such a system. But install 50,000 of these very inexpensive systems and you might save electricity on the order of the largest power plant in Georgia. Theoretically there could be 500,000 homes in the area that could have use such a system. But business applications would be easier to finance.

    There are very few areas on the planet that can run commercial geothermal power plants like The Geysers in CA. But there are hundreds of millions of such small scale applications around the world and require not much more tech skill then drilling a water well. And there are mucho folks in every country on the planet with such skills and have the materials readily available.

  15. joe on Tue, 7th Mar 2017 9:20 am 

    Didn’t we already know that tight oil has a limited shelf life? The best of it would go and then the return of terminal decline as costs rise, and living standards fall, I mean that’s the peak oil story. So what’s left to do, wait for oil prices to rise as interest rate hikes caused by the Trump tax cuts force oil to stay in the ground because they have to be $100 per barrel to be worth getting, yeah, last I checked society was melting down , the sheer number of people with good qualifications working in the checkouts was pretty staggering, isis was covering it’s running costs in 2014 when oil was high priced, but now it’s 2017, the stock market is 21,000 and everything will be just just fine, righ? No more taper tantrums, no debt. Oh wait, Europe is still in austerity, taper has reversed into bubble market and the angry masses have elected a populist who the establishment on both sides want to impeach! Yeah, things are peachy. No peak oil chaos here, move along….

  16. Nony on Tue, 7th Mar 2017 12:32 pm 

    Joe: There are huge amounts of tight gas. See this link: http://www.eia.gov/tools/faqs/faq.cfm?id=58&t=8

    Anybody trying to cast shade on shale gas needs to look at the Marcellus. It is a monster. It already drove Rockman out of Gulf shelf drilling.

    It is doing close to 20 BCF/day at local pricing that is .50 to 1.00 below Henry Hub. If it gets more pipes built, the monster will kill more gas projects. Competition, baby. The customer LOVES that.

  17. Nony on Tue, 7th Mar 2017 12:33 pm 

    Oh (pedant protection), the EIA number includes tight and conventional. But it is 93 years R/P. That is nothing to worry about. Unless you are a high cost gas producer.

  18. Cloggie on Tue, 7th Mar 2017 1:03 pm 

    So yes: you’re not going to generate electricity for Atlanta with such a system.

    Everybody is talking about wind turbines and solar panels, but don’t realize that far more fossil fuel is used for space heating than for electricity.

    For instance Holland: 20% electricity, 80% space heating.

    The real gains are to be made with space heating fossil fuel substitution.

    better thermal insulation
    New building requirements in Holland as of 2012 of new homes: should be almost energy neutral
    https://www.milieucentraal.nl/energie-besparen/energiezuinig-huis/energieneutrale-woning/

    heat pumps
    ($715, it is for free!)
    https://www.amazon.com/Pioneer-Air-Conditioner-Inverter-Ductless/dp/B01DVW6G06/ref=sr_1_3

    geothermal

    molten salt seasonal storage
    https://deepresource.wordpress.com/2017/01/02/merits-seasonal-heat-storage-breakthrough/

    district seasonal storage of heat
    https://deepresource.wordpress.com/2017/02/20/hamburg-considers-large-scale-storage-of-heat/

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