PERTH (miningweekly.com) – ASX-listed Karoon Energy has taken a positive final investment decision on its $175-million to $195-million Patola oil project in the Santos basin, offshore Brazil.
Patola, which is adjacent to the producing Baúna and Piracaba accumulations, would be tied back to the existing Baúna floating production, storage and offloading (FPSO) vessel, Cidade de Itajaí, in line with Karoon’s near term strategic goals to deliver safe and reliable operations and grow through the addition of value-accretive production.
The development would include two near vertical subsea production wells, which will be drilled and completed using the recently contracted Maersk Developer rig immediately following the completion of the four-well Baúna intervention programme, the design, manufacture and installation of subsea infrastructure, and minor works to tie back the two production wells to spare riser slots on the FPSO.
Patola is expected to produce at an initial rate of more than 10 000 bbl/d from high quality reservoirs of the same geological age as those in the adjacent Baúna and Piracaba fields. First oil production is targeted for the first quarter of calendar year 2023.
Karoon told shareholders that 14.7-million barrels of 2C contingent resources, comprising 13.2-million barrels in Patola and an additional 1.5-million barrels in Baúna, resulting from injecting Patola gas into the Baúna reservoir, would be accessed by the planned Patola development infrastructure.
The Patola development budget is between $175-million and $195-million, of which approximately $17-million has already been invested to ensure that long lead items are available to meet the project timeline.
Karoon noted that the remaining capital costs would be funded through a combination of a newly arranged $160-million reserve-based, non-recourse, syndicated facility agreement, and cash flows from operations.
At present, it is anticipated that approximately 40% of Karoon’s forecast production in year 1 of the loan and 30% of Karoon’s forecast production in year 2 of the loan will be hedged. It is intended that the hedges will be structured to create a price floor at levels that protect the debt repayments but allow exposure to prices in excess of the current Brent oil price on the portion of hedged production.
Karoon CEO and MD Dr Julian Fowles said that the final investment decision on the Patola project was a major milestone in Karoon’s journey to becoming a substantial oil producer.
“The decision to proceed with this development is testament to the hard work and strong collaboration between our teams in Brazil and Australia. Together with the Baúna intervention programme, Patola is expected to add materially to our production base, with total output forecast to reach approximately 30 000 bbl/d in early 2023, more than double current production rates. The Patola development is a nearfield expansion and will utilise existing infrastructure, including the FPSO and facilities at Karoon’s onshore base.
“Consequently, it is expected to be an efficient and value-accretive investment.”
Fowles said that the new debt facility to fund the project construction represented a cost-competitive source of funding and, with the ability to potentially expand the facility, provides significant balance sheet flexibility for the company.
“The hedging arrangements will help Karoon to manage prudently any downside risk in the oil price, as well as ensuring sufficient cash is available to fund debt repayments. Importantly, we intend to use hedging structures that retain exposure to oil price upside, while at least 60% of our production will remain unhedged,” he said.