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Borders & Southern Petroleum plc provide operations update

Monday, Jan 28, 2013

Borders & Southern (AIM: BOR), a London based independent oil and gas exploration company, provides an update on its activities in the South Falkland Basin.

Since the completion of its 2012 drilling campaign the Company has undertaken a number of technical and commercial studies. Whilst a number of these studies are still in progress, some of the initial key findings are summarised below. Particular emphasis is placed on the Darwin discovery.

Darwin Discovery

In April last year, Borders & Southern announced that it had made a significant gas condensate discovery with its first well in the South Falkland Basin. The Darwin structure comprises two adjacent tilted fault blocks: Darwin East (which contains the discovery well 61/17-1) and Darwin West (untested). The fault blocks are clearly defined by high quality 3D seismic data. Fluid analysis has revealed that the discovery contains a relatively high liquid content. Initial reservoir engineering studies, suggested that 130 to 250 million barrels of liquid could be recovered, with a mid case of 190 million barrels (split almost equally between the two fault blocks). Subsequent studies have shown that, if there is strong aquifer support, the mid case could be as high as 210 million barrels. The reservoir engineering study has also demonstrated that more liquid could be recovered by gas recycling than by gas depletion.

As previously reported, Darwin has a good quality, quartz rich, sandstone reservoir. Net pay in the discovery well was determined as 67.8m, with porosity up to 30%, averaging 22%. The reservoir consists of one major sand unit that extends across the two fault blocks and is clearly represented by amplitude anomalies on 3D seismic. Whilst the discovery well was not tested, analysis of the reservoir parameters suggests that individual sustained well flow rates of up to 70 MMscf/d (gas) and 9,500 stb/d (condensate) could be achieved. Furthermore, the modelling suggests that each of the fault blocks, Darwin East and West, could be produced using 3 production wells and 2 gas reinjection wells (10 wells in total).

A geochemical analysis of the condensate liquid has been undertaken along with a screening level marketing study. Whilst the quantity of condensate available for analysis was limited, and further analysis will be required, preliminary observations indicate that the liquid is typical of an ultra-light crude oil and somewhat heavier than most condensates (API gravity of 44.5 to 49°). A comparison product, albeit slightly lighter, would be Alba condensate, produced in Equatorial Guinea. Closest potential markets for the condensate would be South America, the Caribbean and South Africa. Based on this initial study, the Company believes that the condensate might trade at a slight discount to the Brent crude oil benchmark price ($1 to $6 per barrel).

In Q4, 2012 the Company commissioned E & P, part of the ThyssenKrupp Group, to undertake a screening feasibility study. The objectives were to determine if the development of Darwin East and West would be technically viable and to provide some high level cost estimates for an economic model. The conclusion of the study was that Darwin East and Darwin West are technically viable as stand alone developments, phased developments or combined in parallel development. Despite a relatively harsh environment and lack of local infrastructure, there is sufficient confidence in current proven technology to develop the discovery. The study concluded that the most likely development option would be subsea wells tied back to an FPSO for processing and storage of the condensate whilst re-injecting gas back into the reservoir to maximise liquids recovery. The integral storage offered by an FPSO allows condensate to be offloaded to shuttle tankers for export. It has been estimated that a development of this type would take three years from project sanction to first production.

Numerous production profiles and cases have been considered, including Darwin East as a stand-alone development (with production levels up to 28,300 barrels per day) and Darwin East and West as a combined development (with up to 56,600 barrels per day). Facilities capital expenditure estimates for a Darwin East stand-alone development, including a 40% contingency, are $2.73 billion if the FPSO is purchased or $1.585 billion if the FPSO is leased. Capital expenditure estimates for a combined Darwin East and West development, again with 40% contingency, are $3.77 billion (FPSO purchased) and $2.435 billion (FPSO leased).

Economic modelling, undertaken by an independent consultant, has shown that a 200 million barrel development project would be commercial at an oil price as low as $65/barrel. It has also shown that a 100 million barrel development project could be commercial, but requires an oil price of at least $85/barrel. Leasing the FPSO delivers a higher economic return. Using an oil price of $100/barrel with a $1/barrel discount and including a 40% capital expenditure and operating expenditure contingency, a 200 million barrel development could yield a net present value (at a 10% discount rate) of $1.7 billion.

Having determined that a gas condensate development to the south of the Falkland Islands is both technically and commercially feasible, the next step for the Company is to prove up the recoverable volumes in its discovery with appraisal drilling and to confirm the predicted well flow rates with a well test. Due to the high confidence levels in the geophysical attributes, the appraisal drilling is considered to be relatively low risk. The Company is currently reviewing the rig market for the next drilling campaign.

Source: Borders & Southern Petroleum plc

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