The Petroleum Contract for Block 22/12 was awarded to Bligh Oil and Minerals (later Horizon Oil Limited) in 2001. Roc Oil farmed into the Block in 2002 to drill the WZ 6-12-1 well and also undertook operatorship.
Following the discoveries at WZ 6-12-1 and, more significantly, WZ 6-12 South in 2006, Horizon Oil and its co-venturers commenced formulating appropriate development concepts for these and the previously discovered WZ 12-8 West in consultation with the China National Offshore Oil Corporation (‘CNOOC’).
Horizon Oil has a 26.95% working interest in the four producing fields of WZ 6-12N, WZ 6-12S, WZ 12-8W and WZ 12-10-2 in Block 22/12, Beibu Gulf, People’s Republic of China. The producing fields are operated by a subsidiary of Horizon Oil’s major partner, China National Offshore Oil Company Limited (CNOOC). In addition to the producing fields, Horizon Oil holds a 55% working interest in the exploration prospects and undeveloped fields in Block 22/12, including the undeveloped WZ 12-8E oil accumulation.
Cumulative gross production from the Block 22/12 fields from first oil to 30 June 2017 was 15.3 million barrels, approximately 45% of total ultimate reserves. Gross annual production from Block 22/12 was 2,976,065 barrels, exceeding budget by 15%. Horizon Oil’s sales for the year, including the preferential cost recovery oil entitlement, were 1,102,793 barrels, achieving an average price of US$47.00/bbl (before hedging) and resulting in revenue of US$51.8 million. With cash operating costs per barrel sold of US$7.54, the producing fields generated high margin net operating cashflow of US$43.5 million.
At 30 June 2017, Horizon Oil’s remaining cost recovery entitlement was US$89.6 million, the unrecovered balance of which escalates at 9% pa. Preferential cost recovery results from CNOOC now having recovered its development expenses, allowing Horizon Oil and the other non-operators priority recovery of unrecouped exploration and development capital costs, from the cost oil tranche of production.
Shortly after year end, the joint venture commenced an infill drilling and workover program, involving the drilling of two new development wells, perforation of additional oil zones and pump replacement. The work is expected to be completed in Q4 of calendar year 2017 and is forecast to significantly improve near term production.
The development planning and approvals for the WZ 12-8E project progressed well during the year. The development of the 11.1 mmbo gross recoverable resource (Horizon Oil net working interest share at 26.95%, following CNOOC back-in) is planned as a phased development with the initial three wells being drilled from a leased platform, to be tied back to the existing Block 22/12 infrastructure.
The investment phasing and use of leased infrastructure is appropriate and prudent in the current oil price environment. Project approvals for the WZ 12-8E development advanced as anticipated, with the completion of CNOOC Research Institute’s review of the Overall Development Plan and the project environmental impact report now finalised. CNOOC’s schedule anticipates the final investment decision for the project in Q4 of calendar year 2017 and first oil in early calendar year 2019.