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Spinnaker goes global; U.S. Gulf producer takes stake in Devon Nigeria block 256
Ray Tyson
“We’re going to build a business in West Africa, and we think that this block is a unique, well screened starting point for a company like Spinnaker,” Roger Jarvis, Spinnaker’s chief executive officer, said March 8.
OPL block 256 was acquired by Devon and Nigerian Petroleum Development Company Ltd. in a mini-bid round in 2002. Devon’s 12.5 percent transfer of interest to Spinnaker is pending various approvals within the Nigerian government, according to Spinnaker.
Located about 124 miles off of the coast of Nigeria in water depths ranging from 4,921 feet to 9,186 feet, OPL Block 256 encompasses 631,000 gross acres and represents an area about three-quarters the size of Spinnaker’s entire deepwater holdings in the Gulf of Mexico.
If the transfer of interest is approved, Spinnaker’s gross deepwater acreage position would total about 1.5 million acres. Spinnaker also holds an interest in 723,000 acres on the Gulf of Mexico’s continental shelf.
Spinnaker said it acquired a recent 3-D seismic survey covering the area and that portions of the survey were reprocessed. Drilling of the first exploratory well, the Tari No. 1, recently commenced. A total of three commitment wells, including the Tari No. 1, will be drilled on the block, Spinnaker said.
“I would say in general the average target size is in the 200-to 600 million barrel range for a given prospect and that would certainly apply to target number one,” said Scott Griffiths, Spinnaker’s chief operating officer.
Spinnaker’s Jarvis told industry analysts in the March 8 conference call that the company had wanted to add “a third leg” to its exploration and production portfolio, to go along with its positions in both the deepwater U.S. Gulf and in the relatively shallow waters of the U.S. Gulf’s continental shelf.
“Until now, it would not have been creditable for us to embark on an international strategy,” he added. “Our balance sheet is now of the relative size. Our revenues are growing and we are somewhat cash-flow sufficient.”
The company reported a 2004 fourth-quarter profit of $13.5 million or 39 cents per share on revenues $70.1 million, a whopping 109 percent increase compared to 2003 fourth-quarter earnings of $6.5 million or 19 cents per share on $49.1 million in revenues. Deepwater expertise has grown Moreover, Jarvis said that Spinnaker’s deepwater expertise “on both the exploration and production side” has grown. In fact, nearly two-thirds of the company’s total reserves are now located in deepwater U.S. Gulf.
“We did not do this in a vacuum,” Jarvis said of choosing OPL Block 256.
He noted that two members of Spinnaker’s management team, Griffiths and chief geoscientist Gonzalo Enciso, once worked for Devon merger partner Ocean Energy.
“These are folks that I am very, very familiar with from my history on the international team there,” Griffiths said. “We think offshore Nigeria is a very similar play type that we see in the Gulf of Mexico. But Nigeria is very young in the exploration cycle.”
Jarvis said his company found Block 256’s multi-play feature particularly appealing for its first venture into deepwater Nigeria. “There’s room to run (with) multiple structures mapped on the block,” he added.
However, operating in deepwater Nigeria is not cheap. Costs average about $35 million per well, although “you’re probably going to see through time those costs go down as we drill more wells,” Griffiths said.
Under the agreement with Devon, Spinnaker would have paid up front costs of $11.9 million. Spinnaker paid an additional $1 million for the seismic survey.
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