JOHN KOPCHEFF
MANAGING DIRECTOR
VICTORIA PETROLEUM N.L.
AUSTRALIA
NEW CALEDONIA
USA
EP 413
ONSHORE NORTH PERTH BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 5%
EP 413 covers an area of 539 square kilometres and is situated in the North Perth Basin 7 kilometres to the south of the giant 400 billion cubic feet Dongara Gas Field.
Victoria Petroleum NL considers the permit EP 413 to be very prospective and well placed for the presence of oil and gas, an opinion supported by the October 2002 oil discovery at Jingemia-1, the Arc Energy Hovea and Eremia oil and gas discoveries 5 kilometres to the north east and 15 kilometres to the west in the adjacent offshore permit WA-286-P, the Roc Oil Cliff Head oil discovery,
Jingemia No. 1 intersected an oil column of between 29 and 33 metres in good reservoir quality Dongara Sandstone at 2,414 metres, confirmed by subsequent wireline logging and production testing.
Subsequently, the Jingemia-2 well to test the southern extent of the field and the Jingemia-3 well to provide water injection pressure maintenance for higher flow rate field production were successfully drilled in September 2003.
Jingemia-4 was successfully drilled as a second oil production well in April 2004, flowed at 3,500 barrels of oil per day and is being brought on production effective 30 July. This should support gross production building up to 4,000 barrels of oil per day during August, with up to 200 barrels of oil per day to Victoria Petroleum.
Importantly, the results of the extended production test of Jingemia-1 (which continued producing throughout the quarter) and Jingemia-4 strongly supports a significant upgrade to reserves in the field. There is general agreement by the Origin Energy operated joint venture that there is potential for up to 15 million barrels of recoverable oil in the field, 85-90% of which would be located within the newly issued Jingemia production licence L14.
Victoria Petroleum is confident that proved and probable recoverable reserves of 8 to 11 million barrels are present which will require additional development drilling and 3D seismic to convert to proved reserves. Accordingly, recording of a 3D seismic survey will commence in October 2004 with first data available for interpretation near the end of 2004. Development well Jingemia-5 is a firm budget item and will be drilled as soon as possible thereafter.
Victoria Petroleum projects a revenue of over $2 million during fiscal 2005 from the Jingemia Oil Field.
Oil produced from the Jingemia Oil Field is being trucked to the BP Kwinana oil refinery 360 kilometres to the south.
Adjacent to the Jingemia Oil discovery, additional prospects, Drover and Moorba have been mapped and form additional attractive exploration targets.
Additional prospects and leads in the southern part of the permit, Freshwater Point North and Stockyard are interpreted from seismic and adjacent drilling data to have the potential to contain mean recoverable reserves of 38 million barrels of oil and 42 billion cubic feet of gas, if oil and gas are present. The Freshwater Point North Prospect is considered to be an onshore extension of the offshore Cliff Head-Vindarra trend.
These leads are already the subject of exploration activities with the interpretation of the detailed gravity survey carried out recently assisting in defining the extent of these and other leads in the areas of future 2D and 3D seismic acquisition.
Victoria Petroleum NL considers it has a prospective permit in the North Perth Basin, in an exciting re-emergent area of exploration activity surrounded by the significant offshore Cliff Head and onshore Hovea and Eremia oil and gas discoveries and associated infrastructure, and within the permit, the recent Jingemia oil field discovery.
Victoria Petroleum NL is encouraged by the 75% wildcat exploration success rate in this resurgent phase of drilling in the Northern Perth Basin.
The Jingemia oil discovery is of considerable value to Victoria Petroleum as it has elevated Victoria Petroleum into the ranks of Australia's oil producers with the associated cashflow.
Origin Energy is the Operator of EP 413.
WA 254 P
OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 9.31% (Part 2), 6.17% (Parts 1, 3 & 4)
The permit comprises four graticular blocks of 322 square kilometres in area on the Legendre Fault Oil Field trend in the offshore Carnarvon Basin.
Muggles-1 was drilled in June 2004 to a depth of 1600 metres in water depth of 68 metres to test an M Australis stratigraphic pinchout trap at approximately 1300 metres.
The well result was disappointing in that the target M Australis stratigraphy in the Cretaceous channel, intersected over the interval 1,295 to 1,302 metres MDRT, was non reservoir at this location (silt dominant), with as to be expected no significant gas shows or fluorescence. To increase the understanding of the channel stratigraphy, the well was deepened to total depth of 1,600 metres MDRT rather than 1,454 metres MDRT to intersect all sediments to the base of the target channel. A joint venture meeting will be held in the December quarter to plan ongoing exploration on the permit.
The permit contains Victoria Petroleum NL's first offshore oil discovery, Sage-1, drilled in April 1999 in the Sage Block with the testing of 2,155 barrels of 48.8 degree API oil per day from a net 25.5 metre oil column.
Subsequent seismic reprocessing and interpretation indicates the Sage Oil Discovery to have a potential recoverable oil reserve of between 3 and 8 million barrels. The potential also remains for a future Sage Oil Field development and tie-in to any nearby development in WA-254-P Part 2 or adjacent permits, should a significant discovery be made in those areas.
Apache Energy N.L. is the Operator of the WA 254 P Joint Venture.
WA 261 P
OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 12.5%
WA-261-P covering an area of 299 square kilometres in the offshore Carnarvon Basin is located immediately to the south and adjacent to the Apache Energy/Santos Limited permit WA-209-P containing the 45 million barrel Stag Oilfield, currently producing approximately 15,000 barrels of oil per day.
Chamois-1 was drilled in September 2000, targeting the Jurassic Athol and Triassic Mungaroo formations that are becoming prolific producing horizons in the Carnarvon Basin. While the Mungaroo Formation was dry, the Athol Formation contained approximately 6 metres of net oil pay and the M. Australis sandstone contained about 3 metres of net gas pay.
At present the Chamois Oil Field of up to 3.9 million barrels of recoverable is deemed sub-commercial, but the recovery of oil from the target Jurassic formation provides encouragement that further drilling on the Chamois Prospect may yet result in the discovery of a commercial pool of hydrocarbons in the permit.
A large Stag Sand pinch out trap, south of the 50 million barrel Stag Oilfield was tested by the Ceres-1 well in November 2002. Although only minor oil shows were observed in the Stag sand resulting in the well being abandoned, good oil shows in the Athol sands provided encouragement for the presence of further potential Athol sand oil pool in the permit in the Vesta Prospect.
Further work carried out by the Operator has defined the stratigraphic Vesta Prospect interpreted from 3D Seismic data to have the potential to contain up to 23 million barrels of recoverable oil, if oil is present.
The Vesta prospect is located on a migration pathway within WA-261-P updip to strong oil shows to the west recorded in nearby Ceres-1 and the oil pool at Chamois-1.
The primary target reservoir at Vesta-1 at 747 metres is in the Athol sandstone found to contain oil in very porous (29% porosity) and very permeable (890md) sands in Chamois-1.
Vesta-1 is planned to be drilled in January 2005.
Success at Vesta-1, located about half way between the Chamois Oil Field and the Stag Oil facilities, 22 kilometres to the north east, will lower the minimum economic field size requirement to 4.5 million barrels of oil for discoveries in WA-261-P and, assuming the oil price is sufficient, may justify the development of the Chamois Oil field in addition to a Vesta oil discovery.
Apache Energy is the Operator of the WA-261-P Joint Venture.
WA 312 P
OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 18.3%
WA-312-P is located in the Dampier Sub-basin of the offshore Carnarvon Basin, Northwest Shelf, Western Australia and covers an area of 1,850 square kilometres.
Lying approximately 50 kilometres to the north of Karratha, the permit comprises 23 graticular blocks over 1850 square kilometres, and is situated less than 1 kilometre south of the 80 million barrels recoverable Wandoo Oil Field, currently producing 24,000 barrels of oil per day, the Hampton-1 gas discovery, and 11 kilometres to the east of the 45 million barrels recoverable Stag Oil Field, currently producing 15,000 barrels of oil per day.
The permit has had only three wells drilled in it and is considered lightly explored given the proximity to the prolific oil and gas fields to the north and west.
The permit has been granted for a six-year term and the initial three years exploration will be taken up with a program of seismic re-processing and acquisition to mature a drilling target.
A 3D seismic survey was carried out in the western portion of the permit and has indicated several promising leads and prospects in this area, with the 9 million barrels of oil potential Southeast Wandoo Prospect, 3 kilometres from the Wandoo Platform considered an immediate future drilling candidate for farmout in 2004.
Interpretation of the seismic data acquired during this survey, combined with the existing extensive 2D seismic database indicates the presence of up to 19 prospects and leads. Among the 19 leads and prospects mapped to date within the Permit there are a number of prospects and leads at the Wandoo and Stag oil producing horizons that will be the focus of exploration attention as they are in an area of favourable infrastructure. Eight of the nineteen leads have a cumulative unrisked recoverable oil reserve potential of up to 145 million barrels of oil.
Victoria Petroleum NL is the Operator of the WA-312-P Joint Venture.
WA-340-P
OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 20%
Operator Strike Oil N.L. continued geological and seismic studies on the permit in the quarter to upgrade four Jurassic to Cretaceous age structural stratigraphic leads. Further seismic is to be run in the December 2004 quarter over the Sherlock (114 million barrels of oil recoverable) and Peawah (45 million barrels of oil recoverable) to bring those prospects to drill status for possible drilling in the next one to two years.
Strike Oil NL is the Operator of the WA-340-P.
EP 325
OFFSHORE CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 35%
EP 325 covers an area of 1,093 square kilometres in the Exmouth Sub basin of the central Carnarvon Basin and contains the Rivoli Gas Discovery.
The Joint Venture is focussing on the potential for development of the existing and predicted natural gas resources of the Exmouth Gulf. As the Government of Western Australia proceeds with its policy of private electricity generation a market has developed for natural gas in the Cape Range Peninsular to which EP 325, containing the 19 billion cubic feet Rivoli-1 Gas Discovery and the potential 27 million barrels of oil or 52 billion cubic feet of gas Champion (previously Cooper) Prospect are ideally located.
Engineering and economic studies are proceeding to determine the feasibility of development of the Rivoli/Champion trend to supply natural gas to Exmouth and the region.
Preparations for the drilling of the Cooper-1 exploration well on the Champion Prospect in December 2004 have commenced and strong interest has been received from potential industry farmin partners to provide Victoria Petroleum with an 18% free carried interest through the drilling of Cooper-1. Already Strike Oil N.L. and Black Rock Oil PLC have farmed into the permit for a 40% and 15% interest respectively.
Victoria Petroleum NL is the Operator of the EP 325 Joint Venture.
EP 41
CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 88.8% (Part 1); 69.6% (Part 2)
EP 41 parts 1 and 2, cover an area of 393 square kilometres situated onshore and partially offshore in the Carnarvon Basin on the Cape Range Peninsula and Exmouth Gulf. The historically significant site of the first major oil flow in Australia, Rough Range-1, recently in commercial production as Rough Range-1B, lies within EP 41 Part 3, adjacent to EP 41 Part 2.
Following the farmin drilling program in EP 41, Part 3, by Empire Oil NL, Victoria now retains a 10% interest in two prospects within EP 41 Part 3, a 69.6% interest in Part 2 and 88.7% interest in Part 1.
Current exploration activity is focused on the offshore portion of EP 41 Part 1, following up potential oil and gas bearing prospects on tend and to the south west of the Rivoli Gas Field, and west of the Champion Prospect. These prospects and their hydrocarbon target potentials are Rivoli South West (20 BCF) and Champion West (11 million bbls/21 BCF).
Victoria Petroleum NL is the Operator of the EP 41 (Parts 1 & 2) Joint Venture.
EP 359
CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST- 55.85%
EP 359 covers an area of 1,954 square kilometres situated in the Carnarvon Basin predominantly onshore on the Cape Range Peninsula and partially offshore in the Exmouth Gulf.
There is up to 25 million barrel Fiona and up to 15 million barrel Suzanna oil prospects are potential drilling targets in EP 359.
Further evaluation of the drilling targets in EP 359 for farmout and drilling in 2005 is in progress.
The production of oil at Rough Range at rates of up to 1,106 barrels of oil per day by Empire Oil NL in May 2000 has highlighted the viability of even small fields in this region to be economic, given the strength of Australian oil prices.
Victoria Petroleum NL is the Operator of the EP 359 Joint Venture.
EP 406
CARNARVON BASIN, WESTERN AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 95%
EP 406 covers an area of 4,750 square kilometres situated in the southern part of the Carnarvon Basin over the Bernier and Dorre Islands, the adjacent eastern area of Shark Bay and onshore area adjacent to the town of Carnarvon.
Victoria Petroleum N.L has an agreement with Pancontinental Oil & Gas N.L, the previous sole permittee whereby Victoria Petroleum N.L has been assigned a 95% interest in the permit and operatorship for free carrying Pancontinental Oil & Gas N.L through the drilling of the first well in the permit.
Victoria Petroleum NL considers the permit is prospective for hydrocarbons in the Birdrong Sandstone formation and underlying Devonian sequence based on the gas shows recorded in wells drilled onshore adjacent to the permit.
An initial stratigraphic well to test the prospectivity of the Birdrong and Devonian formations in the permit is planned to be drilled following renewal of the permit and receipt of the necessary environmental and EPA government approvals and farmout.
Victoria Petroleum NL, is the Operator of the EP 406 Joint Venture.
SOUTH AUSTRALIA
PEL 86, 87, 89, 104, 111 AND 115
COOPER/EROMANGA BASIN, SOUTH AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 40%
The recent significant exploration success's in the basin by Innamincka Petroleum in PEL 103 and Great Artesian Oil and Gas at Paranta-1, 10 kilometres to the south of Victoria Petroleum's PEL 104 have focussed industry attention on the excellent hydrocarbon prospectivity of the South Australian Cooper Basin.
Victoria Petroleum now has the largest gross acreage position of 21,890 square kilometres in the South Australia Cooper/Eromanga Basin, with a net acreage position second only to Beach Petroleum Ltd.
Within the overall South Australian/Queensland portion of the Cooper/Eromanga Basin Victoria Petroleum maintains its position as the largest gross and net holder of exploration acreage with a gross holding of 50,300 square kilometres.
With the current exploration success rate of 42% in the south Australian Cooper/Eromanga Basin for the ex-Santos acreage, exploration success may be forthcoming with the up to five to seven well drilling program planned to commence in late August 2004 in Victoria Petroleum NL's permits PEL 104, PEL 111 and PEL 115.
With the South Australian Cooper Basin as an immediate "core area" of exploration focus for the Company, a further 11 wells are planned to be drilled over the next 3 years, in addition to the August 2004 "back to back" 5-7 well drilling program.
The 50 prospects and leads identified to date in permits PEL 104, PEL 111 and PEL 115 provide an extensive range of drilling opportunities over the next three years.
With some 22 wells planned to be drilled in the next six months by the industry, including Victoria Petroleum, the South Australian Cooper Basin will be a "hot spot" of drilling exploration activity.
With the drilling activity within and adjacent to Victoria Petroleum's permits, it is considered that Victoria Petroleum is well placed to have the opportunity to enjoy exploration success in the 2004 drilling program as Beach Petroleum Ltd, Stuart Petroleum Limited, Cooper Energy NL, Innamincka Petroleum and Great Artesian Oil and Gas Ltd have recently.
PEL 104
PEL 104 covers an area of 1,095 square kilometers and is immediately adjacent to the Tirrawarra Oil Field, the largest oil field in the Cooper Basin and onshore Australia with estimated recoverable reserves of 70 million barrels of oil and 340 billion cubic feet of gas. The block is also immediately adjacent to the Fly Lake Oil & Gas Field and surrounds the Santos operated Callabonna Jurassic oil field production licence.
PEL 104 is considered highly prospective for a Jurassic and Permian oil and gas in view of its immediate proximity to producing oil and gas fields and the presence of prospective Permian and Jurassic section within the major portion of the block.
The July 2003 Christies-1 commercial oil discovery and the August 2002 Sellicks-1 2,160 barrels of oil per day discovery by the Beach Petroleum/Cooper Energy consortium 32 kilometres to the south of PEL 104 has significantly upgraded the Permian oil potential on the western edge of the Permian Cooper Basin where PEL 104 is located.
The extensive database of 2,117 kilometres of 2D seismic and 12 square kilometres of 3D seismic provides a strong initial database for the delineation of prospects within the block. Only 3 wells have been drilled in the Permit, with two wells with interpreted by passed gas pay and the other well with oil shows.
A 150 kilometre seismic program to define drilling locations for the 2004 two well drilling program was acquired in February 2004.
Preliminary mapping of this new seismic data and reprocessed seismic data indicate some 17 prosects and leads with Jurassic and Permian target horizons, with the chance for a major Permian stratigraphic pinchout trap in the western portion of the block.
For these 17 prospects and leads, an unrisked cumulative recoverable oil and gas potential for the Hutton, Tirrawarra and Patchawarra targets of up to 115 million barrels of oil and 67 billion cubic feet of gas is interpreted, if oil and gas are present.
A further indication of the high prospectivity of PEL 104 for oil and gas is provided by the successful farmout to industry participants of Victoria Petroleum's 80% of the cost of the first three years work program of 150 kilometres of seismic and two wells to provide Victoria Petroleum with a 40% free carried no cost interest.
Further support for the hydrocarbon prospectivity of PEL 104 was provided by the February 2004 gas discovery by Great Artesian Oil and Gas Pty Ltd at Paranta-1, 10 kilometres to the south of PEL 104.
The successful farmout resulting from the industries perceived high prospectivity of the block and adjacent gas discovery by Great Artesian Oil and Gas Ltd will see drilling in PEL 104 well ahead of the permit commitment work program with planning currently underway for a November/December 2004 two well drilling program following the drilling of Catalina-1 in October 2004, in the adjoining permit to the north, PEL 111.
Victoria Petroleum NL is the Operator for PEL 104.
PEL 111
PEL 111 lies to the north of and adjacent to PEL 104 and covers 1,185 square kilometres. The permit surrounds the Santos operated Charo Jurassic Oil Field production licences. The February 2004 seismic survey in PEL 104 was extended to include PEL 111 to define potential drilling locations for the several leads and prospects interpreted as present in the permit adjacent to the Charo oil discovery.
Preliminary mapping of the new February 2004 seismic data and reprocessed seismic data has identified at least 11 leads and prospects, with an unrisked cumulative recoverable oil and gas potential for the Hutton, Tirrawarra and Patchawarra targets of up to 73 million barrels of oil and 51 billion cubic feet of gas, if oil and gas are present.
It is intended to drill the first well in the permit, Catalina-1 in October 2004, before to the two wells planned to be drilled in PEL 104 to the south.
Catalina-1 will test the Catalina Prospect, interpreted from seismic data to have the potential to contain up to 56 billion cubic feet of gas, if gas is present. The Catalina Prospect lies six kilometres to the north of the Santos group Fly Lake-Brolga Gas Field.
Victoria Petroleum NL is the Operator for PEL 111.
PEL 115
PEL 115 is located on the southeastern edge of the Cooper Basin and covers 1,106 square kilometres. The permit is "broken up" into six separate areas and surrounds the oil and gas producing fields at Dullingari, Toolachee, Strzelecki, Della and Kidman with cumulative recoverable reserves of 104 million barrels of oil and 2.5 trillion cubic feet of gas.
The permit represents one of the lowest risk areas for exploration in the Cooper Basin. Initial studies of the available seismic data have identified 23 leads and prospects with both oil and gas potential. The proximity to infrastructure suggests that the economic viability of any exploration success is assured.
Five prospects with commercial petroleum potential and interpreted unrisked recoverable oil reserves in the Jurassic and Permian Targets of up to 82 million barrels, if oil is present, are ready to drill immediately.
A two-three well drilling program is planned to commence in late August 2004, with one of the proposed wells, Hornet-1, defined by 3D Seismic.
Victoria Petroleum NL is the Operator for PEL 115.
PEL 86, 87, 89
These permits cover at total of 13,500 square kilometres and lie to the north and west of permits PEL 104, PEL 111 and PEL 88.
The permits cover a huge area of underexplored but prospective Eromanga Basin sediments. Drilling density is low with only three wells having been drilled, one with recorded oil shows.
PEL 88
COOPER/EROMANGA BASIN, SOUTH AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 10%
Victoria Petroleum NL has earned a 10% interest in Petroleum Exploration Licence PEL 88 covering an area of 4,987 square kilometres by contributing to the cost of the drilling of the Eucalyptus-1 well, which commenced drilling in late September 2003.
The Eucalyptus-1 well was drilled to a depth of 2,660 metres and tested the seismically defined Eucalyptus structure, which had been interpreted to have the potential to contain recoverable reserves of up to 9 million barrels of oil, if oil was present.
Target horizons in the Eucalyptus-1 well were Jurassic and Triassic sandstones and some encouragement for the oil bearing potential of the Eucalyptus Prospect had been provided by the combined oil flow rates of 3,210 barrels of oil per day reported from the Triassic sandstone from the Santos James Oil Field discovery well, James-1, 14 kilometres to the west of the proposed Eucalyptus-1 well location.
Although oil shows were observed in the target Jurassic and Triassic sands, the sands were tight with the open hole drill stem test carried out recovering formation water.
The oil shows observed in Eucalyptus-1 along with the James Oil Field oil flows to the west provide encouragement for the potential for commercial reserves of oil to be discovered in the other prospects present in the permit.
Follow up prospects to the north of the James Oil Field and the Eucalyptus-1 well are the Acacia Prospect with the potential to contain recoverable oil reserves of up to 15 million barrels, if oil is present and the Casuarina Prospect with the potential to contain recoverable oil reserves of up to 18 million barrels, if oil is present.
Very large structures associated with the Haddon Downs surface anticline in the north of PEL 88 are also of exploration interest, with the potential to contain significant recoverable oil reserves, if oil is present.
A 133 kilometre 2D seismic survey is being carried out in late July 2004, to define potential drill locations in the Haddon Downs area.
Cooper Energy N.L. is the Operator for PEL 88.
QUEENSLAND
ATP 560P
EROMANGA BASIN, QLD
VICTORIA PETROLEUM N.L. INTEREST - MCIVER BLOCK - 50%
This 100 square kilometre sub block of permit ATP 560P is located in the central Eromanga Basin of southwest Queensland.
Evaluation of the future exploration potential of the prospects in the McIver Block is in progress.
Victoria Petroleum NL is the Operator for the McIver Block.
ATP 560P
EROMANGA BASIN, QLD
VICTORIA PETROLEUM N.L. INTEREST - UELEVEN BLOCK - 17 %
This 105 square kilometre sub block of permit ATP 560P is located in the central Eromanga Basin of southwest Queensland.
Further evaluation of the prospects and leads in the Ueleven Block is planned by the Operator for the Ueleven Block, Lakes Oil N.L.
ATP 589P
COOPER / EROMANGA BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTERESTS: - 60% (Barcoo Block);
24% (Springfield and Regeleigh Block);
15% (Bright Spot Block)
12% (Barcoo Junction Block)
Victoria Petroleum NL has varying interests in ATP 589P in accordance with the relevant farmouts in ATP 589P which covers an area of 15,301 square kilometres in the southwest Queensland portion of the Cooper / Eromanga Basin.
This Cooper / Eromanga Basin Permit is adjacent to the Energy Equity permit containing the 9.4 million cubic feet per day Bunya-1 gas discovery and the Oil Company of Australia 4 million cubic feet per day Thylungra-1 gas and condensate discovery.
Significant Jurassic oil potential has been interpreted to be present in ATP 589P based on the oil shows in the numerous wells drilled in the permit and the extensive seismic data grid. The 30 million barrel potential Barcoo Junction and 36 million barrel potential Moothandella prospects have been interpreted from this data, if oil is present.
Several other prospects and leads identified in ATP 589P (1) adjacent to the Barcoo Junction area and Moothandella are being been evaluated as potential future farmout drilling targets.
The completion of the southwest Queensland to Mt. Isa gas pipeline confirm the strategic exploration value of the acreage position that Victoria Petroleum NL holds in this area of the Cooper / Eromanga Basin.
This Queensland permit along with the significant interest held by Victoria Petroleum NL in the South Australian portion of the Cooper/Eromanga Basin makes Victoria Petroleum NL a significant player in the newly resurgent Cooper/Eromanga Basin.
Following completion of the current round of Native Title negotiations, exploration drilling is anticipated to recommence on the Barcoo Junction and Moothandella structures.
Victoria Petroleum NL is the Operator for the Barcoo, Springfield, Regeleigh Blocks and Bright Spot of ATP 589P, Part 1 and ATP 589P, Part 2.
ATP 736P, ATP 737P, ATP 738P, ATP 752P
COOPER/EROMANGA BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST - 80%
Permits ATP 736P, ATP 737P, ATP 738P, ATP 752P covering an area of 11,600 square kilometres, were successfully applied for by Victoria Petroleum NL in early 2003 as part of the Company's strategy to become a major exploration player in the Cooper/Eromanga Basin in Queensland as well as South Australia. This strategy has been successfully achieved.
Although exploration cannot take place in these permits until Native Title agreements are executed, expected to take place within the next 12 months, all of the permits are considered to be very prospective for the discovery of oil and gas.
Permit ATP 752P, ex-Santos released acreage, is considered particularly prospective as it lies between the Triassic sands 4,200 barrels of oil per day James Oil Field 15 kilometres to the west and the Jurassic sand 897 barrels of oil per day Cook Oil Field on the permits eastern boundary. Within the permit, the Yanbee-1 well is interpreted from wireline logs to have untested oil zones in the Jurassic Murta, Hutton and Poolawanna sands.
Yanbee-1 will make an attractive exploration target when exploration drilling can commence in the permit, as the Hutton sand flowed at 897 barrels of oil per day in Cook-1, 2 kilometres to the east of ATP 752P.
Victoria Petroleum NL is the Operator for the permit.
ATP 333P
BOWEN BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST - 100%
ATP 333P covers an area of 388 square kilometres on the western flank of the Bowen Basin in Queensland. The Reids Dome Gas Field is situated within ATP 333P and based on initial reservoir studies, a reserve of up to 1 billion cubic feet of gas is indicated for the three wells drilled on the Reids Dome Gas Field prior to November 1994.
Victoria Petroleum has resumed as the Operator of ATP 333P Joint Venture, and is planning to work up locations for a two well drilling program following farmout, in the northern part of the Reids Dome in 2004.
ATP 465P
BOWEN BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST - 20%
ATP 465P covers an area of 539 square kilometres within the central portion of the Bowen and Surat basins in Queensland.
Queensland Gas Company Limited (QGC), has drilled two Coalbed Methane (CBM) wells and one core hole in the Walloon Coal Measures of the Cherwondah Anticline, with the drilling of Trafalgar-1, Lawton-1 and the core hole Lawton-2.
Trafalgar No. 1 intersected 19.6 metres of coal within the four upper seams of the Walloon Coal Measures. Testing of the well during drilling produced gas at a rate of 20,000 cubic feet per day (570 cubic metres per day) and water production measured at 360 barrels per day. These results are typical of the initial flows from wells drilled in the Powder River Basin in the USA.
After dewatering, these wells produce significant gas flow rates. Trafalgar No. 1 demonstrated that the coals of the Walloon Coal Measures are gas saturated and the 360 barrels of water production indicates that the coals have good permeability. Gas saturation and good permeability are the essential criteria for successful coalbed methane production.
Lawton-1 had similar results, in which a flow test of interval 129-378 metres produced gas at rates up to 19,400 cubic feet / day.
Current results indicate the Walloon Coal Measures of ATP 465P/ATP 695P/PLA 171 have the potential to contain 350 billion cubic feet of recoverable Coalbed Methane gas reserves.
Interest in methane gas produced from coal deposits is increasing in Australia, particularly in the Bowen Basin. ATP 465P is adjacent to the Peat Coalbed Methane field, which is now producing sales gas into the pipeline linking it to Brisbane markets.
Roma Petroleum NL is the Operator of the ATP 465P Joint Venture.
ATP 471P
WERIBONE BLOCK, SURAT BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST - 20.65%
This 12 square kilometre sub-block of the greater ATP 471P located in the Surat Basin in central Queensland contains the Yarrabend-5 gas well, which may be part of the Yarrabend Gas Field in adjacent licences to the north.
Due to recent ownership changes in the Joint Venture, the testing of Yarrabend-5 has been postponed indefinitely.
In the event that commercial rates of gas production are observed for Yarrabend-5, it is expected that the Yarrabend-5 would be tied into the existing production infrastructure and gas pipeline network 1.5 kilometres to the north.
Oil Company of Australia is the Operator in the Weribone Block.
ATP 574P
BOWEN BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST - 18.75% (Walloon Coals); 30% (Base Walloons to Base Jurassic); 75% (Triassic-Permian)
ATP 574P covers an area of 616 square kilometres within the central and southern portions of the Bowen and Surat Basins in Queensland.
Queensland Gas Company Limited (QGC) drilled two CBM farmin wells, Pinelands-1 and 3, which flowed gas at up to 10,600 cubic feet of gas per day, and the Pinelands-2 core hole to further evaluate the coal absorption properties of the target Walloon Coal Measures.
QGC's independent experts report of July 2000 states that the Walloon Coal Measures of ATP 574P have the potential to contain 650 billion cubic feet of recoverable coal bed methane gas reserves.
Victoria Petroleum NL has an 18.75% interest in the Walloon Coals.
Within the Base Walloons to Base Jurassic section of the permit, North Giligulgul-1 was drilled in February 2004 by Oilex N.L. under a farmin agreement with Victoria Petroleum, which provided Victoria Petroleum with a 30% free carried interest.
Minor oil shows were encountered in the target Jurassic Precipice Sandstone and the well was plugged and abandoned.
Victoria Petroleum NL retains a 70% interest in the deeper Triassic and Permian sequence in the permit where a major structure with significant Permian gas potential is interpreted.
Oilex N.L. is the Operator of the ATP 574P Joint Venture, with the CBM drilling program being managed by Queensland Gas Company Limited.
ATP 593P
SURAT / BOWEN BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST - 24%
ATP 593P situated on the western margin of the Surat / Bowen Basin covers an area of 3,930 square kilometres. The primary targets in the permit are structural traps along the Merivale High trend, which is the southern extension of the Merivale Fault system, along which the majority of the Denison Trough fields are located. Ten leads and prospects have been mapped along the Merivale High trend with the potential to contain up to 84 million barrels, if hydrocarbons are present.
Interpretation of the existing seismic data in ATP 593P identified the updip Don Juan Prospect as Hutton/Precipice sandstone four way dip closed structures, updip to the immediately adjacent strong residual oil shows in the Hutton / Precipice sandstones of Don Juan-1 and Flaneur-1.
Significant updip potential is considered present, with the Don Juan Prospect interpreted to have the potential to contain up to 4 million barrels of oil, if oil is present.
During the quarter Victoria Petroleum N.L entered into a farmin with Oilex N.L. whereby Victoria Petroleum N.L will have a 24% free carried interest through the drilling of the North Don Juan-1 to be drilled by Oilex N.L. in September 2004, following the drilling of Rookwood South-1.
Oilex N.L. is the Operator of the ATP 593P Joint Venture.
ATP 608P
SURAT BASIN, QUEENSLAND
VICTORIA PETROLEUM N.L. INTEREST, 29.688% (Rookwood Block); 24% (Remainder)
The permit covering an area of 6,400 square kilometres is located in the western Surat Basin adjacent to several oil fields and includes the zero edge of the Boxvale sandstone, the primary producing reservoir in the area. Several four-way dip closures are mapped and ready for drilling.
A possible untested Boxvale sandstone zone in Rookwood-1 may be present, indicating a potential target of up to 12 million barrels in the Rookwood South Prospect, if oil is present.
During the quarter, Victoria Petroleum N.L. entered into a farmin with Oilex N.L., whereby Victoria Petroleum N.L will have a 29.69% free carried interest through the drilling of Rookwood South-1 to be drilled in late August 2004.
Oilex N.L. is the Operator of the ATP 608P Joint Venture.
PEL 57
OTWAY BASIN, SOUTH AUSTRALIA
VICTORIA PETROLEUM N.L. INTEREST - 10%
Victoria Petroleum NL has a 10% interest in PEL 57, which covers an area of 794 square kilometres in the onshore Otway Basin, adjacent to the Origin Energy operated Katnook/Hazelgrove producing gas fields.
Exploration has now focussed on the northwestern portion of the area with the Honans Scrub seismic program of 60 kilometres over the Orana Prospect carried out in the second quarter of 2002.
Lakes Oil N.L. is the operator of the PEL 57 Joint Venture.
APM 1178 (PRA 436 RENEWAL)
NEW CALEDONIA BASIN, NEW CALEDONIA
VICTORIA PETROLEUM N.L. INTEREST - 33%
The Participants in the former PRA 436 exploration effort are currently studying the potential for a second well on the Gouaro Prospect in the renewed Authority to Prospect for Minerals (APM) covering an area of 591 square kilometres.
The first well, Cadart-1, was drilled to a total depth of 1930 metres in January 2000. An open-hole test of the interval 1650-1930 metres produced gas to surface at a rate too small to measure. After a 36-hour flow test, the well bridged off and the gas flow died. Subsequent attempts to sidetrack the well and re-drill the prospective section were unsuccessful and the well was abandoned on 17th February 2000.
A ready market for gas to electricity from 6 million cubic feet per day up to 50 million cubic feet per day potentially increasing to 100 million cubic feet per day in 2003, at attractive gas prices is available for the adjacent industrial and nickel refining operations in New Caledonia.
Victoria Petroleum NL considers the frontier nature of oil and gas exploration in New Caledonia is more than offset by the extremely strong market demand for any locally discovered and produced hydrocarbons to replace the 2 million barrels of diesel and fuel oil imported each year to generate electricity for New Caledonia and the encouraging oil and gas shows and gas flow to surface from the Cadart-1 drilling.
On 12 June 2003, APM 1178 PS was granted as a precursor to a new PRA application to recommence exploration in New Caledonia.
Victoria Petroleum NL is the Operator of the APM 1178 Joint Venture.
CALIFORNIA
SAN JOAQUIN BASIN
VICTORIA PETROLEUM N.L. INTEREST: 3.75-100%
San Antonio Prospect Development Project, Salinas Basin
Victoria Petroleum NL Interest - 9.77% BPO, 7.3275% APO
West San Antonio Project
Victoria Petroleum NL Interest - 5%
During the year your company participated in the drilling of the San Antonio Prospect, which resulted in the discovery of a cumulative net oil bearing interval of 314 metres in the target Vaqueros Sand and Monterey Shale horizons.
Fracture stimulation and testing operations to determine the ability of these target horizons to produce oil to surface at commercial rates were carried out during this year and resulted in the San Antonio-1 well being placed on pump production on 1 August 2003 with the well producing an average of 135 barrels of 38º API oil per day from a total fluid production of 300 barrels of oil and water per day.
Oil production was suspended during the quarter while the Operator carries out a stimulation program over the oil bearing Monterey Shale horizons with the aim of increasing oil production.
Further encouragement for the ability of the San Antonio fracture stimulated horizons to produce greater quantities of oil are provided by the adjacent production of 500 million barrels of oil from the San Ardo Field.
Further development drilling by the Operator Trio Petroleum including the drilling and fracture stimulation of a horizontal well bore in the oil producing reservoir horizon is planned for the second half of 2004.
Any additional oil and gas produced to surface from the San Antonio Oil Field in the future, that is in excess of what can be trucked to the San Antonio Oil Field, can utilise the oil and gas pipeline to the San Antonio Oil Field that runs within 400 metres of the San Antonio-1 well site.
Vallecitos Oil Field Development Project
Victoria Petroleum N.L. Interest - 22.5%
Your company considers successful development drilling on the relatively shallow western and southern areas of the Vallecitos Oil Field has the potential to increase recoverable oil reserves by up to 5 million barrels and increase oil production at rates up to 1,200 barrels of oil per day assuming a successful 3 well development program.
The next Vallecitos development well is planned to be drilled in the latter half of 2004 following a seismic survey in the second half of 2004. In the event of the discovery of the oil and gas reserves considered to be present in the Vallecitos development area, production from the new development wells can be tied very quickly in to the existing oil production facilities of the Vallecitos Oil Field.
Eagle Oil Pool Development Project
Victoria Petroleum N.L. Interest - 56.1%
During 2001, drilling of the company's Eagle Oil Pool Development Project resulted in the successful drilling of a 271 metre horizontal well bore leg into the Gatchell Sandstone oil reservoir, oil and gas productive at the rate of 223 barrels of oil per day and 0.7 million cubic feet per day in the initial Mary Bellocchi-1 well drilled in 1986.
Well site analysis indicated an interpreted 90 metres of oil pay to have been drilled. Regrettably technical difficulties encountered while drilling have prevented immediate testing of the interpreted oil pay.
With the completion of the drilling engineering program for Eagle-2, drilling of this step out development well, after farmout is planned for mid 2004 as the farmout efforts made during the last quarter have attracted local industry participants to investigate the opportunity to participate in the Eagle Oil Pool Development Project by the drilling of Eagle-2.
A fourteen kilometre seismic strike line was shot over the Eagle Oil Pool in May 2004 to further define the updip extent of the Eagle Oil Pool and the Eagle-2 drilling location.
The Eagle drilling results to date and the new strike line confirm the Eagle Oil Pool Development Project is essentially low risk in geologic nature with the risks being of an engineering nature associated with deep horizontal drilling.
The commerciality of the oil and gas reserves present in the Eagle Oil Pool is dependent on the oil and gas flow rates obtained from horizontal well bores drilled into the field.
The indicated potential recoverable reserve of up to 24 million barrels of oil and 62 billion cubic feet of gas for the Eagle Oil Pool make the Eagle Oil Pool an attractive development target.
Victoria Petroleum N.L is now discussing with potentially interested farminees, the opportunity to farmin and drill the Eagle-2 development well in the December quarter 2004.
With the current price of oil around US$37 per barrel (Australia $50 per barrel) and the price of gas in Southern California in excess of US$5.00 per thousand cubic feet (Australian $6.80 per thousand cubic feet), with a strong likelihood of higher gas prices being revisited in the future, commercial success is most likely for any sustained oil and gas flows discovered in any of the wells in the California drilling program.
In order to maximise your Company's chances of a commercial success, the current California drilling program focus is on "close in" drilling adjacent to proven oil production as in the San Antonio, Eagle and Vallecitos areas.
NON-CALIFORNIA AREAS
Wyoming, Hal Oil Field
Victoria Petroleum N.L. Interest - 100% BPO, 75% APO
Victoria Petroleum NL participated in a low risk oil development workover in Wyoming which resulted in initial net oil production to the Company of 50 barrels of oil per day. Currently producing 20 barrels of oil per day. A development well to drain an additional possible 500,000 barrels of recoverable updip oil reserves is planned for mid 2004. Further low risk development opportunities of this type are being pursued in the area.
Wyoming, Rock Springs Coal Bed Methane Project
Victoria Petroleum N.L. Interest - 45% BPO, 40% APO
Victoria Petroleum with Sun Resources N.L. through their respective 100% owned USA subsidiaries completed a farmin at the end of the December quarter 2003 with Kestrel Energy Inc to earn a collective 90% interest in 33,000 acres of BLM lease land and other assets (principally an under utilised 27.4 kilometre long, 8 million cubic feet per day capacity pipeline and a 3D seismic data base over half of the farm in area) all of which are located in a 376,320 acre (1,505 square kilometre) Area of Mutual Interest ("AMI") in the western area of the Rock Springs Uplift of the Green River Basin, southwest Wyoming state, USA.
The Wyoming State Geological Survey suggests coal resources of greater than 1,277 billion short tons exist in the Greater Green River Basin and recent preliminary CBM potential resource studies of these greater basin coals indicates a 314 trillion cubic feet in place CBM resource awaiting exploration and future development.
The main thrust of Sun and Victoria is exploration and development of indicated large (up to 1,207 billion cubic feet), in place CBM resources from CBM potential studies of the Upper Cretaceous and Early Tertiary age multi seam coals on the present leases. Acquisition of further offset Township sections to the immediate 47 Township sections and 7 part Township sections in the 376,320 acre (1,505 square kilometres) AMI by further leasing and farmins will grow resource potential if target and gas producibility are confirmed.
An important facet to a successful exploration outcome is access to market and transport of product. The pipeline in the AMI has compression and links into a local market, but more particularly an interstate pipeline terminal near Rock Springs, through which 1.1 trillion cubic feet of gas per annum passes to western states customers and 0.7 trillion cubic feet of gas per annum passes to eastern states customers. The AMI pipeline is currently utilised at less than 10% of capacity and is only being fed by conventional deep gas production (which is excluded from the farmin) on the underlying lease land at Greens Canyon and Dynes.
Wyoming State is the biggest producer of sub-bituminous, low-ash, low-sulphur coal in the USA at some 373 million short tons per annum and is the second largest gas producer after Texas at 1.75 trillion cubic feet per annum. CBM production at 384 BCF per annum is some 22% of the produced gas. The majority of coal production (95%) and CBM production (85%) presently comes from the shallow, thick sub bituminous coals in the Powder River Basin ("PRB") in the northeast of the state, which overlaps into south-eastern Montana.
Unlike the PRB, the Green River Basin which straddles southwest Wyoming State, northeast Utah State and northwest Colorado State is immature and frontier in CBM exploration and development.
The reasons being are the seams are deeper at 1,000 to 1,600 metres (PRB in comparison 50 to 700 meters); and thinner, the main seam, the Big Red Coal Seam is 10 to 12 metres thick (PRB's Woydak, Anderson, Big George seams in comparison are 10 to 40 metres thick).
However, multiple coal seams are present and gas content of the coals is far higher as a consequence of the rank of coal increasing with depth in the Green River Basin (now sub-bituminous to bituminous in rank). Indicated gas content is 250 to 450 scf gas / short ton of coal with gas chemical composition 98.5 to 99% methane and 1 to 1.5% carbon dioxide. PRB in comparison is 30 to 90 scf gas / short ton of coal with similar gas chemical composition. Several major PRB CBM producers, encouraged by the above data inclusive of the flagged 314 trillion cubic feet in place CBM potential of the basin, and importantly their own operating experience in the deeper eastern PRB, have recently commenced exploration and development of their own projects in the eastern portion of the basin.
Sun Resources as Operator for the Joint Venture plans to drill the first well on a permitted location near the pipeline in the mid September quarter 2004. The well will be drilled to below the Big Red Coal Seam to test the coal sequence. The main seam will be continuously cored and after wire line logging of the well any coals of interest >6 metres (20 feet) thick above the Big Red Coal will be side wall cored. All cores of coals of interest (inclusive of the Big Red Coal Seam) will be analysed for their gas content and other properties deemed necessary for ascertaining CBM potential, and if the well technical data supports a completion and testing program, the well will be completed and tested for deliverability and commerciality of CBM production. Subsequent production wells will be drilled on permitted drill locations with access roads in place near the pipeline.
Yours faithfully,
JOHN KOPCHEFF
MANAGING DIRECTOR
VICTORIA PETROLEUM N.L.
For information on Kestrel Energy, Inc. U.S. drilling and development activities visit the Kestrel Energy, Inc. website at www.kestrelenergy.com
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