Tethys Petroleum Ltd. will acquire interests in and become operator of several production sharing contract areas in the Kura basin near Tbilisi in eastern and central Georgia.
Through subsidiaries, Tethys will acquire a 56% interest in PSCs covering blocks XI-A, XI-M, and XI-N (Project Iberia) in eastern Georgia near Tbilisi. In a separate transaction Tethys Petroleum will acquire a 100% interest in PSCs covering blocks VIII and XI-G (Project Tamar) near Tbilisi and in the Kartli area farther west.
The blocks cover a combined area of more than 6,400 sq km. The transactions are subject to approval of appropriate Georgian authorities and other conditions including rescheduling of the work programs on blocks VIII and XI-G. Tethys Petroleum refers to the blocks as Project Iberia and Project Tamar and did not name the seller(s).
Tethys Petroleum said the partners in the Project Iberia blocks are well-established Georgian oil and gas companies and that it expects to work closely with their specialists in implementing operatorship. All participants are discussing the swapping of equity to give shared ownership in all of the acreage.
The company said the areas have potential for conventional and unconventional oil and gas in several horizons. It said they provide good commercial terms and international oil pricing in proximity to two large oil pipelines, a gas trunkline, and a railway.
Georgian work programs
The initial work program on blocks XI-A, XI-M, and XI-N is to involve 350 line-km of 2D seismic acquisition and a contingent exploratory well. Initial seismic is expected to start this summer and be completed by mid-2015. The data will complement the large existing volume of 2008-11 seismic and geological studies and would satisfy the minimum work program. Drilling is to start in the second half of 2014.
The current minimum work program on blocks VIII and XI-G totals 500 line-km of 2D seismic plus further 3D detailing. One wildcat on Block XI-G and one exploratory well plus one exploratory/appraisal well on VIII are a contingent commitment.
The seismic commitment is currently to be completed by September 2014 but a condition for completing the Tamar transaction is to restructure this schedule with the Georgian government to provide for more time to complete this program and afford flexibility. Completion of this transaction is conditional upon this work program being satisfactorily restructured to Tethys Petroleum's satisfaction.
Closing of the transactions is expected to take place in the third or fourth quarter of 2013.
Tethys Petroleum calls the commercial terms "very attractive." On the Project Iberia blocks, 100% of costs can be recovered from up to 50% of production and the investor takes 50% of the remaining production, this falling to 40% after cumulative revenues exceed cumulative costs. All taxes, levies, and duties are included in the state's share of production with the only other tax being a stabilized royalty of 24.19 Georgian Lari/ton ($1.95/bbl).
Commercial terms are similar on the Project Tamar blocks but with the investor share of profit oil being 40% before and 35% after payback.
Geology of the blocks
The blocks lie in the ESE-WNW-trending Kura basin, where the geology is that of a late Tertiary intermontane basin between the Greater Caucasus mountains in the north and the Lesser Caucasus to the south that compress Tethyan sediments between them, Tethys Petroleum explained.
The compression has produced a number of exciting fairways for petroleum deposition including subthrust and overthrust plays, anticlinal pop-up structures, and deeper fault blocks, the company said. The area has a number of potential reservoirs of different ages and several prolific source rocks.
The Kura basin continues into Azerbaijan to the east where there are numerous oil fields, and the plays continue to the north forming the prolific fields in the North Caucasus. A total of 18 oil and gas accumulations have been discovered in Georgia to date, with 15 in the Kura basin, including the Samgori field complex that has produced some 210 million bbl of crude oil to date at rates up to 70,000 b/d.
Oil quality in the area is good with crudes being sweet and light. Samgori crude is 40° gravity.
Most of the fields are in Middle Eocene fractured volcaniclastic sands and tuffs, but oil has also been produced from Upper Eocene, Oligocene, and Miocene sediments and from the Cretaceous. Production from fracture permeability remains a challenge in some reservoirs, and modern technology is required to maximize production rates.
The Maikop/Upper Eocene shale oil play is potentially analogous to both the Bakken and Eagle Ford plays in the US, according to Gustavson Associates, Boulder, Colo., consultants, and therefore these plays were used for parameters for the shale resource calculation. The shales are organic rich, and geochemical studies indicate good total organic carbon and thermal maturity.
The Maikop gross shale thickness is estimated to be up to 2,000 m, much thicker than that reported for the Bakken formation, with porosities of 5-14%, commercial recovery from most likely 50% of the section, and with recovery factors of 5-10% being applied. Most of the shale oil potential is currently identified on blocks XI-M and XI-N.
The conventional target zones on Block XI-A are Eocene clastic reservoirs and Cretaceous carbonate reservoirs as well as unconventional Maikop potential. Several multilevel prospective leads have been mapped on older seismic lines as rollovers and thrusted anticlines.
As well as the unconventional Maikop and Upper Eocene potential in Block XI-M, the conventional targets are primarily the clastic Miocene and Middle Eocene age horizons that are productive in Norio and Satskhenisi fields to the north and Samgori field to the southeast. These plays appear to extend onto Block XI-G to the south. Block XI-N has less data but is mapped as having thick Maikop potential as well as possible Eocene and Cretaceous plays.
Blocks VIII and XI-G also exhibit Middle Eocene and Cretaceous potential as well as potential in the Jurassic. There are numerous seeps and oil shows in wells on Block VIII, and encouragement seen from the Akhalakalki and East Kavtiskhevi wells especially, where reports indicate oil was tested in the past from Cretaceous carbonates and fractured volcanic tuffaceous sandstones. These may have the potential for early oil production. Thrusted anticlines have been identified on seismic data.
Resource estimates
Gustavson Associates, using seismic and well data, carried out an independent resource assessment on three Project Iberia blocks in accordance with Canadian National Instrument 51-101.
Results total unrisked mean recoverable prospective resources in excess of 3.2 billion bbl of oil equivalent.
The key results are 34.8 billion bbl of unrisked mean prospective oil in place; 2.913 billion bbl of unrisked mean prospective recoverable crude oil comprising 380 million bbl of conventional resources and 2,533 million bbl of unconventional resources; and 1.815 tcf of unrisked mean prospective associated gas.
No independent resource assessment has yet been carried out on the Project Tamar blocks, but this work is under way.
