WATCHING THE WORLD PITTENCRIEFF RATES EXPLOITATION NO. 1

With David Knott from London The only good barrel of oil is the last one that came out, says Terry Heneaghan, chief executive of Pittencrieff Resources plc, Edinburgh. That is an unusual viewpoint for a U.K. independent. Britain's small producers tend to be exploration driven rather than solely production minded. Heneaghan was invited in 1988 to create Pittencrieff Resources from the remnants of Pittencrieff plc, which started up in 1981 and went bust in 1987.

Feb. 13, 1995

3 min read

The only good barrel of oil is the last one that came out, says Terry Heneaghan, chief executive of Pittencrieff Resources plc, Edinburgh.

That is an unusual viewpoint for a U.K. independent. Britain's small producers tend to be exploration driven rather than solely production minded.

Heneaghan was invited in 1988 to create Pittencrieff Resources from the remnants of Pittencrieff plc, which started up in 1981 and went bust in 1987.

The company's strategy in 1981 was to raise cash for U.S. projects against an oil price of $40/bbl. Rebirth of the company in a harsher market was based on strict rules: Stick to familiar regions, look first of all for the payback date in potential projects, and drill no wildcats.

Heneaghan explains that Pittencrieff is interested in assets only in the U.S., Canada, and the U.K., all familiar territory to him.

AGAINST THE FLOW

"It has become fashionable to look toward Russia, Pakistan, and so on," said Heneaghan. "The focus of attention eastward leaves plenty of prospects for those who stay at home. We are not in the exploration business. Exploration is for the big boys. For us the payback period is too long. We need returns in 3-4 years, not 10."

In June 1994 Pittencrieff bought a 50% stake in Flour Bluff, East Flour Bluff, and Pita Island fields near Corpus Christi, Tex., and became operator. They were acquired from previous operator Exxon Corp. for $38 million.

Heneaghan said, "About 1990 Exxon engineers told their management these fields should be redeveloped because so much gas had been left in the ground. But Exxon said, after Exxon Valdez, it should get rid of anything near water."

Estimated remaining reserves in the Corpus Christi fields are 1.9 million bbl of oil and 95 bcf of gas.

When Pittencrieff became operator, production was about 300 b/d of oil and 7 MMcfd of gas.

Drilling of seven wells and resuming production from shut-in wells in 1994 are expected to hike output to 500 b/d of oil and 23 MMcfd of gas. Drilling 10 wells this year is expected to increase total gas flow to 30-40 MMcfd.

RISK AVERSE

Pittencrieff acquired a majority interest in and operatorship of Patricia Gas Unit No. 1 in Southeast Alberta in 1993 through a takeover of Aberdeen Petroleum plc.

"Alberta is one massive gas field," Heneaghan said. "Drilling there is like shooting ducks in a pond, yet Aberdeen had not drilled a single well there."

Pittencrieff placed 34 Patricia field wells on stream in 1994 and proved up 39 bcf of gas reserves. By January 1995 another 25 deviated wells had been completed. These will help boost total production to 13.5 MMcfd.

Heneaghan describes himself as "risk averse." Some North American companies share Pittencrieff's reliance on exploitation of previously underused assets rather than on exploration, he said, but no other U.K. listed firm.

Heneaghan said, "Pittencrieff used to be regarded as unsexy by London's stock market because we don't explore. Now exploiting companies are coming to the fore."