• Carnarvon is progressing with its plans to drill the Buffalo-10 well, targeting 2H 2021.
• AIM listed Advance Energy Plc to join the PSC and fund up to 100% of well cost for up to 50% equity
• Advance Energy’s equity position in the PSC to be finalised by end March 2021
• Project development costs to be covered by third party and Advance Energy loan funding
• Carnarvon to remain as operator for all activity
• The Buffalo-10 well will target attic oil and will be completed as a production well

Carnarvon Petroleum has entered into a binding agreement with AIM-listed Advance Energy to enable the redevelopment of the Buffalo oil field.

Advance will acquire up to a 50% interest in the Buffalo project by funding the drilling of Buffalo-10 well up to US$$20m on a free carry basis. In addition to this, the newly formed joint venture will acquire development funding from third party lenders and any additional funding requirements (in addition to that provided by third party lenders) will be provided by Advance Energy as an interest free loan.

Definitive transaction documentation has been executed and completion of this transaction is subject to:

• Advance transferring at least US$10m to the joint venture bank account by 31 March 2021
• Customary government approvals
• Advance obtaining shareholder approval in accordance with AIM Rules

Advance must sourceband pay US$20m into the Joint Venture bank account for a 50% interest in the Buffalo Project. In the event Advance raises less than US$20m, but more than US$10m, the transaction will still proceed, however at a lower equity level for Advance. Advance’s equity level is 2.5% per US$1m contributed to the joint venture. The Advance team is confident of raising the necessary funds to be able to attain their desired 50% equity in the project.

Carnarvon’s strategic objective has been to drill the Buffalo-10 well while carefully managing its balance sheet. This transaction enables Carnarvon to progress its portfolio with conviction, which includes the Dorado oil development, the Buffalo oil redevelopment and pursuing a number of high impact exploration wells near the Dorado field.

Advance’s strategic objective is to identify and unlock hidden value in discovered assets through a technical and commercial approach as non-operating partners, and they recognise the value in the Buffalo oil field redevelopment and the technical expertise of the Carnarvon team.

The Advance team has a demonstrable track record of generating significant value. The Carnarvon and Advance team are a strong cultural fit andthe Carnarvon team looks forward to a close working relationship with Advance as we progress the drilling and redevelopment of the Buffalo oil field.

Under the terms of the agreement, Carnarvon will remain as the operator and is currently undertaking a tender process to contract an internationally recognised Drilling Management Services Company ('DMSC') to assist Carnarvon in the drilling of the Buffalo-10 well. Carnarvon plans to contract the DMSC for commencement in early 2021.

The objective is for drilling operations to take place in late 2021, with a date to be determined once a rig has been identified and long lead items have been ordered, along with completion of any necessary regulatory approvals.

Carnarvon Managing Director and CEO, Mr Adrian Cook, said:
"Carnarvon is excited to welcome Advance Energy into the Buffalo joint venture and together we look forward to drilling the Buffalo-10 well next year and moving forward with the redevelopment of the Buffalo oil field. The Buffalo redevelopment opportunity is well placed to succeed given its known production capability and low development cost and will be greatly enhanced as oil prices continue their recovery. We look forward to Advance completing their capital raise activities and the joint venture is eager to get started, with drilling planning already underway. Carnarvon is incredibly well placed for an exciting 2021 as we add drilling at the Buffalo Project to our Dorado FEED activities and the Bedout exploration drilling campaign".

Key Terms of the transaction:

Equity: Advance Energy will acquire between 25% and 50% of the Buffalo projectvia the payment of between US$10 million and US$20 million, to pay the costs of the Buffalo-10 well and funding between 50% and 100% of the development.Advance’s level of equity ‘earn in’will be equal to 2.5% per every $1 million raised and paid into joint venture bank accounts.

Joint Venture: The partners will work in an Incorporated Joint Venture ('IJV'), with Carnarvon as operator.

Buffalo-10 well costs: The current estimate for the Buffalo-10 well is around US$20 million, where Advance will free carry Carnarvon’s share of well costs on the basis that Advance raises US$20m.

Development Funding: The Joint Venture will source and arrange third party loan funding for the Joint Venture approved development CAPEX to first oil. Any additional funding requirements will be funded by Advance by an interest free loan. Advance’s funding obligation will be reduced in line with its project equity level. Development funding loans will be repaid prior to the return of profits to the joint venture partners.

Buffalo Redevelopment Project

Carnarvon was awarded the WA-523-P permit in May 2016 for an initial six-year termwhich included the previously developed Buffalo field. The Field was discovered by BHP in 1996 and subsequently developed using four wells drilled from a small, unmanned wellhead platform installed in 25 metres water depth, tied back to an FPSO. Production commenced in December 1999 at production rates up to approx. 50,000stb/d and terminated in November 2004 after the production of 20.5MMstb of highly-undersaturated, light oil (53°API) from the Jurassic-age Elang Formation. All existing facilities and wells were decommissioned and removed prior to Carnarvon being awarded the permit.

Carnarvon initially focussed its technical work on reprocessing of the 3D seismic dataset using state-of-the-art full waveform inversion (FWI) technology. This work supports the interpretation of a significant attic oil accumulation remaining after the original development, based on sub-optimal positioning of early wells using poorly processed seismic data. Reservoir modelling has been conducted using the latest structural interpretation and available well data, including an extensive history-matching effort to calibrate model/well performance to production rates and water-cut development (governed by strong aquifer drive) observed during the original production period.

Based on this work, independently audited volumetric estimates of contingent resources inthe Buffalo oil field are 31.1 million barrels (2C) with low estimates of 15.3 million barrels (1C) and high estimates of 47.8 million barrels (3C) - Refer to Carnarvon Petroleum’s ASX announcement on 28 August 2017.

KeyFacts Energy: Carnarvon Timor Leste country profile