AC/P22 & AC/L6 Offshore Vulcan Sub-Basin Timor Sea

Norwest 1.25% Gross Overriding Royalty Interest

AC/P22 is offshore north of Western Australia in the Vulcan Sub-basin. The AC/L6 production licence lies within AC/P22 and contains the Puffin oil field.

Norwest’s 1.25% gross overriding royalty interest (ORRI) applies to all current and future production from both the production licence and the wider AC/P22 exploration acreage. During 2008/09 Norwest received $1,023,607 in royalties from Puffin production.

Puffin oil field

While Puffin will not return to production until 2011 or 2012, Norwest believes the 1.25% royalty interest remains a valuable asset particularly given the longer term “blue sky” potential of the AC/P22 and AC/L6 leads and prospects. This royalty interest has no carrying cost to Norwest, so the Company is patiently watching as the Puffin JV works on its development and exploration strategies to unlock the project’s potential.

Puffin is a high-potential field but operational difficulties have been reported at the field. The field was shut in towards the end of June 2009. However, the Puffin partners – Chinese supermajor Sinopec and Australia’s AED Oil – are working on field development plans that will address Puffin’s problems. The JV is planning to resume production in 2011 or 2012.

According to AED Oil, Puffin has estimated reserves of 20.93MMbbl oil (on a P50, gross basis). In addition, high-potential leads and prospects in AC/P22 and AC/L6 offer unrisked cumulative volumes of original oil in place of more than 700MMbbl.

What does this mean for Norwest?

Based on the P50 reserves of 20.93MMbbl for Puffin AC/L6, other information in AED reports and on Norwest’s industry knowledge, Norwest has conservatively calculated that its 1.25% ORRI has a NPV at 10% of about A$15m. This is based on oil at US$80/bbl and an exchange rate of A$1= US$0.90.