Byron changes design concept for Gulf of Mexico discovery

Following a review, Byron Energy has changed its design concept for the development of the South Marsh Island Block 71 (SM 71) discovery, located in the U.S. Gulf of Mexico. 

Instead of an outside operated, unmanned platform, the company now plans to use a manned, Byron-operated platform, which will provide operational control and allow higher production rates upon start of production.

Byron owns two leases in the South Marsh Island Block 73 (SM 73) field: SM 70 and SM 71. Byron is the designated operator of both blocks and owns a 50% Working Interest and a 40.625% net revenue interest in each block, with ASX listed Otto Energy holding an equivalent WI and NRI in each block. Water depth in the area is approximately 137 feet.

The joint venture has already bought a tripod platform and started work to modify it for use at the SM 71 location.

According to Byron, the due diligence on the unmanned option identified that limitations on oil production from Byron’s well and future wells would have been necessary because some facets of the existing infrastructure would limit associated gas production. Additional previously unknown costs were also identified in oil and gas metering and future water handling capacities.

Further work undertaken by Byron in respect of the facility has led to a proposal to modify the design concept to a manned platform from the previously proposed unmanned facility.

The Byron operated facility will have the capability of separating oil and gas with subsequent metered production going into existing sales pipelines on the SM 71 block. The tripod will be capable of holding up to six wells to provide for future identified development wells in all zones identified by the SM 71 #1 well.

The proposed manned structure will have the capacity to produce 4,500 Bopd and 5.0 Mmcfpd of gas. Access to adjacent oil and gas sales trunk lines are available on SMI-71 and those lines will be utilized for oil and gas export once production starts. Progress has already been made on the refurbishment of the jacket section of the platform and following completion of engineering design work, construction work on the deck portions will begin.

The company noted the manned facility is considered a significantly more attractive economic option than the unmanned option because of the ability to handle higher oil and gas production rates and accelerate the development of the oil discovery as additional wells are drilled.

Additionally, Byron said it will have total control over all aspects of production, safety and environmental aspects and will not rely on any third-party facilities or pipelines other than existing sales trunk pipelines. Byron’s joint venture partner in SM 71, Otto, has indicated its in principle support for the manned facility, subject to receiving Byron’s final proposed authority for expenditure and development plan. The final development plan is subject to JV approval.

Convertible note

On July 22, 2016, Byron and Metgasco announced they had entered into a 3-year agreement to issue up to A$8 million ($6.05M) in convertible notes, repayable over the course of the agreement. Metgasco has subscribed for a full A$8 million convertible note, which will be repayable over the reminder of the term of the agreement, by July 21, 2019. The proceeds from the convertible note will be used primarily to advance development of the SM 71 oil project.

Proceeds will allow Byron to  progress development, however, additional funding will be required by mid-2017 for the project to be completed and production to start during the latter part of the December 2017 quarter. The company is currently exploring potential funding options.

Maynard Smith, Byron’s CEO, said: “The change to a Byron operated production platform comes because of a thorough review of all options and will secure the already significant economic value of the SM 71 development. Given the ultimate potential size of this discovery, being in full control of all facilities and pipelines greatly enhances the value of SM 71 for Byron and its partner along with shareholders.”

Otto’s Managing Director, Matthew Allen, said: “Otto is very pleased with progress being made by the Operator at SMI-71 and in particular the ability to modify the platform design concept to optimize the significant economic benefits of this project via the removal of third party tariff payments and the ability to accelerate production and development of future wells.”