Nearly a decade ago, I got interested in finding oil and gas fields from space.
That odd-sounding strategy came to me while I was living in Canada’s petro-center, Calgary. And met a group of explorationists working with PhD experts in satellite imaging.
Jim Chanos has a new short target in his sights. Earlier this week, the hedge fund manager disclosed that he is betting against "legacy" data centers that face growing competition from the trio of technology giants, which have previously been their biggest customers. The fund manager, who is best known for his winning bet against Read More
I was fascinated when this team explained how they could filter remote sensing data from proprietary satellites to spot minute amounts of hydrocarbons leaking from the Earth’s surface. Using this cheap and easy data to determine where big oil and pools were located at depth — and where we should be drilling exploration wells.
As it turned out, that group had mixed success. Obtaining satellite data wasn’t always easy — and filtering it to ensure we were looking at real anomalies was a sensitive business.
Since then, I’ve been a little skeptical when people proposed satellite imaging exploration strategies. Although there was enough to the idea to keep me interested — with groups like AuEx Ventures successfully using satellite imaging for gold exploration in Nevada.
But my view on satellite exploration shifted drastically the last few years. After I spent some time with High Power Exploration (HPX) — the new technology-driven exploration company pioneered by mining legend Robert Friedland.
HPX’s exploration and development pros are using a number of different technologies to revolutionize mineral exploration. Including deep-penetrating geophysical surveys — and adding in satellite work, which showed me just how much this field has advanced since I looked at it 10 years ago.
Today, we can actually get geophysical data from space covering almost all the Earth’s surface. With satellite packages like GRACE, GOES, and EMAG2 having collected information and made it available online — largely for free.
Groups like HPX that know how to process this information are using it to push exploration into a new age. Allowing them to quickly scan entire countries or even regions for high-level targets, before they even set foot on the ground.
After seeing what HPX was doing, I started paying close attention to satellite exploration again. And that led to a meeting with a man who is changing the face of this business: Neil Pendock, a PhD remote sensing expert from Cape Town.
Neil was introduced and highly recommended to me at just the right time. While I was struggling to put together a high-level strategy for gold exploration on a large block of land in Myanmar — in a place where alluvial gold workings stretch across a massive scale, but finding the hard-rock source is complicated by widespread jungle that makes it nearly impossible to see the rocks beneath.
When I showed the project to Neil, he put together a strategy to use thermal imaging — looking at the temperature of the surface (reflecting the heating properties of the rock below) to figure out what sort of lithologies were lurking at depth.
Neil had used the same approach in South America — where his quick and easy satellite work actually duplicated, almost exactly, the results of much more expensive ground geophysical surveys.
And the results were equally impressive in Myanmar. With Neil’s survey outlining an interpreted series of northwest-southeast trending quartz veins — which matched not only my knowledge about regional mineralization trends, but also fit exactly my data on local hard rock mines where artisanal miners were pulling out ultra-high grade gold ore.
After that proof-of-concept success, I looked more into Neil’s background — and realized just how big a deal he is in the satellite exploration space.
Not only has he held high-level management positions at Anglo American (where he had a sizeable budget for pioneering advanced exploration techniques), but he’s also worked as a consultant for many of the world’s biggest mining companies — helping, for example, a major miner find not one, but 17 kimberlites as part of a regional diamond exploration survey.
That’s why I was all ears when Neil said he could use satellite imaging to find oil and gas fields. Which led to an intriguing “field test” — that I want to share with you, given how ground-breaking the work could be.
Neil told me how he can use cheap and plentiful data from new satellites to spot hydrocarbon molecules rising from the ground — over top of, or near to, big pools below surface. And so I proposed we use it on one of the most massive exploration prospects in the world.
That’s the East Jabung project in Sumatra, Indonesia. Where junior E&P Pan Orient Energy (TSX: POE) used seismic surveys the last few years to uncover a massive reef and clastics drill target — which could be one of the biggest onshore discoveries of the decade.
Here’s the background. The East Jabung prospect is located in a well-established oil and gas area of Sumatra. In fact, when I stopped in to see Pan Orient’s CEO Jeff Chisholm in Bangkok last month, he told me how Spanish major Repsol has pegged this area as its most profitable producing center on Earth — driven by high natural gas prices in Indonesia (around $10/mcf), and good economics for condensate exports.
Jeff and Pan Orient have been working in Asian oil and gas for over a decade. And in 2011, he managed to grab a swath of prime acreage in this hotspot — which had just opened for acquisition after decades closed as a reserved forest.
He picked up the acreage, shot seismic, and found a massive structure. Which independent engineers appraised as having a best likely size of 149 million barrels equivalent — absolutely huge for an onshore project. You can how big it is in the map below (the orange blob at lower right), as compared to existing big gas fields in the area (red).
Pan Orient Energy’s East Jabung target (orange, lower right) is a huge structure on trend with a big oil and gas basin in Sumatra, Indonesia. A perfect place to test new satellite imaging techniques for hydrocarbons.
The question is, does it hold gas? Major E&P Repsol believes so — having executed a farm-in deal with Pan Orient where it will pay 100% of the costs for an exploration well in order to earn a 51% interest in the project.
That’s a lot smaller interest than majors usually demand for a carried well. Leaving Pan Orient with a full 49% ownership in the project — equating to 73 million barrels equivalent upside in the best case forecast by reserves engineers — while this junior sits back and watches Repsol pay to test the prospect.
To put in perspective how big this is, consider the old oil field rule of thumb that a barrel in the ground is worth about a third of the current per-barrel price (with two-thirds going to capital and operating costs). At today’s Brent crude price of $56, an in-ground barrel (or equivalent barrel when it comes to gas) should thus be worth just over $18 — which would give the East Jabung target a back-of-the-envelope value of $2.6 billion.
I’ve thus been watching this play closely (and bought shares in Pan Orient to put my money where my monitoring is). And with Repsol planning to spud an exploration well here over the coming few weeks, this seemed like a perfect place to test Neil’s satellite imaging for natural gas.
He was kind enough to oblige — sending back the image below. Which immediately made me sit up and take notice: because Neil’s analysis picked out not only an anomaly on the known Repsol gas fields to the north, but also an even-bigger gas anomaly just beside Pan Orient’s East Jabung prospect.
The East Jabung target shows a very similar signature to known natural gas fields when using satellite imaging. Drilling is set to begin over the next few weeks, which will tell us for sure.
Now take a look at a zoom-in on Neil’s gas anomalies overlaid with the field map from earlier.
Gas anomalies from satellite imaging match up well with both known, big gas fields and the East Jabung prospect.
Does this mean East Jabung is a guaranteed hit? No — there are still a lot of things that can wrong with a hydrocarbon reservoir, even if gas is present.
But work like this gives valuable information about assessing a prospect. When methods like remote sensing suggest the presence of hydrocarbons, we can downgrade the so-called “charge risk” — the risk that a massive structure like East Jabung has great reservoir rocks and trapping mechanisms, but never got imbued with hydrocarbons.
The best thing is, this satellite work takes hours at a cost of a few thousand dollars — and gives us information potentially comparable to larger-scale surveys that cost hundreds of thousands or even millions, and take months to complete.
We’ll get a definitive idea when Repsol and Pan Orient drill their test well here, scheduled to spud before the end of the month. Watch for results in May or June — and in the meantime, if you’re interested in learning more about groundbreaking satellite imaging for exploration, check out Dr. Neil Pendock’s website or drop him an email at firstname.lastname@example.org.