ConocoPhillips, the operator of an exploration joint venture in the Otway basin offshore Australia, has issued a default notice to its partner, 3D Energi, for an outstanding cash balance. 3D Energi has suspended trading of its shares as it addresses its funding position and the implications of the payment default on its interest in the permit.

Cost Overruns and Financial Strain

The financial issue stems from the first two wildcat wells in the programme, Essington-1 and Charlemont-1, which incurred costs "materially higher" than pre-drill estimates. 3D Energi currently has an outstanding joint venture cash call of approximately $2.5 million, which it cannot pay. A further $5.3 million in expenditure will be due at the end of the remedy period on 6 February, potentially triggering another default notice.

Reasons for Increased Costs

For the Essington-1 well, higher costs resulted from extensive wireline logging and a formation testing programme to assess the discovery. The Charlemont-1 well faced incremental costs due to a revised well design after intersecting gas above the primary target, additional casing, supplementary equipment, regulatory approvals, and a more complex evaluation programme. Weather delays and encountering over-pressured gas while drilling also contributed to the added costs for the second well.

Joint Venture Structure and Exploration Results

The joint venture partners in the VIC/P79 permit are ConocoPhillips (51%, operator), Korea National Oil Corporation (29%), and 3D Energi (20%). The programme has yielded a gas discovery at the Charlemont-1 well, following the successful drilling of Essington-1. Post-well analysis and data integration from this first phase are underway. The broader Otway exploration programme envisions a first phase of up to six wells, with a potential second phase of up to four more wells contingent on initial results, and has confirmed the extension of the Otway gas fairway into the permit.

Ongoing Assessments and Future Plans

ConocoPhillips stated that exploration inherently involves uncertainty and significant investment, and that spending reflects project requirements. Operations and evaluation for Charlemont-1 are projected to finish by the end of January. No decisions regarding progression to development have been made, as the venture awaits evaluation results to determine commercial viability and inform future plans.