Does size really matter?
When it comes to making one of the largest oil discoveries in the last five years, some argue that it most certainly does.
And with all due respect to the world’s major energy companies, those at Rockhopper Exploration, a United Kingdom-based company of no more than 25 people, credit their small size as a primary means for finding approximately 400 million barrels of oil in an area of the world that has nearly been forgotten.
Named after a species of penguin near the sub-Antarctic, Rockhopper is quickly establishing itself as an exploration company that is literally hopping from rock to rock near the Falkland Islands, an archipelago adjacent to the southern tip of Argentina, and coming up with multiple finds in the Sea Lion Field in the offshore North Falklands Basin.
The Falklands are a self-governed, British Overseas Dependent Territory.
Chief operating officer and AAPG member Fiona MacAulay described Rockhopper’s 2010 discovery as a jigsaw puzzle at the Discovery Thinking forum at AAPG’s recent Annual Convention and Exhibition in Houston.
While key pieces of the puzzle included vision, fundraising abilities and technical expertise, a combination of Rockhopper’s size and the kind of luck that all explorers need may have trumped all.
“You just need a very different skill set in a small company than perhaps you do in a big company,” she said. “Everyone’s got to be able to do everything.”
“Being small, nimble and committed can reap rewards when you raise capital at critical option points,” added AAPG Honorary member Charles A. Sternbach, president of Star Creek Energy Company and founder and co-chair of the Discovery Thinking forum.
“This enables strategic leveraging of value and assets.”
A Good Story Gets Better
MacAulay joined Rockhopper in 2010 as its fifth full-time employee with 25 years of experience as a geologist for Mobil, Amerada Hess and BG Group.
“It sounded like a good story,” she said of the company’s brief but gripping history.
The story was one of chance encounters, MacAulay said, recalling the day that Rockhopper chief executive officer Sam Moody talked to her about the birth of the company. Richard Visick, a British entrepreneur who also engaged in sheep farming on the two islands he owned in the Falklands, needed to apply for a license to transport his sheep.
As he filled out the paperwork for livestock movements, the director of the Falklands’ Department of Agriculture, who also oversaw the Department of Mineral Resources, offhandedly mentioned that a batch of offshore oil exploration licenses – formerly held by large energy companies such as Shell and Hess Corporation – were available through open door licensing.
“Have you ever thought about setting up an oil company?” she asked.
Later, Visick contacted Moody, whom he worked with on other ventures, and posed the same question.
They thought, “That sounds like a great idea. How hard can it be?” MacAulay said.
Geological thought processes in the 1970s suggested that oil accumulations were likely in the Falkland Islands area based on speculative data from an old swath of 2-D seismic.
However, when the 1982 Falklands War erupted between the United Kingdom and Argentina, exploration of the area came to a halt. The two countries didn’t make amends until the early 1990s. At that time, legal limits of the Argentine continental shelf were established by Argentina and the Falkland Islands, and exploration licenses were issued.
Under a unified agreement, four operators, including Shell, drilled six exploration wells in 1998. All but one revealed promising oil and gas shows, although none penetrated significant reservoirs.
It was ultimately determined that a Lower Cretaceous shale section was a “world class” source rock and highly oil prone, MacAulay said.
But when oil prices plummeted to $10 a barrel shortly after, the players packed their bags and went home to most likely seek cheaper and lower risk opportunities elsewhere.
‘Put Up or Shut Up’
All remained quiet on the exploration front until Visick needed to move his sheep.
Having decided to apply for exploration licenses, he hired a consultant and began to study the existing seismic data, findings from the 1998 drilling campaign and from several Deep Sea Drilling Project wells from the 1970s.
After putting the data together, Visick and Moody – having to answer to no one – decided to take a chance. They established Rockhopper in 2004, put together a compelling story of potential and began a fundraising campaign, initially knocking on the doors of friends and family.
“How in the world are they going to drill a well when they’ve never drilled a well in their life?” MacAulay said, echoing the thoughts of many whom Rockhopper visited to gain financial support.
Their positive vibes, however, proved infectious. They raised $2.5 million for two licenses covering two exploration blocks in the southern part of the North Falklands Basin and for additional 2-D seismic.
To boost their credibility, they hired Pierre Jungels, the former CEO of Enterprise Oil and former board member of Petrofina. Jungels accepted the position of executive chairman of the board at Rockhopper for two main reasons:
♦ He was intrigued by the findings of an exploration well drilled by Shell in the North Falklands Basin in 1998.
♦ The price of oil was on the rise.
Rockhopper went public in 2005, raising $24.9 million in an initial public offering with a $50 million market capitalization on the London Stock Exchange.
The company farmed into acreage owned by Desire Petroleum where existing 3-D seismic data was available, identifying fan plays with multiple reservoir sources. They purchased licenses for additional exploration blocks formerly held by Shell and began raising $16 million for the 3-D seismic needed for defining a new play in the nascent basin, which is 124 miles long and 37 miles wide, MacAulay said.
Although inclement weather cut the 3-D seismic acquisition short, enough data was produced to suggest a hydrocarbon-rich reservoir was present.
While they didn’t know it at the time, the seismic ran right through the center of the Sea Lion Field. Money was raised to interpret the data and perform the necessary rock physics.
As it turned out, the Sea Lion Field was the highest rated of the mapped prospects and carried a best estimate of 568 million barrels of oil in place with a chance of success of 23 percent, MacAulay said.
Rockhopper wanted to farm out acreage to other operators through the drilling process. Although some expressed interest, no operator came forward.
“It was either put up or shut up and time to roll the dice,” MacAulay said. Desire had just signed a rig contract with Diamond Offshore Drilling for three exploration wells. If Rockhopper wanted to join, it was now or never.
After “a hard couple of weeks of begging” for funds from shareholders, and with just $1 million left in the bank, Rockhopper met its financial goals.
How Lucky Can You Get?
The Sea Lion Well, the first well drilled in April 2010, delivered a discovery: more than 164 feet of net pay.
“How hard can this be?” asked the Rockhopper novices.
Flying by the seat of its pants, the virtually unknown company quickly realized it needed to hire an expert in well operations, field appraisal and development. MacAulay stepped up to the plate.
She directed the team to test the well to ensure oil could be flowed to the surface and conduct the necessary appraisals. The company’s stock was quickly rising, making its fundraising campaign practically a piece of cake.
Flowing oil? Check.
Next on the list was raising $45 million to keep the rig longer. At this point, only half of the Sea Lion Field could be seen, and a complete picture was needed. Additional staff members and contractors were hired and remained on call 24/7 for 397 days.
“It’s amazing how 75 percent of the decisions that need to be made happen at night,” MacAulay said. They oversaw the drilling of nine additional wells and the simultaneous running two 3-D seismic vessels.
Rockhopper had 28 days prior to spud to submit each of the well permits based on the imaging being cranked out from the boats and made it “by the skin of our teeth,” she said. Because the areas where they wanted to drill abutted neighboring licenses, Rockhopper brokered a deal to drill in acreage owned by Desire, taking operatorship of the area that they most wanted.
Although drilling the next two wells was “nail biting,” they proved to be successful.
Emotions at Rockhopper ran wild until someone remembered the company still needed to submit the required well permits – and time was of the essence.
“It is during this time that we realized how lucky we were to be small and able to make decisions entirely within our power and at great speed,” MacAulay said.
A Small World After All
The company skipped the lengthy process of drilling and coring and instead drilled from spud to total depth in 12 days – a testament to how adept its drill team had become.
To develop its discovery, Rockhopper began approaching operators once more. This time, they listened. In 2012, two companies battled it out, and in the end, in a “cash-and-carry” trade, Rockhopper farmed out 60 percent of its licenses to Premier Oil, which now holds formal operatorship of the acreage.
“Discovering, appraising and farming out Sea Lion has given a solid foundation for what we firmly believe can become a strong international exploration and production company,” Moody said. “Rockhopper is and always has been a team effort, and I am proud to have been a part of that team along with Fiona, Pierre, Richard, our board and everyone who works here.”
To date, Rockhopper has cut a total of 1,804 feet of core through each of its reservoirs, run comprehensive logs on all 10 wells, and has analyzed samples for biostratigraphy, chemostratigraphy and geochemistry, MacAulay said.
By the end of this 10-year work program, Rockhopper has amassed 317 square miles of exploration licenses, 1.3 billion barrels of oil in the ground and 400 million barrels of recoverable resources.
Currently, the tiny oil company is envisioning a state-of-the-art tension leg platform for development that is slightly larger than Shell’s Mars B in the Gulf of Mexico. It is spending $3.8 billion to recover its first oil that it found for roughly $1 per barrel.
Rockhopper also is in the process of planning its next exploration campaign in the North Falklands Basin to potentially double the existing resource base.
“We are proud that we were able to do something so special in a professional and safe manner,” MacAulay said. “Small is beautiful.”
“You just need a very different skill set in a small company than perhaps you do in a big company. Everyone’s got to be able to do everything.”