Opporunities for growth

Frank Crawford, Chief Geologist at Groundstar Resources, discusses the company’s strategy for doing business in the Middle East and the challenges it faces, and gives an insight into the changing landscape of geology.

Groundstar Resources has operations in Upper Egypt, the Gulf of Suez and Kurdistan in Iraq. How important are these assets to your overall strategy in the Middle East?

Frank Crawford. Groundstar's operations are in Upper Egypt along the Nile Corridor in a Concession called West Kom Ombo. Its area is 31,283 sq. km. making it the largest onshore exploration block in Egypt.

The West Kom Ombo block adjoins the Centurion Energy-DanaGas Kom Ombo block on the west. Those companies are successfully developing the Al Baraka Field where oil is trapped in faulted Cretaceous Abu Ballas and Six HIlls sandstones along an Upper Jurassic-Lower Cretaceous rift basin trend. Deeper and more productive reservoirs are being encountered as more wells are drilled there, including a sandstone unit capable of flowing in excess of 1200 bpd on artificial lift. Groundstar believes that exploration drilling will move in the direction of its block and has technical support for a rift basin there where it has seismically mapped several prospects and leads.

Successful drilling in this once overlooked area of Upper Egypt would establish Groundstar with production and a position as a proven explorer capable of bringing concepts to concrete results. Drilling is anticipated to begin in the fourth quarter of 2010. Groundstar and its partner, Aegean Energy, will be drilling several wells to establish the stratigraphic and structural framework and are hoping that positive results will be obtained from this effort.

Achieving success in Egypt may lead the company to consider other drilling opportunities in that country and other parts of North Africa where its staff have considerable expertise, most notably in Libya.

Our effort in Kurdistan is very important to our goals for the Middle East. In 2007, Groundstar, Vast Exploration and Niko Resources negotiated a Production Sharing Contract (PSC) with the Kurdistan Regional Government for the promising Qara Dagh Block near Sulamaniya,

This part of Kurdistan contains prolific oil fields in the fold belt to the west of the Zagros Mountains. Kurdarmir #1, drilled by Western Zagros, to the west of Qara Dagh and Miran West, drilled by Heritage Oil to the northeast, have discovered oil in both Lower Tertiary sandstones and Cretaceous carbonates.

Currently the Qara Dagh #1 well is being drilled. Success in this well would encourage Groundstar to pursue other opportunities in the Middle East, including outside of Iraq. Our Company has evaluated several opportunities in Syria and will remain open to others following the completion of Qara Dagh #1.

How much potential do you see in the percentage of your block in Kurdistan?

FC. Groundstar Resources considers the Qara Dagh block as a high impact project for our Company. The structure is a large surface anticline similar to the one on which Heritage drilled its Miran West #1 well in 2009. Four or more distinct oil bearing reservoir sequences are found in fields in this region creating the conditions for giant-super giant fields as attested by the super giant Kirkuk Oil Field about 50 km to the NNW of the Niko-Vast-Groundstar Qara Dagh block.

Miran West #1 intersected 1100 metres of oil shows in 3 main reservoir sequences in Cretaceous carbonates. Subsequent testing and formation evaluation indicated a flow potential of 8000 to 10,000 bopd and ooip (original oil in place) of about 3.4 b bbl for the structure. Miran West #2 is presently being drilled and has encountered oil shows over 1800 metres in the Cretaceous carbonates and is continuing down to 4000⁺ metres to the Jurassic-Triassic formations (2009 Annual Report on Heritage Oil website) where additional hydrocarbon bearing reservoir sequences may be found.

Qara Dagh #1 is currently at a drilling depth of about 1600 metres and is intended to be drilled to a total depth of about 4000 metres. Multiple stacked oil bearing sequences similar to wells in the surrounding blocks are the drilling objectives in this well.

The potential upside of the oil resources that could be encountered in the Qara Dagh structure enhance Groundstar's small (six percent) percentage of the total project. Six percent of a little is very little; but sixper cent of a lot is a lot of oil. Since fields in this region can easily contain a billion barrels of recoverable oil, the potential reserves for the company from a major discovery at Qara Dagh can easily been seen. Since our company is debt free, any profit oil from the production would be income, thus enhancing value to the shareholders.

What are the main challenges you face from a geology and drilling point of view in the Middle East?

FC. First of all Groundstar is only involved in onshore exploration projects. So, we will consider the two questions; geology and drilling challenges, from this perspective.

Drilling in Upper Egypt necessitates access into a desert area a significant distance from infrastructure. The size of the WKO block presents a formidable challenge from an exploration and access perspective. Roads will need to be built and the wells, initially at least, designed with a minimum of subsurface information. We will be learning as we drill and, no doubt, will encounter challenges along the way. Flexibility and the ability to adjust to new challenges will be needed, especially at the outset.

Kurdistan presents major geological and drilling challenges of a different kind. The surface geology of the Qara Dagh block was carefully analysed from Landsat imagery. Wells and fields in the surrounding region of Kurdistan were input into the subsurface model constructed from seismic lines. From this data the prognosis for the drilling objectives and their depths was derived. Even though drilling has been done in Kurdistan for many years the subsurface stratigraphy still presents challenges and surprises. Western Zagros encountered serious borehole problems caused by overpressure in their Kurdamir #1 well resulting in significant time and cost overruns.

Although Qara Dagh is outside the Zagros Mountains it is still a remote mountainous terrain. The limbs of the surface anticline are comprised of steep cliffs bordered by talus slopes, which those conducting the seismic programme had to traverse. The rig had to be brought along an access road into the core of the anticline and to a pad constructed on one of the talus slopes. The drilling pad required the removal of about 400,000 m³ of rock to level the talus slope and build the cement pad where the rig is now drilling.

Fortunately for the explorationist this part of the Kurdistan region is a prolific oil province where four or more regionally extensive reservoir horizons and their seals can be encountered in the same well. Hole conditions sometimes makes progress slow as in the case of Qara Dagh, but the potential rewards of the favourable geology far outweigh the minor delays encountered.

How has the business of geology changed since you first started out in the oil and gas industry? What have been the key developments or milestones?

FC. Probably, the greatest change in geology since my early days is the transformation concerning data; how we store, manage and use it in integrated platforms in the computer world. We have a new world here, one in which we can create maps, cross sections, well logs and nearly every kind of data into almost any kind of presentation. Drawing a map by hand might take a day or even longer, now we can produce the same result in minutes or in some cases even seconds. And things keep advancing so that interactive workstations with voice commands are now in some of the larger companies.

My early background was in stratigraphy and sedimentation. That field has changed from the 1960s and 70s with the advent of sequence stratigraphy and seismic stratigraphy in the late 1970s, 80s and 90s, and the identification of depositional systems based upon water level fluctuations related to plate tectonics, and even local tectonics and climate variations as in the case of lacustrine basins. There is so much change in these fields that it would take a library to contain them. So, there is a huge inventory of knowledge in the field of petroleum geology.

Another 'new' development that came along with the computer age is the interactive team approach to interpretation. Now more than ever before geologists, geophysicists, petrophysicists, engineers, etc. can sit down at the same work station and discuss their work with one another and bring more than one mind to bear on any problem, question or decision. This helps immeasurably in decision making and reaching the right decision at the right time.

E-mail and the internet have also impacted our profession in ways we could not have imagined 25 years ago. Now we can research any subject in a timely manner and find many of our answers in the cyber world. We can access journals and published materials with comparative ease when in the past it would have taken a trip to the library to do this work. Furthermore, we can e-mail almost any kind of graphic or written information to anyone anywhere in the world. Things that would have in the past been almost impossible to send to fellow colleagues can now be done at the touch of the finger. Yesterday afternoon I sent two scanned, older publications (12 megabytes of information) to a structural geologist in Columbia who is working with my company on a key project. He responded almost immediately.

Video conferencing and conference calls on the phone are now commonplace with participants interacting from several locations, including different continents, simultaneously. Technical people can discuss their separate interpretations on each other's computers through web cams and microphones over the internet. This is truly an amazing development in such a short time.

What trends and developments do you foresee in seismic modelling in the future?

FC. Seismic modelling is, to a great degree, subjective but things are changing. In the 'old days' interpreters looked at the seismic data and came up with their own individual interpretation. Those involved in this kind of work would say, give the same data to five different interpreters and you will get five different interpretations. Today, software and programmes help keep these things more in line. Not that we don't want individual interpretations and good exploration concepts. We do. But, if there is less radical variation between interpretations exploration risk can be considered lessened as well. At the end of the day, have we reduced the risk to an acceptable level? Some companies will acquire expensive 3D seismic surveys for exploration to lessen the risk recognising that 'if you have a better certainty of what you have' you will be more likely to drill a successful first or second well.

With more accurate 2D and 3D structure modelling we can create more accurate two-way time structure maps, better time versus depth conversion, accurate depth structure modelling and more precise horizon and fault definition. Advances in velocity modelling lead to high definition 2D and 3D displays with much improved stacking and migration velocities for modelling in the 3D dimension. Attribute extraction from such 3D data allows us to do inversion and AVO (amplitude velocity offset) analyses to obtain such properties such as porosity, density, fluid content and reflection coefficient to permit 3D petrophysical modelling of the reservoir to integrate with well logs. Thus seismic and geology are 'coming together' more and more as this method improves. High definition 3D methods using discontinuity calculations allow us to identify and analyze fractures in the third dimension to permit far better exploitation of hydrocarbons in fractured reservoirs that formerly were very difficult to predict.

The end result of different interpreters looking at the same data in 2010 will be the same basic trend or overall structural configuration, albeit with smaller differences than before. By inputting seismic attributes into the equation we can sometimes determine if there are hydrocarbons in the rocks thus improving the risk profile. In this way we can be more confident in what we are looking at and for. The variations in the interpretations are lessening as seismic processing advances and we extract more information out of the data. This progress is very helpful to less experienced professionals and new graduates as they enter the industry. It gives them a path to follow. Such advances, however, don't replace the need for interpreters; it just makes their job easier. There will always be a need for interpreters to 'make sense' of what the data is showing them. An in depth knowledge of geophysics and geology will always be indispensable in getting the most from seismic modelling.

As a conclusion, I can foresee seismic modelling will become a big part of G&G in the future with better software and better understanding of how to use the tools to help us to explore and exploit our valuable reserves.

What's the focus for Groundstar Resources in the future - will you be looking to expand operations in the Middle East or will other parts of the world be your priority?

FC. We are constantly on the look out for high impact international exploration opportunities for growth, especially in the Middle East.

Groundstar Resources has already demonstrated its ability to acquire oil and gas exploration blocks in remote regions and obtained reputable partners to carry the projects to the drilling stages. We have done this in each of our three exploration projects and feel that we can do it again in other parts of the world. We cannot say just where that is at this time. It takes time to operate in the international arena. Making a junior company into a profitable oil and gas producer is not easily done. It takes risk and hard work to earn the rewards. Groundstar has been working steadily toward this objective for over five years already and now sees our three projects in the drilling or planned soon-to-come drilling phases. We started up in November 2004 and now in the third quarter of 2010 we can say we are near to achieving our objective.

Groundstar's focus in the future will be determined by the results of our drilling in Kurdistan, Egypt and Guyana. Kurdistan will have the greatest impact because of the shear size of the objective. Discoveries will translate to progress for Groundstar and, in this industry, successful rewards for the company shareholders and its employees. We will see what happens after that.