28 March 2017

LICENCE P2035 RELINQUISHMENT REPORT BLOCK 16/18B

28 MARCH 2017

28 March 2017 Licence P2035 Relinquishment Report

LICENCE P2035 RELINQUISHMENT REPORT

CONTENTS

Licence Background and Activities .......................................................................................................... 1

Licence Information ............................................................................................................................ 1

Work Programme Summary ................................................................................................................ 1

Summary of Work Completed ......................................................................................................... 1

Licence Synopsis .................................................................................................................................. 1

Prospectivity at the Time of Award ................................................................................................. 2

Geological Context .......................................................................................................................... 2

Database ............................................................................................................................................. 3

Wells ................................................................................................................................................ 3

Seismic Data .................................................................................................................................... 3

Jurassic Rock Physics ........................................................................................................................... 4

Seismic section ................................................................................................................................ 5

Tertiary AVO Modelling and Seismic Inversion ................................................................................... 7

Prospectivity Update ........................................................................................................................... 7

Albion (lead JU1) ............................................................................................................................. 7

Palaeocene ...................................................................................................................................... 7

Resource Summary ........................................................................................................................... 11

Albion ............................................................................................................................................ 11

Palaeocne ...................................................................................................................................... 11

Conclusions ....................................................................................................................................... 11

Clearance........................................................................................................................................... 12

28 March 2017 Licence P2035 Relinquishment Report 1

LICENCE BACKGROUND AND ACTIVITIES

LICENCE INFORMATION

LICENCE NUMBER: P2035

LICENCE ROUND: 27TH LICENSING ROUND

LICENCE TYPE: TRADITIONAL

INITIAL TERM: 4 YEARS BEGINNING WITH THE START DATE

BLOCK: 16/18B

Apache North Sea Limited hereby give OGA clearance to publish this document but request that publication be withheld until the end of the next licensing round (30th round).

WORK PROGRAMME SUMMARY

The work programme for Licence P2035 Block 16/18b was specified in Schedule 3 of the Licence agreement with a start date of 1 January 2013. The programme included the following:

Firm commitments

The Licensee shall:

(a) Obtain 50 km2 of 3D seismic data (b) Reprocess 280 km2 of 3D seismic data (c) Carry out a rock physics study

Drill-or-drop

The Licensee shall either:

(a) Drill one well to 4,500 m to evaluate the Jurassic, or: (b) Elect to allow the licence to automatically cease and determine pursuant to Clauses 3 and 6.

SUMMARY OF WORK COMPLETED

The Licensee completed the following firm commitments by purchasing 992 km2 of 3D seismic data, reprocessing 508 km2 of 3D seismic data and completing AVO and rock physics studies. Additionally a study to review available biostratigraphy data was commissioned with Ichron Limited.

The Licensee elected not to drill the well under the drill-or-drop provision of the Licence.

LICENCE SYNOPSIS

Licence P2035 was awarded to Apache North Sea Limited on 1st January 2013 as part of the awards made in relation to the 27th Licensing Round. In the original application Apache applied for the full 16/18b block on offer but on award the block was split with the northern portion being awarded to Apache as 16/18b and the southern portion to Trap Oil and Noreco as 16/18c, Figure 1.

Technical evaluation during the first licence term has shown that as a result of splitting block 16/18b the majority of the reserves for the main lead JU1 (later named Albion) lie off the licenced acreage.

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Furthermore secondary targets at the Palaeocene level have significant risk associated with their closures and are not of sufficient size to warrant drilling. As a result Apache has elected not to drill a well and subsequently relinquished the licence.

PROSPECTIVITY AT THE TIME OF AWARD

Figure 1: main leads for licence application Figure 2: seismic gap at time of application, area of 3D seismic purchased and area of 3D seismic reprocessed

In the original application for the block two significant leads were identified by Apache (JU1 & TE1), and another two previously identified leads within the acreage were also acknowledged (Thera by Dana and Acer up-dip by ConocoPhillips). Even at the time of application the Thera and Acer up-dip leads were viewed as having little or no value due to their small size (Thera) and high risk (Acer up-dip). The Balder level lead (TE1) was identified as a 4-way closure on 2D data but was viewed as unlikely to be matured into a drillable prospect, as 3D data was available to the industry and the closure had not been previously targeted. The best prospectivity within the block was identified to be within the Upper Jurassic, with lead JU1 (Albion). Both the areas for the new 3D seismic obtained and the reprocessed seismic were chosen to cover Albion to allow for better delineation and evaluation of the lead.

GEOLOGICAL CONTEXT

Block 16/18b lies on the eastern margin of the South Viking Graben and the primary prospectivity targets the lateral or distal pinch-out of the Brae Formation gravity flow sandstones and conglomerates. These terminate either within the Kimmeridge Clay Formation (KCF) and/or on to the dipping footwall limb of the half South Viking Graben which rises toward the Sleipner Fields within the Norwegian sector of the North Sea. Hydrocarbons are proven in the nearby area at multiple levels.

Lead JU1

Lead TE1

992 km2 obtained seismic

508 km2 repro.

seismic

Seismic gap P2035

P2035

16/18c awarded to Trap Oil

16/18b awarded to Apache

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DATABASE

WELLS

To date three wells have been drilled in block 16/18b, two targeting the Jurassic and one targeting the Eocene. The 16/18-2 well, TD in the Middle Jurassic, was believed to target a stratigraphic trap at the Upper Jurassic level. The well discovered condensate at the base of the Hugin section. DST results indicate that this was a small, isolated accumulation with high GOR suggesting a Hugin or Pentland source. The primary objective for 16/18-4 was a structural high at Eocene level. The well TD within the Eocene after encountering no shows in several sandstones. Spudded in 2007, the 16/18b-5 well targeted the Acer prospect, a pinchout of Upper Jurassic Brae Formation sandstone with the J64 sandstone as a secondary objective. The well was abandoned having encountered no oil shows but did note elevated gas readings. There is extensive well control to the west of the block with the numerous wells drilled around the T-block fields whilst the Utgard wells and 16/23 wells on the Kinnoul high provide seismic interpretation tie points to the east and south.

Well Drilled Operator Objectives Status Result

16/18-2 Nov 1988 Britoil plc Upper Jurassic P&A Hugin

condensate discovery

16/18-4 Aug 1992 Britoil plc Eocene P&A Dry

16/18b-5 Mar 2007 ConocoPhillips

(UK) Ltd. Upper Jurassic P&A Dry

16/17-19 June 1991 Agip (UK) Ltd. Upper Jurassic

Secondary – Middle Jurassic P&A

Thelma field appraisal

16/18-1 Apr 1983 Mobil North

Sea Ltd.

Middle Jurassic

Secondary – Upper Jurassic P&A

Hugin condensate discovery

16/23-4 Jun 1985 Conoco (UK)

Ltd.

Middle Palaeocene – Lower Eocene

Secondary – Middle Jurassic

P&A Hugin

condensate discovery

16/23-5 Nov 1990 Conoco (UK)

Ltd. Middle – Upper Jurassic P&A Dry

TABLE 1: SUMMARY OF WELLS IN BLOCK 16/18B AND KEY WELLS FOR INTERPRETATION

SEISMIC DATA

In fulfilment of the licence obligations, Apache purchased 992 km2 of 1993 – 1994 vintage 3D seismic from WesternGeco that was reprocessed in 2011, figure 2. The seismic coverage is significantly larger than the licence obligation and more than covers the 3D seismic gap at the time of the licence application. Further to this Apache conducted a proprietary reprocessing project over 508 km2 with WesternGeco in 2015, using their most advanced demultiple techniques and an improved pre-stack time migration algorithm. The purchased seismic gave a significant uplift over the legacy data available to Apache at the time of application. But due to the complicated nature of the interbed multiples present in the data, the reprocessing effort did not provide the expected uplift and the well tie to the key 16/18-2 well was only marginally improved, figure 3. The seismic data have been mapped from Pleistocene Crenulate level to Permian Rotliegend.

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Figure 3: Well tie at 16/18-2 showing a comparison between a synthetic seismic log, the VSP filtered to seismic frequencies and the WesternGeco 3D seismic before and after the 2015 reprocessing. The seismic well tie between the BCU and Hugin is very poor with a complete mismatch in places.

JURASSIC ROCK PHYSICS

No pre-stack inversion work was performed for the Upper Jurassic as the quality of the 2011 and 2015 gathers was deemed too poor to give a reliable product, as even the strong BCU event is not well imaged out to 15 degrees in places. Residual multiple energy throughout the Upper Jurassic along with issues with the well tie to key well 16/18-2 reduced the confidence in any wavelet extracted from that well to be used for inversion. Thin beds of cemented sandstone within the reservoir section would complicate any AVO signature creating further uncertainty in the inversion result.

A rock physics study on the Upper Jurassic across the basin concluded that crossplots of acoustic impedance vs. density gave the most reliable separation of Kimmeridge Clay, reservoir sandstone, interbedded shales and cemented sandstone. Standard inversion attribute crossplots such as AI vs. Vp/Vs and µρ vs. λρ were not able to achieve this, figure 5. It was possible to invert for density but a key requirement was very high quality gathers and long offsets. Even after reprocessing, the available gathers were not suitable for density inversion.

Key reservoir section for Albion

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SEISMIC SECTION

The seismic section runs east from Thelma through the 16/18-2 well then heads south east out of the block to tie the 16/23-4 and 16/23-5 wells.

Figure 4: Seismic line running from Thelma, through 16/18b and south east to 16/23. Inset map shows top Albion Sandstone map draped over the deeper Hugin surface. 1993 – 1994 Western Geco 3D reprocessed by Apache in 2015.

16/18-2 16/17-19 16/23-5 16/23-4

Hard

Soft

16/17-19 16/18b 16/18c 16/23b

Albion

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Figure 5. Rock physics analysis at 16/18b-5 showing that good quality reservoir has the same AI and Vp/Vs values as the shale at the base of the Kimmeridge Clay and that deeper within the Brae Formation sandstones and shales are largely indistinguishable. µρ vs. λρ crossplots also did not manage to reliably separate the reservoir and non-reservoir intervals. Crossplot points are coloured by gamma ray value.

Softest Kimmeridge Clay

Good quality reservoir

Poorer quality reservoir

Cemented streaks

Softest Kimmeridge Clay

Good quality reservoir

Poorer quality reservoir

Cemented streaks

Vp Vs

s

φ VpVs

AI GI SI λρ µρ EEI

Acoustic impedance

Vp

/Vs

µρ

λρ

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TERTIARY AVO MODELLING AND SEISMIC INVERSION

AVO modelling was performed through the Palaeocene for 9 wells across the basin. Due to the lack of recorded shear log data, Krief modelling was used to generate the required logs from mineral properties. The expected AVO response for top brine and oil filled sandstone was modelled for Balder, Sele and Heimdal sandstones, figure 6.

Seismic coloured inversion was used to generate acoustic impedance and gradient impedance volumes across the block and surrounding area. These impedance volumes were then used in an Extended Elastic Impedance rotation to create a lithology volume to aid seismic interpretation.

PROSPECTIVITY UPDATE

ALBION (LEAD JU1)

The reservoir at Albion is the Brae Formation sandstone in the distal extent of the Thelma fan system. 16/18-2 encountered 90 m of good quality reservoir sandstone, figure 7.

The trap comprises of the combination of pinchout of the sandstones to the south, possible fault seal or pinchout to the east and dip closure to the north-west. Pressure data show that the wells at Thelma and 16/18-2 are not in pressure communication with the 16/22 wells indicating a working pressure seal to the south. The top and base seal are the surrounding Upper Jurassic shales, which would be expected to thicken relative to the sandstone as the turbidite system becomes more distal.

The Kimmeridge Clay is the main source for any hydrocarbons at Albion. There is no risk attached to source/migration for Albion given the proximity of the prospect to the source kitchen and the volume of oil expelled into existing fields in the graben. Coals within the Hugin and Pentland could provide a secondary source, but basin modelling performed to match fluid and GOR distribution suggests that any input from a deeper source is likely to be limited.

PALAEOCENE

AVO modelling showed that any hydrocarbons present in the Eocene, Balder or Sele sandstones should display a clear AVO anomaly. No clear anomalies were seen in the seismic suggesting that these reservoirs are water bearing across the licenced acreage.

Top Heimdal sandstone was mapped in detail aided by the EEI lithology volume. Figure 8 shows the four way dip closures identified. However all the closures had low structural relief, lacked any supporting seismic anomaly and volumetric analysis indicated that any potential accumulations were sub-economic.

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Figure 6. An example of AVO modelling for top Balmoral (Heimdal) sandstone. Left well shows class I for brine bearing reservoir and class IIp for oil. Right well shows

class I AVO for both brine and oil bearing reservoir.

Brine Oil Brine Oil

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Figure 7. Top Albion sandstone depth map draped over the Hugin

depth surface in greyscale. The majority of the prospect area lies

off block 16/18b, highlighted in red. The location of key well

16/18-2 is marked by the star.

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Figure 8. Mapped depth closures at Palaeocene level. Closures are

all limited in areal extent and low relief.

Northern closure

Central closure

Southern closure

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RESOURCE SUMMARY

ALBION

GRV for Albion has been calculated using the top and base surfaces shown in figure 4. Current assessment estimates a prospect chance of success of 31 % with mean case reserves of 1.9 mmboe on block.

Table 2 shows the split of GRV on block, as reservoir distribution across the prospect remains uncertain. In the mean case only 4 % of the GRV lies on the licenced acreage.

Block Percentage of Albion GRV on block

P90 (3,880 m TVDSS) Pmean (3,985 m TVDSS) P10 (4,090 m TVDSS)

16/18b 0 % 4.4 % 17.5 %

Table 2: Fractional split of Albion GRV on block

PALAEOCNE

Palaeocene volumetrics have been estimated using consistent reservoir and fluid properties with closure area, net pay and geometric correction factor varying for each. Table 3 shows the reserves and risk assigned to each of the closures.

Palaeocene closure

Unrisked recoverable reserves (mmbo) Chance of success

(%) Risked mean

reserves (mmbo) P90 Pmean P10

Northern 2.1 4.6 7.9 18 0.8

Central 3.4 9.7 18.8 25 2.4

Southern 3.0 8.5 16.3 25 2.1

Table 3: Volumetric assessment for Palaeocene four way closures in 16/18b.

CONCLUSIONS

The Licensee has fulfilled the work obligations associated with licence P2035 by acquiring and reprocessing areas of seismic significantly larger than required in the work programme. Rock physics work and AVO studies have been undertaken and a lithology volume has been created over 900+ km2. The prospectivity of block 16/18b has been found to be limited due to:

The key lead at the time of application was Albion (JU1) but the central portion of the lead lies in the split off 16/18c block, as such only a small portion of the prospect lies in block 16/18b

No amplitude or AVO anomalies have been identified in the Eocene and Upper Palaeocene in the block

No amplitude or AVO anomalies have been identified in the deeper Palaeocene, at Balmoral/Heimdal level, and closures that are present are limited in areal extent, low relief, sensitive to depth conversion and are therefore sub-economic.

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CLEARANCE

Apache North Sea Limited hereby give OGA clearance to publish this document. All 3rd party ownership rights have been considered and appropriately cleared for publication purposes.