Relinquishment Report for License P976 January 2010, Canamens Energy Ltd

1. Header

License Number P976

License Round Awarded 23 December 1998

License Type Traditional

Block number 8/25a

Operator (% share) Canamens Energy North Sea Ltd (50%)

Partner (% share) Nautical Petroleum plc (50%)

Work programme summary Original work commitment to acquire 3d

seismic, and to drill one well (8/20-1)

fulfilled by previous licensees. Well 8/25a-1

drilled in 2008 by current partners.

2. Synopsis

License P976 has been relinquished in full, approved by DECC with effective date 22 December 2009. This

document forms the relinquishment report requested by DECC in the acknowledgement letter of the

relinquishment. The reasons for relinquishment are

a. The Selkie prospect in the Dornoch level of the Tertiary section has been tested by well 8/25a-1,

and found to not be oil-bearing.

b. The remaining (untested) Kelpie prospect in the license is currently too small to be economic on its

own

c. The probability of finding oil at Kelpie has not risen significantly following intensive G&G work

d. Neighbouring licenses are considered to have only minor prospectivity, or minor discovered

volumes, and the probability of an economically-viable regional development appears low

The sister license to P976, which is P1643, has been operated by the same Canamens-Nautical partnership,

with a recent internal work program that integrates the two licenses. This second license has been

relinquished with the same effective date, and a second relinquishment report will be submitted.

3. Exploration Activities

a. Well 8/25a-1(Selkie)

The Selkie prospect, a subtle four way dip closure in late Paleocene sands, covering 14km2, was evaluated

to have a P50 oil in place volume of 220 mmbbl during 2007. With an AFE cost of £8.1m, well 8/25a-1 was

spudded by Transocean Prospect on 11th

May 2008. Operations concluded on 23rd

May, three days ahead

of schedule. The final well cost was £5.5m. The target was the Upper Dornoch sandstone, which was

encountered at 3470ft (mdbrt), within 5 feet of prognosis, with a drilled thickness of 133ft. There were no

hydrocarbon shows. Subsequent geochemical analysis of the cuttings by Fugro Robertson revealed no

traces of hydrocarbon, suggesting failure was likely due to lack of hydrocarbon charge. Subsequent seismic

interpretation showed the possibility of crestal extensional faulting in the reservoir and top seal levels, and

a possible additional reason for failure may be incomplete top seal. Petrophysical interpretation of well

logs showed minor hydrocarbon saturation in the overlying Mousa Formation sands, interpreted to

correlate with zones of oil-based mud loss. The Dornoch section as a whole is sandy, with 120ft of 71% net

sand separated by an internal flooding surface from a lower sandy section of 910ft of 92% net sand.

Porosity is constant at 28%.

b. Partial relinquishment

The western part of this license, covering the dry Selkie structure, was relinquished with effective date 15

December 2008, due to no evaluated remaining prospectivity (Figure 1). Licence partners Canamens and

Nautical were awarded the part of 8/25 that lies further west and north than Selkie during early 2009, and

the fallow 9/21 Skipper discovery that had been included in their application was awarded to other

companies. The failure of Selkie during the extended license round decision process, and the award of

Skipper to others, were heavy blows to the development potential of the 8/25 area.

c. Seismic interpretation

During 2009 the Operator re-evaluated prospectivity in the remaining part of 8/25a together with 8/25b

and western 9/21. The 3d seismic survey that Agip and partners acquired during 1999 was reinterpreted at

reservoir level, and integrated with Selkie well information to assess the remaining potential of the Kelpie

prospect (described below, and Figure 3), as well as the Coelacanth prospect in 8/25b described in the

P1643 relinquishment report. A map at top reservoir level is shown as Figure 2, and a seismic line linking

Selkie and Kelpie as Figure 3.

d. Seismic reprocessing

As part of the work commitment on P1643, 100km2 of the Agip 3d survey was reprocessed by Fugro

Seismic Imaging. Part of the reprocessed area lies within P976. The reprocessing flow and results are

described in the relinquishment report for that license.

4. Prospectivity Analysis

a. Play description

Play Wells targeted at play &

results

Comments

Maureen

Sandstone

9/21-1, 9/21-2, 8/20-1.

All dry holes at Maureen

level

Reservoir level pinches out westwards in eastern 8/25a, with a

remaining untested stratigraphic concept play there. Maureen sands

extend further west along the NW-SE trending Skipper channel. Play

successful in Mariner. Original operator of both Mariner and 9/21

blocks was Unocal. Maureen Sandstone appears not to be charged in

the area, although were these wells all on valid closures?

Upper

Dornoch

Sandstone

8/25a-1 dry hole -

Prospect was not

charged, although there

may also be topseal

issues

9/21-2 serendipitously discovered oil in this play. 9/21-1 had shows in

Beauly Sandstone.

To further pursue this play in the block requires derisking of the one

remaining prospect at Upper Dornoch level, Kelpie, incorporating a

greater understanding of migration pathways (see below).

Mousa

Sandstone

None in immediate area This play has worked in 9/16 block to the north. 9/26-1 to south has

shows. Play not yet evaluated in 8/25a. Probability that any

hydrocarbons at this level will be heavier than 9/21-2. Pursuit of this

play would require new work

Heimdal

Sandstone

Secondary objective in

8/20-1 (dry hole).

Probable topseal problems; requires intra formational seal. This type

of play is not usually successful, however, claystones of 200ft or more

can provide intra formational seals in some areas of the East Shetland

Platform. This play has not been evaluated by Canamens or Nautical.

b. Hydrocarbon migration study

A detailed modelling study was undertaken by Fugro Robertson for the partnership during 2009, designed

to predict hydrocarbon migration pathways across much of the East Shetland Platform, in the light of oil

discovery at Skipper and a dry hole at Selkie. The study remains confidential in general, but suggests that

migration from the graben is likely to have been directed north westwards through Skipper and updip from

there through northern 8/25 and along the 8/20-1 long-lived channel axis. Oil would therefore likely not

reach Selkie or Kelpie, which lie south of this migration path. An excerpt map from the regional model is

shown as Figure 4. The study also suggested that any oil found at Kelpie would be heavy, with API of

around 11.

c. Chance of success at Kelpie

Reservoir Dornoch sand presence extremely likely 0.9

Source Long distance lateral migration from graben proven at Skipper, but absent

at Selkie. Migration studies suggest Kelpie is bypassed

0.4

Trap Low-amplitude 4-way dip closure is likely present; depth conversion is

important

0.8

Top seal T45 top seal has significant variation in offset wells and also in seismic

character: unpredictable

0.7

Kelpie has an estimated chance of success of 20%, and appears difficult to de-risk further.

5. Kelpie Reserves Summary

Gross thickness 100-120-140ft GRV above spill 5.35x107 m

3

Net:Gross 65-71-75% Closing contour 1080m

Porosity 25-27-30% STOOIP 32.8 – 46.7 – 66.6 mmbbl

Expansion Factor 1.03-1.05-1.10 Recovery factor 15-18-20%

Water saturation 20-30-40% Recoverable 8.4 mmbbl

6. Maps and Figures

8/25b

relinq

8/25a Skipper

selkie

kelpie

8/25c

Figure 1: P976 occupies the non-relinquished part of block 8/25a and contains the Kelpie prospect

line of Figure 3

Figure 2: top Dornoch

(i.e. top reservoir) map

No 3d south of this line

Figure 3: Seismic line from Agip 1998 3d survey, linking Selkie and Kelpie structures.

Figure 4: Extract from regional migration modelling study, showing dark green flow lines focussing

westwards from the area of hydrocarbon generation below the Beryl embayment of the Viking Graben,

updip into the Skipper accumulation, and then continuing northwards. The Selkie and Kelpie prospects are

bypassed by migration along lower Tertiary carriers, according to this modelling exercise.

7. Clearance

The submitting operator confirms that DECC is free to publish and that all 3rd

party ownership rights (on

any contained data and/or interpretations) have been considered and appropriately cleared for publication

purposes.

Top Dornoch

Base Tertiary

Selkie structure

with 8/25a-1

gamma log

Kelpie

prospect

North west South east