Relinquishment Report for License P1643 January 2010, Canamens Energy Ltd

1. Header

License Number P1643

License Round 25th

Round (effective 12 Feb 2009)

License Type Traditional

Block number 8/25b

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

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

Work programme summary Reprocess 50km2 3d seismic in first year,

then make drill-or-drop decision with well to

be drilled in first four years

2. Synopsis

License P1643 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 main lead in the license (named Coelacanth) is not sufficiently large to be developed as a stand-

alone project

b. A joint development with the neighbouring Kelpie prospect (in 8/25a) would not be large enough to

proceed

c. The chance of finding oil at Kelpie dropped sharply following the dry hole at the adjacent Selkie

prospect (8/25a-1) and has not risen significantly following subsequent intensive G&G work in that

license

d. The probability of an economically-viable regional development centred on the Skipper discovery

appears low, and Coelacanth’s additional volumes may not be large enough to offset additional

costs of its integration in that development

The sister license to P1643, which is P976 and covers block 8/25a (see Figure 2), 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 submitted.

The relinquishment of license P1643 is effectively the “drop” option of the drill-or-drop decision required

by DECC within the first year of the license.

3. Exploration Activities

a. Seismic reprocessing

Fugro Seismic Imaging reprocessed 100km2 of the Agip 1998 3d survey for the license partnership in mid

2009, including large parts of 8/25b in addition to the relevant neighbouring structures at Kelpie (in 8/25a)

and Skipper (in 9/21, Figure 1). The original dataset is owned by Nautical Petroleum, and is stored at

Merlin Datawise in Ledbury. The master copies of the reprocessed data are held by Canamens Energy in

our Stavanger office (contact Knut Hansch). The reprocessing project fulfilled the work commitment

described in the license documents issued by DECC.

The reprocessing flow is listed below:

1. Reformat from field format to internal format, retaining

all supplied headers.

2. Merge P1/90 navigation data (provided by client).

3. Shot and channel trace edits from observers reports.

4. Resample to 4 ms, anti-alias filter applied (zero phase).

5. Designature using a supplied far field signature,

including de-ghosting and de-bubbling. Output zero-phase.

6. Spherical divergence and gain recovery.

7. Swell noise attenuation.

8. Linear noise attenuation.

9. 2D SRME.

10. Tau-P deconvolution (includes mute in tau-p domain) in

shot domain and receiver domain.

11. Trace decimation to output group interval 25 m after

differential NMO.

12. Velocity analysis on 0.5 km interval.

13. Shot interpolation.

14. RADON high resolution demultiple.

15. Trace drop (interpolated traces).

16. Phase only Q compensation, Q factor and Q reference

frequency to be determined (or provided).

17. 3D Kirchhoff full pre-stack time migration – 0.5 km

velocities using velocities picked in step 12.

18. RMO Velocity analyses on a 0.5 km interval (4th order).

19. NMO (4th order).

20. Inner and Outer trace mutes.

21. Stack full offsets.

22. Deconvolution/Spectral balancing/Amplitude Q

compensation.

23. FX deconvolution.

24. Time variant filter.

25. Residual gain application/AGC.

Figure 1: Map showing extent of reprocessed seismic, across blocks 8/25 and 9/21:

8/25b

relinquished

8/25a

Example time slice

illustrating extent of

reprocessed data

Edge of large Agip

original dataset

b. 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 in the relinquishment report for P976), as well as the Coelacanth prospect in 8/25b.

This mapping was then compared with the newly-reprocessed seismic data at the end of 2009. Although

frequency content is slightly higher, the new dataset does not reveal new structures or further

prospectivity (Figure 3).

There is one significant lead in 8/25b, named Coelacanth by previous operators, located in the north east

of the block (Figure 3). It lies on a long-lived sandy channel axis that has a NW to SE orientation and

appears to have been active through much of the Paleocene. Coelacanth is a Dornoch level lead, with

compactional four way structural closure. Lower levels have very small to negligible closure, with nothing

preventing up-channel migration to the NW. Lower levels are also likely to have very risky top seal, given

the high sand thickness indicated by the large differentially-compacted relief across the channel.

Top reservoir depth is shown in Figure 3, and an example line across the Coelacanth lead is shown in Figure

4.

4. Prospectivity Analysis

The possible Tertiary hydrocarbon plays present in the 8/25 area are listed below.

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 9/21-2 (Skipper) and a dry hole at 8/25a-1. 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 along the long-lived channel axis on which Coelacanth lies. The study suggested that

if sufficient oil volumes to over-fill the Skipper structure had passed along the pathway and reached

Coelacanth, it would be heavy, with API of around 11.

c. Chance of success at Coelacanth

Reservoir Dornoch sand presence likely, though may be focussed either side of the

newly-forming compaction structure and thinner on crest

0.7

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

at Selkie. Migration studies suggest Coelacanth is on pathway updip from

Skipper

0.6

Trap Low-amplitude 4-way dip closure is likely present; critical saddle exists to

NW, which may be affected by precise depth conversion

0.7

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

character: unpredictable

0.7

Coelacanth has an estimated chance of success of 20%.

5. Coelacanth Reserves Summary

Gross thickness 40m GRV above spill 1.86x107 m

3

Net:Gross 70%

Porosity 27% STOOIP 16.3 mmbbl

Expansion Factor 1.05 Recovery factor 18%

Water saturation 30% Recoverable 2.9 mmbbl

6. Maps and Figures

coelacanth

8/25b

Figure 2: P1643 occupies block

8/25b including the Coelacanth

lead

8/25a Skipper

selkie

kelpie

8/25c

line of following section

Figure 3: top Dornoch

(i.e. top reservoir) map

No 3d south of this line

Figure 4: Seismic line from Agip 1998 3d survey. Location on Figure 3

Top Dornoch

Base Tertiary

Selkie structure

with 8/25a-1

gamma log Coelacanth

North west South east

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.