Pacific Rubiales has executed a Farm-in Agreement with Flamingo Energy Investment (BVI) Ltd., Chx Guatemala Limitada, and Compañía Petrolera del Atlántico, S.A., through which the Company will earn-in a 55% participating interest, as well as operatorship, in the "7-98" Contract, which corresponds to the area known as "A-7-96", made up of the "N-10-96" and "O-10-96" blocks located in the Republic of Guatemala (the "Contract"). The Company also announced exploration success at the Pedernalito-1X exploration well in the Guama Block in northern Colombia.
Ronald Pantin, Chief Executive Officer, commented, "The Guatemalan farm-in that we announced today reflects our interest in expanding into countries with high exploration potential that match our technical skills. Separately, the exploration success in Guama confirms our vision of the prospectivity of this block and adds to our growing presence in the natural gas sector. These new steps mark the beginning of the road towards becoming the most successful oil and gas company in Latin America."
The Company has identified an area with very attractive exploration potential in the Republic of Guatemala. This area is the southeast prolongation of the prolific Carbonate Bank of the Yucatan oil province, which has borne approximately 70 billion barrels of Mexico's original oil in place. In Guatemala, 10 oil fields have been found in the same Mesozoic reservoirs. The Contract is located in the southern Petén Basin and is characterized by the presence of abundant oil seeps and oil occurrences in seismic shot-holes. By signing the Farm-in Agreement, the Company gains access to five prospects, with a potential of more than 4 billion barrels of oil in place.
Under the Farm-in Agreement, the Company will earn its participating interest, as well as operatorship of the Contract, by executing the following activities (collectively the "Consideration"):
The first four activities described above will have an approximate cost of US$11,200,000 and the drilling of the exploratory well is expected to cost US$10,000,000. Under the Farm-in Agreement, if the Company determines that the drilling of a second exploratory well is required, the second well would be paid for by the parties according to their participating interests. If a second well is required, the total amount potentially to be invested by the Company is estimated to be US $25,875,000.
In accordance with the law that regulates hydrocarbons exploitation in Guatemala, the Company will be entitled to act as an oil and gas operator with a participation in the production, within a transparent legal framework, which allows it to enjoy legal and contractual guarantees. This includes: (i) the exclusive right to explore for and produce oil in specific and well-delineated areas and blocks; (ii) the right to export and commercialize the oil and gas produced; (iii) the right to recover all recoverable costs attributable to the Contract; (iv) the right to import under a special duty-free regime the machinery and equipment necessary for operations, as well as to re-export it back; and (v) the right to reinvest or redirect to foreign countries the profits obtained from the operations.
The assignment of the working interests is subject to governmental and/or regulatory approvals, as well as the satisfaction of the Consideration, among other conditions. Until this occurs, the Company's participating interest as well as operatorship will be held in trust by the other parties.
Pedernalito-1X was drilled in the Guama Block as a new field exploration well which targeted the thinly laminated sands of the Middle Miocene Porquero Formation, on the flank of an incipient diapiric feature, with a 2,355 acre closure. The combined stratigraphic-structural play that the Company evaluated was based on a series of stacked seismic patterns with well-developed AVO anomalies.
The well was spudded on September 8, 2010 and reached final depth of 7,100 feet measured depth (MD) on October 8, penetrating the massive Porquero Formation from surface down to true depth. During drilling, the well exhibited several gas shows that forced the Company to increase the mud weight up to 15.5 ppg. Despite this, the well gas-kicked twice, at 4,946 feet MD and 6,068 feet MD, flaring gas on both occasions.
Following open-hole logging, the petrophysical evaluation indicates a total of 29 feet of net pay in low-resistivity, thinly laminated sands in eight different zones with average porosity of 11% and average water saturation of 59%. Also, a 22 foot core was recovered, and laboratory tests are being conducted in order to study an eventual gas shale development in the block.
The test will be designed for an estimated static pressure of 3800 psi at 5,900 feet MD, which takes into consideration the sharp increase of drilling mud weight from 9.9 ppg to 15.8 in less than 6,000 feet
This new discovery underlines the prospectivity of the area, and adds to the resource base upon which the Company is building its natural gas presence. Alternatives for the development of these resources will have to be evaluated, but will undoubtedly include internal and export markets, as well as local electricity generation.
The Guama Block is located in northern Colombia and is part of the Lower Magdalena Basin. The Company holds a 100% working interest in the block.
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