Petrolifera anticipates commencement of natural gas production and sales, in the first quarter of 2011 ("Q1 2011") from its Brillante SE-1X well, situated on its 100 percent-owned Sierra Nevada License, situated in the Upper Magdalena Basin, onshore Colombia.
Petrolifera has executed a three year contract with Trayectoria Oil and Gas for the sale of up to eight (8) MMcf/d of natural gas, to be sold as compressed natural gas ("CNG"). Production and sales are anticipated to commence at a level of approximately three (3) MMcf/d, rising to five (5) MMcf/d several months later. The natural gas sales volumes could be increased to eight (8) MMcf/d sometime thereafter.
The negotiated well head price for the natural gas under this early production system is set at an initial price of US$2.00 per MMBTU and will be adjusted annually based on changes in the U.S. Consumer Price Index. The negotiated price under the early production system is considerably below the anticipated long term natural gas price that may be received once the Brillante SE Field has been fully developed and becomes pipeline-connected to available markets.
Given the modest capital investment anticipated to be made by Petrolifera to initiate this early production system, it is expected that this project will generate an attractive rate of return at the negotiated price. In the company's opinion, the daily rate and expected total cumulative volume of natural gas agreed to through the life of the contract should easily be attainable, supported by the initial interpretation of the bottom-hole pressure data that was collected from the Brillante well over the 42-day shut-in period which ended on November 3, 2010 following the long-term test at the well, results of which were previously reported to shareholders.
Following the successful completion of this operation at Brillante SE, it is anticipated it would then be possible to begin crude oil and natural gas production from the La Pinta 1X well, also located on the Sierra Nevada License. This would follow a hydraulic fracture of the Upper Porquero Formation to increase the well's potential productivity and again utilizing the same CNG technology to handle the associated gas which would be produced with prospective light gravity crude oil production from this zone. The Upper Porquero Formation was previously evaluated in 2010 in the La Pinta 1X well, drilled on the same large license at a location approximately 40 kilometers west of the Brillante SE 1X well. Light gravity crude oil flowed on test at an average measured rate of 139 bbl/d of crude oil with 739 Mcf/d of natural gas. It is anticipated that the well's overall productivity can be greatly improved following a hydraulic fracture. Readers should be cautioned that the measured flow rates from the testing of the Upper Porquero Formation in the La Pinta 1X well may not be indicative of stabilized production rates for this well.
Petrolifera is also conducting negotiations with another Colombian pipeline and marketing company for the sale of substantially larger natural gas volumes, at full market prices, once a Brillante SE Full Field Development Plan is in place. It is anticipated this could occur within a 24 to 36 month period. In the interim, these potential sales and prospective sales of crude oil from the Upper Porquero Formation in the la Pinta 1X well may result in a meaningful new source of revenue and operating income for Petrolifera and the company's first revenue and production in Colombia, where it holds a 100 percent interest in the Sierra Nevada and Magdalena Licenses in the Upper Magdalena Basin and a 50 percent interest in the Turpial License in the Middle Magdalena Basin.
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