PetroLatina announced that extended production testing has now commenced on the Serafin-1 gas well and will continue for a period of 6 months.
The Serafin gas field is located in the Company's Tisquirama license block in the Middle Magdelana Valley, Colombia. The discovery was made by Texaco in 1991 and was not developed at that time due to a lack of markets for such gas. The gas bearing reservoir is found in the Real Formation at a depth of 4,582 to 4,598ft and the well is located approximately 3km to the northeast of the Querubin-1 producing oil well drilled by the Company in mid 2010. The Serafin-1 gas well was worked over in January 2007 and tested at flow rates of 14 million cubic feet of gas per day ("MMscf/d"). Based on an assessment by Ryder Scott Company, L.P., the independent petroleum consultants, in their reserves report of November 2009, gas initially in place was estimated to be 5.37 billion cubic feet ("Bcf") with 1P Reserves of 3.13 Bcf, and the well was expected to be capable of initially producing up to 7 MMscf/d. The Serafin-1 gas well is currently jointly owned by PetroLatina (50%) and PetroSantander Corporation (50%), although such interests would reduce to 25% each in the event that Ecopetrol S.A. was to exercise its back-in rights and pay its share of capital costs expended to date and ongoing operational costs. The Company is the operator.
Initial production rates from the first few days of continuous testing started with a flow of 5.5 MMscf/d of gas, a well pressure of 1,850 pounds per square inch ("psi") and minimal pressure decline. The well was subsequently shut in for 8 days to enable memory gauges to be removed and to provide a preliminary assessment as to the minimum size of the reservoir. The extended production test has now recommenced with a flow rate of 5.5 MMscf/d of gas and a well pressure of 1,850 psi, and will continue initially for another 70 days, at which point the well may be shut in for a short period before continuing the test until the end of the 6 month test period. During that time, production rates will be stabilized and the overall well performance evaluated, with further information being obtained on the size of the gas accumulation. Although the reservoir sand is known to have good porosity and permeability based on historic testing, the areal extent of the reservoir is not known and hence this extended test is required in order to prove up the longer term commercial viability of the well.
Simultaneously with commencement of the extended test, PetroLatina has entered into an interruptible sales contract for all the gas produced during the 6 month extended test period with Ecopetrol S.A., at 90% of the regulated price for Texaco for Barranca-Ballena's gas (as regulated by CREG, the Regulatory Commission of Energy and Gas of Colombia). The regulated price is currently $4.2562/million British thermal unit ("BTU").
Once the extended testing program has been concluded, PetroLatina will provide shareholders with a full update on the test results including the stable production rate achieved throughout the test period. A preliminary assessment will also be made of the minimum size of the reservoir and its value to the Company.
Signing of VMM-28 E&P contract (100% Operated Working Interest - 54,522 Ha)
The Company is also pleased to announce that it has now signed the formal definitive Exploration and Production ("E&P") contract with the Agencia Nacional de Hidrocarburos ("ANH") of Colombia in respect of the VMM-28 block. PetroLatina owns a 100% operated working interest in the new contract, and will now commence further analysis of the available historic 2D seismic data before commissioning additional seismic analysis.
Luc Gerard, Chairman of PetroLatina, commented, "We are delighted to have brought the Serafin gas well into test production which has enabled initial commercial gas sales to commence. We anticipate that the additional cash flows expected from this project will help fund our current plans for further drilling on our portfolio of Colombian assets during this year."
Juan Carlos Rodriguez, Chief Executive Officer of PetroLatina, commented, "Initial results to date from the Serafin-1 gas well have been encouraging and we look forward to reviewing the results of the longer term test and reporting on them in due course. Having now brought Serafin-1 into test production, we will continue to pursue our strategy for the Company of increasing production and substantially increasing Possible Reserves, as well as moving an element of them into the 2P category.
"Signing of the formal VMM-28 E&P contract positions us as the main player in the Middle Magdalena Valley basin. The block is strategically located in the basin; immediately adjacent to the Company's La Paloma producing oil fields, and next to VMM-27, which is owned by Royal Dutch Shell. Preliminary analysis of existing historic 2D seismic data suggests that the type of structure from which the Company produces oil on its La Paloma block may also be in a trend and hold commercial oil reservoirs on VMM-28."
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