Frontera announced an update of development drilling operations, including the discovery of extensive new gas resources in the undeveloped northwestern portion of the Mtsare Khevi Field within its Shallow Fields Production Unit, Block 12.
Testing operations are currently underway at the recently announced Mtsare Khevi #32 well that was drilled in the undeveloped northwestern portion of the field, approximately 4 km away from previously drilled well #31. After drilling to a planned depth of 370 meters, log analysis indicated that approximately 33 meters of gas bearing net pay were penetrated among the known Zones I, II and III within the field. Testing has begun on a 14 meter section of the lowest portion of the identified pay zones, Zone I, and delivered a rate of approximately 12,500 cubic meters of gas per day (441 mcf per day) on a 9 mm choke and 19,000 cubic meters (671 mcf per day) on a 16 mm choke. It is estimated that the absolute open flow, AOF, for Zone 1 based on these tests is approximately 24,000 cubic meters per day (847 mcf/d). Over the next week, testing operations will progress up hole to Zones II and III in order to determine total gas deliverability from the well.
Based on results observed to date, Frontera believes that the #32 well has successfully served to expand the size of the Mtsare Khevi field's gas potential by as much as 5 times the previously identified recoverable gas estimates associated with the Company's historical work in the field. Situated less than 10 km from the national gas distribution pipeline grid, the new discovery will serve to accelerate the addition of new infrastructure to commence gas sales. Construction engineering plans are currently under review in order to determine the most efficient timeline for installation.
In other operations within the field, the recently drilled Mtsare Khevi #31 well has been placed on production at an expected rate of approximately 10 bbls of oil per day (b/d) from a 7 meter reservoir section. The well penetrated approximately 22 meters of net pay, including 6 meters of gas bearing reservoir sands.
Drilling operations will now continue at the #41 location which is the third of a planned 20 well program over the next 24 months designed to exploit multiple Upper Pliocene sandstone reservoirs situated at a depth of approximately 300 meters.
The Mtsare Khevi Field, which Frontera operates with 100% interest, is located in the western portion of the Shallow Fields Production Unit. In their July 2010 report for the Company, the independent engineering firm of Netherland, Sewell & Associates ("NSA") places a "Best Estimate" for gross original gas-in-place for the Mtsare Khevi Field of 2.6 billion cubic feet, with a "low"-to-"high" range of 2.1-3.1 billion cubic feet; and a "Best Estimate" for associated gross contingent and unrisked prospective resources of 1.5 billion cubic feet, with "low"-to-"high" range of 1.2-1.9 billion cubic feet. Frontera's new internal estimates reflect additional resource potential along the northwest trend of the field's fault block which the Company believes have now been confirmed by well #32. NSA will be asked to evaluate Frontera's assessments for this area once appraisal drilling has been completed during the current campaign.
For oil, NSA places a "Best Estimate" for gross original oil-in-place for the Mtsare Khevi Field of 14.9 million barrels, with a "low"-to-"high" range of 11.3-19.7 million barrels; and a "Best Estimate" for associated recoverable gross contingent and unrisked prospective oil resources of 2.1 million barrels, with a "low"-to-"high" range of 1.4-3.2 million barrels. This assessment is generally consistent with Frontera's internal estimates.
Steve C. Nicandros, Chairman and Chief Executive Officer, commented, "The successful results achieved by the #32 well are extremely significant in that they not only serve to expand and enhance the value of the Mtsare Khevi field's gas resources, but also confirm the presence of gas in the western portion of Block 12 which may lead to further upside prospectivity. This confirmation provides important technical support for gas exploration efforts related to other fields situated within the Shallow Fields Production Unit as well as our nearby Shale Gas Play Unit where we believe large gas resources are contained in unconventional reservoirs associated with the Maykop shales.
"Overall, the success achieved from recent drilling has significantly enhanced the value of the Mtsare Khevi field and will now set us on a course to accelerate gas sales into the local market where prices range from $4 to $6 per mcf. When these gas sales commence, the increase in production will provide Frontera with the additional cashflow to significantly enhance the profile of the Company and contribute to its target of reaching 5,000b/d by the end of 2013."
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