Petromanas Energy on Monday provided an update on its Albanian drilling program and its previously announced acquisition of Gallic Energy Ltd.
The Juban-1 well was spud on Nov. 23, 2012 and reached a depth of 5,629 feet (1,716 meters) on Dec. 27, 2012. The hole was logged once this target depth was reached. Logging operations were completed Dec. 30, 2012. Information gathered through the logging program indicated negligible quantities of hydrocarbons were present and the company has decided to plug and abandon the well. Petromanas holds a 100 percent working interest in Blocks A-B and total costs to drill the well to a depth of 5,629 feet (1,716 meters) were approximately US$6.5 million, approximately two million dollars less than the US$8.6 million originally budgeted.
The Shpirag-2 well reached the top of the target carbonate reservoir zone at approximately 15,583 feet (4,750 meters) in late December 2012. The company has set casing to the top of the objective to put the less stable Flysch shale that overlies the target carbonate behind pipe. The well is now drilling ahead in the carbonate reservoir. Petromanas plans to penetrate the carbonate to sufficiently evaluate the reservoir potential. Testing is expected to follow reaching total depth. Total costs to drill the well to total target depth of 20,013 feet (6,100 meters) are estimated at US$44 million gross, US$9 million net to Petromanas.
"We drilled the Juban-1 well based on extensive geological analysis of potential analog structures with the hope of identifying commercially viable accumulations of hydrocarbons outside areas of current production," said Glenn McNamara, CEO of Petromanas. "Juban-1 was a high risk exploration well with an estimated chance of success of less than 20 percent since there is no existing petroleum system in northern Albania and, while this result is not what we hoped for, we believe we have been able to cost effectively obtain an initial assessment of the potential of this area. Our drilling program continues to advance with the Shpirag-2 well drilling ahead into the carbonate reservoir and we remain optimistic with respect to the potential of Blocks 2-3."
Petromanas has completed the Environmental and Social Impact Assessment (ESIA) and civil engineering work at two additional potential drilling locations on Blocks 2-3. Upon receiving environmental permits from the Albanian government, the company will apply for the required civil construction permits to build access roads and well sites as developments dictate.
Seismic contractor Geotec Spa of Italy completed shooting a test seismic line in mid-December and subsequently demobilized its crew. The test line will help determine the final shot parameters for the balance of the company's 248 mile to 310 mile (400 to 500 kilometers) 2D seismic program, expected to be completed in late 2013. Petromanas and its partner are evaluating alternative shot hole depths and charge sizes to optimize data quality and manage costs. The test program results have the potential to reduce future seismic costs in the area.
Under the terms of the company's farm-out agreement with Royal Dutch Shell plc, Shell will carry the first $20 million dollars of this seismic program with any excess amount shared equally by both parties. Petromanas has concluded the tender process with contractors for the next stage of the seismic program and will be awarding the contract upon the conclusion of final negotiations with the preferred contractor.
Following ongoing discussions with the Albanian government, Petromanas has requested and is awaiting approval of a one-year extension to complete its commitments for Period 2 under the Production Sharing Contract (PSC) for Blocks D-E. In December, the Albanian Ministry of Economy, Trade and Energy acknowledged receipt of the request and formally asked for a draft PSC amendment to be filed with the Ministry. Once the Ministry approves the amendments to the PSC, it will be submitted to the Albania Council of Ministers for ratification. The company previously provided the Albanian government with a standby letter of credit for $6.3 million in support of its Period 2 performance guarantee, which remains in force. Once the extension is approved, Petromanas would have until Dec. 25, 2013 to complete its obligations on Blocks D-E under the amended PSC. The company intends to use the information gathered from its current drilling programs to determine how best to meet its commitments for Period 2. The Company considers Blocks D-E to be of higher risk than Blocks 2-3 and relatively costly to explore based on the lower prospective resource volumes allocated to the Papri prospect.
Petromanas is in the final stages of closing the previously announced business combination whereby Petromanas is acquiring 100 percent of the issued and outstanding class A shares of Gallic, in exchange for common shares of Petromanas, by way of a statutory plan of arrangement.
As previously disclosed, the arrangement was approved by Gallic shareholders and warrantholders at a special meeting held on Dec. 13, 2012. Gallic also received the final approval of the Court of Queen's Bench in respect of the arrangement following its application to the Court on Dec. 14, 2012 . It is anticipated that the arrangement will close later today.
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