On December 12, 2005 Petrolifera had reported testing of the well had been suspended, awaiting the arrival of a separator after the well initially flowed at rates between 700-725 bbl/d through a 1/2 inch choke.
Thick Sierras Blancas sands were tested and the oil recovered is consistent in quality with that from the 1003 and 1004 well, with a modest gas/oil ratio and no water. Further testing with increasingly larger apertures was not conducted, as the oil volumes being recovered exceeded the capacity of and flooded the available separator or could not be moved to storage due to a summer rainstorm which limited the ability to truck additional oil at the time.
Petrolifera will conduct a pressure build up test on the well and then proceed up hole in the 1002 well bore to test at least one zone in the Quintuco Formation during the next several days. Accordingly, the service rig will remain on the 1002 well for this period awaiting the completion of the drilling of the 1010 well, which is located approximately one-half mile to the west of the prolific 1003 well and about three miles northwest of the 1002 well. Once a production string has been run in the 1002 well, the service rig will move to test the 1010 well, while the drilling rig will move to the 1011 location situated just under one-half mile east of the 1003 well. It will also be tested, if warranted, after completion of drilling and logging operations.
It now appears that the 1011 well will likely be the last well drilled by Petrolifera in 2005. Once the service rig completes testing of the 1011 well, it will likely be moved to the 1005 well west of the old Puesto Morales Sur field to test two Quintuco zones, which appear to be hydrocarbon- bearing, before being released for a period to allow the company to assess the results of its very successful drilling campaign and to advance engineering work to size the permanent facilities which the company anticipates building in the early part of 2006.
In addition to continuing efforts to secure additional drilling and service rigs for 2006, Petrolifera anticipates it will commence 24 hour operation of its treatment facility next week, which should allow production to increase from around 1,200 bbl/d currently to around 1,800-1,900 bbl/d. A further increase to around 3,500 bbl/d may be achievable in early 2006 if additional trucking capacity can be secured, enabling untreated oil to be hauled to nearby facilities owned by other operators. It may be recalled the 35 degree API oil produced in the region is salty, requiring desalinization before sale, and this is the current short-term facility constraint on overall productivity.
Further forecasts of the level and timing of increased production will await an overall assessment of drilling and testing results. The company's management also expects to reassess its Argentinean capital spending program for 2006 in light of the significant drilling success encountered in the 2005 program; the need for larger permanent facilities and the increased availability of internally generated cash flow arising from much higher current and anticipated production levels than were originally expected when the company went public and started its drilling program.
Petrolifera will continue to utilize the independent consulting firm of DeGolyer & MacNaughton Canada Limited to evaluate its year-end reserves pursuant to NI 51-101 parameters and this evaluation is anticipated to be completed in conjunction with the determination of year-end audited financial results, which are scheduled to be released on or about March 21, 2006. With the anticipated level of 2006 activity, it is probable that Petrolifera will also arrange to have quarterly updates of its reserves conducted if the company is able to maintain its aggressive drilling program in Argentina, subject to suitable rig and service rig availability.
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