Following management changes in the middle of last year and a strategic review, Emerald is now focussing on lower cost/lower risk exploration opportunities more in keeping with the Company's financial resources. The Llanos Basin has been identified as an area possessing the required characteristics, offering an alternative to the Magdalena Valley with its relatively complex geology and correspondingly higher drilling costs. The Llanos Basin is an old established oil province with a well-developed infrastructure.
The acquisition of the La Cabana and Campo Rico fields are a part of this approach to concentrate on low cost/low risk fields, which will supplement the reserves already discovered within Colombia.
After reviewing a number of blocks Emerald identified La Cabana, previously held within Ecopetrol's own portfolio, as offering the most prospective opportunity. The commitment is to drill an exploration / appraisal well during the first contract year and on current plans this is expected to be spudded in December this year. La Cabana covers an area of 12 square kilomers. The block is centered on an existing oil discovery well, La Cabana #1. This well was drilled in 1984 by Union Texas to a depth of 17,600 ft and on test produced oil from several zones. Lying close to the giant Cusiana and Cupiagua fields, expected recoverable reserves in only one of the four potential reservoirs in La Cabana have been estimated by Ecopetrol to be approximately 25 million barrels. The testing program in the original well was technically flawed, leaving potential for considerable upside for reserves within the block. Emerald will have a 100% working interest in La Cabana.
Emerald has been negotiating with Ecopetrol for a considerable time to exchange the Vuelta Larga block for another block with better prospects. Campo Rico is a large block covering 92 square miles in an oil rich area of the Llanos Basin. The geological trends evident in the existing producing fields, Santiago-Entrerios and Rancho Hermosa-La Punta, traverse the block. From the existing Ecopetrol dataset it is expected that previously un-recognized closures will emerge through careful re-mapping and in addition, a number of abandoned structures should repay modern re-appraisal. The block offers substantial potential in an area where exploration success has been considerably better than Colombian averages. The obligation is to drill a well within the first 12 months. The company will have a 100% working interest in Campo Rico.
An agreement in principle has been reached with Ecopetrol in respect of commerciality on the Matambo Block, which includes the Gigante discovery. In the likely event of sole risk commerciality being approved by Ecopetrol this will result in Emerald owning 100% of the block, net of the 20% government royalty, until Emerald has received a 200% cost recovery whereupon Ecopetrol will have the right to back-in. Sole risk commerciality improves the economics of the project considerably insofar as oil sales will be received earlier than would otherwise be the case. Another benefit is that the future timing of drilling Gigante #2 will also then lie with Emerald as operator and developer of the block. Emerald is in the process of preparing the formal application for commerciality.
Discussions on farming out in an interest in the Matambo Block are continuing with large international oil companies. These are expected to result in an early commitment to the drilling of Gigante #2 with Emerald being carried for all or the majority of the drilling costs.
Iain Alexander, Chief Executive commented: 'In the past few weeks the Company has made significant strides towards realizing its potential in Colombia. The share swap with Resources Investment Trust, earlier this month, not only provides the Company with short-term working capital but also gives us a committed long-term shareholder.
'These agreements with Ecopetrol gives us low cost recoverable reserves which will underpin our new Colombian strategy. Our main producing asset Gigante #1A has produced lower levels than anticipated in the last 6 months, with production currently at circa 600 bopd. A jet pump was installed last weekend and is expected to increase flow rates. Commerciality, when granted, will allow us to drill Gigante #2 within our own timetable.
'We are also in negotiations with several parties regarding a farm-out on Matambo, which we believe will be successfully concluded in the not too distant future.'
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