Solana Resources Completes Guariquies 1 as a Producer


Guariquies 1 Well
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Solana Resources has successfully completed drilling the Guariquies 1 well, in the Middle Magdalena Basin in Colombia. Solana operates in Colombia through Solana Petroleum Exploration Colombia Limited, Solana's wholly owned subsidiary.

	    Key Points

	        -  The Guariquies 1 well was successfully completed as a commercial
	           oil producer.

	        -  An appraisal/development program has been proposed by the operator
	           (Ecopetrol) to use the rig currently on location to undertake a
	           second well as soon as site works are completed.

	        -  The Guariquies 1 discovery is near existing oil fields and is
	           located within ten kilometers of existing oil handling and
	           pipeline facilities.

	        -  Nearby fields are characterized by having wells with modest
	           individual well production rates but having significant reserves
	           and relatively low development costs.

	        -  It is expected that new discoveries can be brought on stream
	           quickly and without significant up front capital investment for
	           production facilities and pipelines.

	        -  In recognition of the commercial completion of the well, the
	           transfer of interest from Ramshorn to Solana in Guariquies 1 has
	           been approved, so that in future wells Solana will participate
	           directly in the Shared Risk Contract and will pay 37.5% of the
	           costs and receive 33.75% of any future production.

	        -  The Guariquies 1 well is part of an active Solana program in
	           Colombia consisting of approximately 700 kilometers of seismic and
	           ten additional exploration wells planned for the next eighteen
	           months.

	    Shared Risk Contract

The Guariquies 1 well was drilled under the terms of a Shared Risk Contract between Ecopetrol (the Colombian State Oil Company) and Ramshorn International ("Ramshorn"). Solana participated in the well under the terms of a commercial agreement whereby Solana paid 96% of Ramshorn's share of the initial well cost to casing point to earn 75% of Ramshorn's 45% working interest. On Feb 28th 2006, in recognition of the commercial completion of the well, Solana received notice from Ecopetrol that a transfer of interest from Ramshorn to Solana in Guariquies 1 had been approved. In future wells Solana will participate directly in the Shared Risk Contract and will pay 37.5% of the costs and receive 33.75% of the production.

Drilling Result Details

The Guariquies 1 well was drilled to a final total depth of 10,243 ft. Potential oil pay was identified in a number of zones between 5,400 ft. and 10,200 ft. The results of the drillstem tests (DST's) conducted in this well are as follows:

	        -  A DST of the Mugrosa interval between 5,494 ft. and 5,652 ft.
	           covering 3 individual sands tested 29.5 degree API oil at rates
	           ranging from approximately 210 bopd stabilized to a maximum of
	           500 bopd at an unstabilized rate. A total of 80 ft. of sand in a
	           net sand interval of 120 ft. with porosity greater than 15% was
	           perforated. The well flowed a total of 982 barrels of oil during
	           the testing period. Pressure buildup data indicates that the
	           permeability in these sands is modest and similar to that in
	           nearby producing fields.

	        -  An average gas/oil ratio of 400 standard cubic feet per stock tank
	           barrel was recorded and no significant formation water was
	           recovered during the testing operations. On that basis the entire
	           Mugrosa section in this well is expected to be oil bearing.

	        -  A drillstem test of the La Paz unit was conducted to test
	           8 individual reservoir sands in the La Paz formation over the
	           gross interval from 9,458 to 10,090 ft. A total of 149 ft. of sand
	           was perforated. The test flowed a total of 418 barrels of
	           32 degree API oil with no formation water. DST flow rates were
	           low, ranging from 0 to 380 BOPD and did not stabilize. DST
	           analysis indicates that this zone, despite having fair porosity
	           (9- 15%), has low permeability. Additional studies will be
	           required to determine if the productivity of this zone can be
	           enhanced to produce at commercial rates.

	        -  Three additional DST's were conducted to test individual sands
	           10 to 30 ft. thick over the interval from 6404 ft. to 9,065 ft.
	           Two of these failed to recover any significant quantities of fluid
	           (oil or water). The third recovered 30 barrels of oil with minor
	           amounts of water and sediment.

	    Basin Characteristics

The Guariquies 1 discovery is near existing oil fields and is located within ten kilometers of existing oil handling and pipeline facilities. A total of 982 barrels of oil recovered in the Guariquies 1 drill stem tests has already been trucked to this facility. Several nearby fields, including two which have produced 100 million and 900 million barrels respectively to date, are characterized by having wells with modest individual well production rates but having significant reserves and relatively low development costs. In this environment new discoveries can be brought on stream quickly and large up front capital investment for production facilities and pipelines is not required.

The performance of wells in nearby fields with similar characteristics indicates that it should be possible to pump the Guariquies 1 well at 300 to 400 bopd.

Forward Program

Civil works will begin within a week at the Guariquies 1 location and are expected to take 30 days. This will allow Guariquies 1 to be put on a long term test with the oil being trucked to nearby production facilities.

An appraisal well, Guariquies 2, has been agreed upon by the parties and it is expected that this will be drilled with the same rig from the Guariquies 1 location. Future wells, to test only the Mugrosa Formation to 7,000 ft. are expected to require smaller and less expensive drilling rigs than that used to drill the Guariquies 1 well which was drilled to 10,243 ft. in order to test deeper zones.

The Guariquies 1 well was programmed to test several individual objectives on a deviated trajectory. For that reason it is believed that the Guariquies 1 well only penetrated part of the productive Mugrosa formation. Future appraisal wells will be targeted to penetrate the full Mugrosa formation which, based on surrounding wells, is expected to be thicker than that tested in the current well.

Guariquies 1 took 71 days to reach the final total depth of 10,243 ft. at a cost of approximately US $ 7.5 million. Completion of the well, remedial cementing and subsequent testing operations took 74 days at an additional cost of approximately US $ 5.5 million. Future development wells to test only the Mugrosa Formation to approximately 7,000 ft are expected to cost in the range of US $ 3 to US $ 5 million based on Solana estimates.

Stephen Newton, the Corporation's President and CEO, commented:

"We are pleased that the Guariquies l well has been completed and identified as a commercial producer, and that the transfer of interest from Ramshorn to Solana has been approved by Ecopetrol. The follow-up appraisal program will allow the parties to put the proposed development plan in place.

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