Under the terms of the announced contract, the partners in the project will invest US$40 million over the next two and a half years and, accordingly, estimate that oil production from the Tibu Field will rise to 15,000 barrels of oil per day from its current level of 1,800 bopd. Under the terms of the existing transportation agreement, this would increase PetroLatina's net income from the Pipeline to US$6.0 million from its current level of US$1.5 million per year.
The development agreement is also expected to lead to confirmation of reserves in the Tibu Field of an estimated 100 million barrels.
Rio Zulia Field
In addition to the above agreement, Ecopetrol SA have also commenced an extended exploration drilling program near their Rio Zulia Field and in close proximity to the Pipeline. This drilling program is expected to commence in 2007 and if successful is also expected to increase significantly the flow of oil through and revenue from the Pipeline.
The Pipeline currently transports an average of approximately 2,800 bopd from the Rio Zulia and Tibu Fields in Colombia.
Rio Zulia - Ayaccucho Pipeline
The Pipeline was acquired as part of the acquisition of Petroleos del Norte S.A.("PDN") in June 2006.
The Pipeline has a design capacity of 25,000 bopd. Success during the initial development phase of the Tibu field will bring the pipeline close to full utilization.
Based on an external evaluation carried out at the time of the acquisition of PDN, US$10 million was attributed to the value of the Pipeline given its prevailing throughput. The underlying value of the Pipeline will therefore increase with the additional throughput usage.
Nicholas Gay, President and CEO, commented, "At the time of the acquisition of PDN, we saw the Pipeline as a hidden source of value. One of the keys to unlocking this was the development of the Tibu Field. This development and the recently announced Serafin Gas project starts to highlight the true worth of the PDN acquisition to create early revenues and long term cash flow for the Company."
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