The company's first quarter 2007 crude oil sales averaged 11,333 bbl/d, which represents a 511 percent increase over the same period last year when sales were only 1,855 bbl/d. The first quarter sales also represent an increase of six percent over the fourth quarter of 2006, despite the fact fourth quarter 2006 levels were favorably affected by deliverability testing during the month of December 2006, when peak production levels of 13,400 bbl/d were tested. Since that time, the company has curtailed production levels for sound reservoir management purposes and some pressure declines have also been experienced. Accordingly, the company is proceeding with a pressure maintenance waterflood designed to assist long-term production levels and overall reserve recovery factors. The waterflood is anticipated to be operative by September 2007 when water injection will be initiated, after which it will take some time for response to occur in the reservoirs. In the interim, production growth is likely to be achieved from new wells drilled on newly defined prospects which are separate from the existing accumulations.
First quarter 2007 natural gas sales were 1,858 mcf/d and on an equivalent basis, sales averaged 11,643 boe/d, 485 percent above 2006 levels of 2,062 boe/d.
In 2007, Petrolifera has drilled and completed only three wells due to the late arrival of drilling rigs. All of the wells have been tested, cased and completed as producing oil wells. Two of the wells, 1016 and 1023, have been placed on pump due to the wells encountering lower reservoir pressures. The 1021 well is a flowing oil well. The company is currently drilling the 1056 location, situated to the east of 1004 and southeast of the 1003-1010-1011 accumulation.
The company continued to make progress with its field facilities during the quarter, with some revised engineering required as changing plans were introduced. As a result, the treatment plant at Puesto Morales is not yet fully operative, although it should be shortly. In the interim, a portion of the company's crude oil sales are delivered through its own pipeline to the national grid, while the balance continues to be trucked to third party plants where it is treated and delivered to market, as evidenced by the level of sales recorded in the first quarter 2007. Since the end of the first quarter, there has been a temporary and short-term curtailment of production and resultant sales of Puesto Morales crude oil due to some repair work being undertaken at the Repsol/YPF plant at Medanito, where Petrolifera delivers a portion of its crude oil for third party treatment. These repairs have now been completed and production levels and consequent sales are gradually being restored towards first quarter 2007 levels, but did decline to as low as approximately 7,000 bbl/d of crude oil for several days. Once all Puesto Morales sales are treated and delivered through Petrolifera's own plant and pipeline, these interruptions should be reduced or eliminated and operating costs should further decline, despite their already low level.
Plans are progressing for the construction and operation of a new high pressure natural gas pipeline which will be built and owned by Petrolifera and operated under contract for the company by a local gas distributor. In exchange for this and for processing Petrolifera's natural gas through its liquids extraction plant, the gas distributor will be compensated with a portion of the extracted liquids and Petrolifera will be in a position to market its own dry gas volumes to domestic industrial markets, at improved prices over those available in limited local areas. By September 2007, Petrolifera anticipates initial deliveries of approximately 16 mmcf/d of natural gas under this structure. This arrangement will conserve approximately $8 million of capital which would otherwise have had to be invested in a natural gas plant.
A converted truck-mounted shallow rig is scheduled to arrive on location at Rinconada for Petrolifera during the week of May 7, 2007. This will enable Petrolifera to embark on its planned shallow drilling program immediately. The rig is under a one-year renewable contract to Petrolifera. A third rig with greater depth capacity is still scheduled to also be available prior to mid-year. Efforts continue to source at lest one additional rig in Argentina. In any event, Petrolifera is still anticipating an approximate 55 well program in Argentina during 2007, which of necessity will be back ended in the current calendar year due to the obvious timing of rig availability. The company is hopeful it can complete its program to evaluate numerous new prospects and accumulations, primarily on the Puesto Morales and Rinconada Blocks, but also potentially on other blocks which have either been awarded to Petrolifera or are in the process of being awarded to Petrolifera.
Petrolifera has been very successful in expanding its land base along the northeast shelf of the Neuquen Basin during the past several months. In addition to developments previously announced, Petrolifera was advised today that it has been officially awarded the Gobernador Ayala II Block by the government of the Province of La Pampa. The Block comprises approximately 43,000 acres (roughly two townships), is contiguous to the west with the Salinas Grande I concession and requires a work program, as successfully bid by Petrolifera, of approximately 210 square kilometers of 3D seismic and the drilling of 10 wells to a depth of 1,000 meters or more over the contract period, with an estimated total cost of approximately US$6.7 million. The region is considered prospective for crude oil from various formations within the stratigraphic column present in the area and lies immediately east of heavy crude oil accumulations being developed by another Canadian operator. Petrolifera will hold 100 percent of and operate this new concession.
As earlier announced by the government of the Province of Rio Negro, Petrolifera has been pre-awarded the Vaca Mahuida Concession, comprised of approximately 253,000 acres or roughly 11 townships of prospective petroleum and natural gas rights. This block is situated immediately southeast of and is contiguous with the Rinconada Block. Petrolifera committed to reprocess 530 square kilometers of existing 3D seismic, shoot an additional 1,150 square kilometers of new 3D seismic and drill 12 wells on the Block over a three year period after signing. Again, the block is primarily considered prospective for crude oil accumulations in similar zones to those which are productive at Puesto Morales and Rinconada. The block is being awarded 100 percent to Petrolifera, the operator. The final formal award is anticipated to occur in the near future.
These new awards bring Petrolifera's net acreage position in Argentina to approximately 956,000 acres or ten times the company's initial acreage position in the country. This gives the company an outstanding contiguous spread of land to which it can apply its geological and geophysical concepts and models on a consistent basis over a large area, in a similar manner to those applied at Puesto Morales with such recent and considerable success. A map of the region is attached and will be posted on our website.
In Colombia, Petrolifera has now formally received its 100 percent-owned Sierra Nevada License, covering some 210,000 acres (9 townships) of rights in the Lower Magdalena Basin. This license is situated northeast of a recent significant natural gas discovery announced by another Canadian oil and natural gas company active in Colombia and is offset by known natural gas accumulations. This block and related work commitments are described in greater detail in the company's recent Annual Report which is also posted on Petrolifera's website.
The Turpial TEA covering 113,000 acres in the Middle Magdalena Basin offsetting the Cocorna and Velasquez oil fields has also been formally awarded. Again, refer to our Annual Report for a more complete description. A third block is under negotiations with ANH, the state agency in Colombia.
In Peru, considerable, albeit delayed, progress is being made in securing the airborne high resolution magnetics and gravity survey. The 18,500 line kilometer project on the Ucayali Block 107 is now over half completed and should be finished in June 2007. Thereafter, and following receipt of an approved environmental impact assessment ("EIA"), an 800 kilometer 2D seismic program will be initiated. The contract for this program has been awarded to a geophysical company. Investigations for a suitable rig are underway with a view to a well on Block 107 in early 2008.
Seismic is also planned late this year for Block 106 in the Maranon Basin, Peru followed by drilling in 2008.
In total, Petrolifera now owns, controls or is scheduled to be awarded a net land position aggregating approximately 7.4 million acres, or roughly 325 townships of petroleum and natural gas rights in three countries in South America. This excellent and diverse portfolio of opportunities provides the company with a balanced and risk-adjusted exposure to find and develop potentially significant volumes of both crude oil and natural gas on a ground floor basis.
The company's first quarter 2007 financial results will be disclosed to shareholders on May 8, 2007 after review and approval by the Audit Committee and Board of Directors of Petrolifera. The Annual General Meeting is scheduled for the same day in Calgary, Alberta at 2:00 PM local time and the meeting will be web cast on CNW.
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