The well, RN.RR.x-1001, was drilled to a depth of just over 1,000 meters and on test flowed light gravity crude oil through a 16 millimeter choke at a stabilized rate of 690 bbl/d from the Sierras Blancas Formation. Petrolifera has labeled the well a new field confirmation well, as the region was modestly productive for a short period of time during the early 1970s when it was owned by another operator, although none of the historical wells experienced productivity anywhere near that recorded in Petrolifera's first well on the Block. The 1001 well is the twentieth consecutive successful well drilled by the company since it commenced drilling on the Concession in late 2005.
Based on recently developed geological models and interpretation of new 3D seismic acquired by Petrolifera in late 2006, the 1001 well is situated on what appears to be a significant stratigraphic/structural feature with substantial aerial extent approaching up to 90 square kilometers. The well is a step out to the RN.RR.x-6 well, drilled in 1969 by the former state oil company of Argentina, which was suspended while still producing crude oil at low rates. If possible, Petrolifera intends to reenter this well to attempt a recompletion of the old well, using the Quintana No. 3 rig which is both a drilling and completion rig. Thereafter, the company intends to pursue an aggressive drilling program to develop the new field on initial spacing of approximately 160 acres, based on the high productivity experienced in the 1001 well from adequately thick pay at shallow depths. If warranted in the future and depending upon the extent of the target reservoir and the quality thereof, downspacing to approximately 80 acres would be considered.
The 1001 well is important to Petrolifera in establishing a new field for the company. It is situated approximately 20-25 kilometers to the east of the Puesto Morales Block. The success also raises Petrolifera's expectations for its recently-acquired Vaca Mahuida Block which is contiguous with the Rinconada block to the south and east, also in Rio Negro Province, Argentina. As Petrolifera expects to have four rigs working on the Puesto Morales and Rinconada Blocks this summer, including the two it presently has on location, one more from the local market and one more (Quintana No.13) now anticipated to be operative by August 2007, an active drilling program is anticipated with a continuing objective of drilling 55 wells (including water injection wells on Puesto Morales) in Argentina during 2007. Also, negotiations are advancing to secure additional completion rigs to keep pace with the drilling program.
This new drilling will not only add new productivity with attractive economics, but is expected to contribute significantly to the company's Argentina reserve base, which will be evaluated after year end 2007 in conjunction with the preparation of year-end audited financial statements to be released in March 2008.
The Rinconada Block is the larger of two blocks which comprise the 95,000 acre Puesto Morales/Rinconada Concession in the 'Neuquen Basin, Argentina. It is bisected by a reservoir created as a result of a hydroelectric dam on the Rio Colorado east of the area. A 3D seismic program was completed in late 2006 over the entire land mass which comprises the northern and southern portion of the Block and other prospects have been identified for drilling in the next year.
At Puesto Morales, Petrolifera recently drilled and tested the 1027 well, situated south of the 1004 well and west of the recently-drilled 1056 well, at rates of up to 2,380 bbl/d of light gravity crude oil with no water through an 18 millimeter choke from the Sierras Blancas Formation. The well will be completed and tied into production in the near future. Up hole zones of interest will be tested at a later date due to the high indicated productivity of the principal zone of interest.
Since drilling commenced in 2007 at Puesto Morales, five new oil wells have been drilled on that Block, with total established or tested productivity of approximately 3,700 bbl/d of Medanito light gravity crude oil. This is in addition to the 690 bbl/d tested at the 1001 well on the Rinconada Block. These volumes will start to impact Petrolifera's production levels near-term as wells are tied in and completed or in some cases, placed on pump.
For the record, the 1016 well is currently on pump at 150-170 bbl/d with no water and is awaiting installation of a new pump which is anticipated will result in increased productivity. Following a recent paraffin cleanout procedure, the 1021 well has been flowing recently at rates up to 530 bbl/d, although Petrolifera anticipates this well will likely require a pump and regular servicing due to minor paraffin content in the well's crude oil. It will be recalled this well experienced excellent flow rates on test and then stopped flowing and it would appear paraffin content may be responsible for the well's erratic performance.
The 1023 well is currently on pump at 200 bbl/d of crude oil with a five percent water cut. A new pump installation is anticipated to add a further 50 bbl/d of production when completed. The 1056 well is also being completed as a 500 bbl/d dual zone Sierras Blancas oil well.
The drilling rig that was used to drill the first five wells on the Puesto Morales Block is now drilling ahead at the 1028 step out well on the eastern perimeter of the Block in proximity to the embalse or reservoir.
Petrolifera still plans to drill up to 55 wells on its Argentinean acreage during the 2007 calendar year. With additional rigs being secured and becoming available, and with ample prospects and leads to evaluate, Petrolifera remains optimistic it can achieve its target exit rate of 21,000 boe/d by year end 2007.
The positive results reported Tuesday are tempered somewhat by the company's decision to curtail its production from its first fourteen wells by approximately 25-30 percent during the months of April and May 2007 and by the impact, in certain cases, of pressure decline or water incursion. Most of the wells in the northern lobe surrounding the 1003 complex are choked back presently to conserve natural gas until the company's high pressure pipeline is completed and due to the high gas/oil ratio of this structurally higher culmination. Also, certain wells have encountered some pressure depletion awaiting the initiation of a pressure maintenance program, involving a waterflood, also scheduled for the fall of 2007. Finally, the highly prolific 1013 well on the southern culmination recently recorded a jump in the recorded water cut and as monitoring is initiated, the well has been choked back to production levels of around 900-1,000 bbl/d of crude oil with a related water cut of about 30 percent. This was expected as the 1013 well is considerably downdip to the 1002 and 1012 wells on this culmination and is situated in proximity to the 1024 well which first encountered the oil/water contact in the Sierras Blancas Formation. The 1013 well has been a wonderful well for Petrolifera since first being placed on stream about one year ago at very high rates, which persisted until recently.
While these curtailments and declines will result in lower sales during the second quarter of this year, the impact of new wells is expected to propel Petrolifera's production and sales of crude oil towards 18,500 bbl/d by year-end 2007, with the balance of its forecast equivalent production anticipated from new natural gas sales into available industrial markets.
Petrolifera now controls upwards of one million acres of contiguous petroleum and natural gas rights in the eastern margin of the 'Neuquen Basin onshore Argentina. Over $110 million of capital programs have been targeted for this extensive acreage spread during the current year, including for completion of the company's treatment plant, construction of a new water supply pipeline including filtration and oxygen removal for its planned waterflood, drilling of injector wells and initiation of a long-term pressure maintenance program to enhance productivity and improve recovery factors and the construction of a new 30 kilometer 10-inch high pressure natural gas pipeline from Puesto Morales to Medanito. Petrolifera has now assumed full operatorship of its Argentinean field activities and expects more timely and efficient completion of its various productivity enhancement plans during the ensuing winter months in Argentina.
Commenting on its recent successes, Gary Wine, President and Chief Operating Officer and the architect of Petrolifera's technical evaluations, stated:
"While we have experienced some recent short-term production and sale curtailments and some delays in getting our field work all completed at the pace we would have preferred, the company is on track to achieve its short-term and intermediate-term goals. The 1027 discovery on the Puesto Morales Block reaffirms we have not yet fully-evaluated this area nor its potential. Perhaps more importantly, the Rinconada 1001 well established a new light-gravity crude oil field for the company. Encountering close to 700 bbl/d of flowing light gravity crude oil at a depth of around 1,000 meters is rare in a mature basin such as the 'Neuquen. The economics should be very gratifying and the prospect for drilling numerous follow-up wells is excellent. This should add not only increased production but more importantly reserves to enhance the company's longer-term outlook in Argentina. The Puesto Morales/Rinconada Concession is truly remarkable. Our geological model has met the test and we hope to transport it to successful exploration on our newly-acquired extensive and contiguous acreage in the region."
Petrolifera is a Calgary-based crude oil and natural gas exploration and production company active in Argentina, Colombia and Peru in South America. Its principal production is secured from the Puesto Morales/Rinconada Concession in the 'Neuquen Basin, Argentina. The company also owns 100 percent of and operates two large licenses onshore Peru where drilling is anticipated for 2008. Recently, Petrolifera acquired two new blocks in Colombia and it is negotiating to secure one additional block in that country. Over 7.5 million acres of rights are now held by Petrolifera, which has over $70 million of working capital and no debt.
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