The 1050 well, situated southwest of the northern lobe on the Puesto Morales Block in Argentina, tested natural gas with condensate through an 8 mm choke at a rate of approximately 2.4 mmcf/d with 14 bbl/d of condensate, increasing to 6.5 mmcf/d with 37 bbl/d of condensate through a 16 mm choke. The calculated absolute open flow (AOF) was 7.5 mmcf/d with some reservoir constraints indicated. The well will be tied into the company's new high-pressure natural gas line in the next several weeks.
The 1006 well, situated in proximity to the La Ramona well, which was the first modern well drilled on the block several years ago, recently flowed light gravity crude oil at a rate of 350 bbl/d from zone LM9 in the Loma Montosa Formation. Results were obtained after a frac of the zone, and proved up the presence and productivity of this zone, which to date had only been completed in structurally higher positions for natural gas. Follow up drilling and testing is underway at other nearby locations.
The company also recently completed a new upper zone in the Centenario Formation in the 1028 well, located on the eastern edge of the Puesto Morales Block. This was undertaken after the initial productive zone started to produce at higher water cuts; the new zone has commenced flowing light gravity crude oil at a rate of 410 bbl/d.
Petrolifera continues to drill actively in Argentina with four rigs and four service rigs operating on its Puesto Morales/Rinconada Concession. Seismic acquisition has commenced on the company's Gobernador Ayala II concession in La Pampa Province, Argentina. Additional 3D seismic programs are scheduled early next year on the Vaca Mahuida and Puesto Guevara Concessions in the Province of Rio Negro. The company's new field facilities are anticipated to be completed shortly, including the water treatment plant, initiation of the planned waterflood at the northern and central lobe and commencement of deliveries of high-pressure natural gas through the new pipeline built from Puesto Morales to Medanito. Petrolifera anticipates that by year-end it will have invested over C$90 million during 2007 in Argentina and has established a preliminary budget of C$76 million for 2008.
Recently, the Government of Argentina introduced an increase in the export tax for crude oil and refined products, which has the effect of setting a limit on the realizable price for crude oil sold within the country. While the tax on crude oil exports raises little in the way of revenue for the state, it does result in a subsidy for consumers. The company is still analyzing the full impact of the increased tax, which appears to set a ceiling of approximately US$42 on the price of a barrel of light crude oil. With assumed sales of 10,000 bbl/d, after taking into account the lower income taxes which would be payable to the government and lower royalties which would be payable to the host Provinces due to the price reduction, it appears there would be an approximate eight percent reduction in the company's cash flow from operations before changes in working capital ("cash flow") at these assumed sales levels, referencing the current level of actual selling prices and netbacks which have been achieved by Petrolifera thus far in 2007. Accordingly, Petrolifera will be reexamining its previously announced capital budget to determine which, if any, of its anticipated 2008 Argentinean projects will have to be deferred or eliminated due to the lower level of anticipated cash flow relative to its actual and forecast sales levels anticipated to be achievable during the year.
In Peru, progress continues on the company's 2D seismic acquisition on Ucayali Block 107. The program continues on schedule with completion still anticipated for late February to early March 2008. Work continues on securing EIA approval for the Maranon Block 106 program. Efforts are also progressing with respect to securing a heli-transportable rig capable of drilling to approximately 14,000 feet for the first of several anticipated wells during the latter half of 2008 and into 2009.
Work on the Colombian blocks primarily consists of ongoing evaluation of all available technical data in preparation for geophysical activity in 2008 and for drilling on the Sierra Nevada I license in the second half of next year.
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