Gran Tierra Energy Inc. has provided details on its exploration and delineation drilling programs, and infrastructure development taking place in Colombia and Argentina.
Costayaco-5 Drilling and Testing
Gran Tierra Energy completed drilling of Costayaco-5 on July 27, 2008 when total measured depth of 8,703 feet was reached in basement. The well was successfully cased on July 31, 2008. The company encountered good oil shows in cuttings in the Kg Sand Unit of the Rumiyaco Formation, the U Sandstone Unit of the Villeta Formation, the T Sandstone Unit of the Villeta Formation and the Upper Caballos Formation.
Electric logs, cuttings and shows indicate excellent reservoir with fair to good oil saturations in the primary Villeta T reservoir, with thicknesses comparable to previous wells in the field. No definitive oil-water contact is apparent in the Villeta T reservoirs, but testing will be required to confirm whether water is present in certain intervals.
The Upper Caballos reservoirs also appear to have good oil saturations and thicknesses comparable to previous wells drilled in the field. The Lower Caballos reservoirs are well developed, but appear to be water bearing. The top of the Villeta T and Caballos were encountered at a shallower depth than expected and oil shows were encountered deeper than expected in both the Villeta T and the Upper Caballos reservoirs; both results have the potential to add significant reserves to the west flank of the field. Testing operations are expected to commence in mid-August and will take approximately one month to complete.
The recently reported Costayaco mid-year reserve update did not incorporate potential oil at the Costayaco-5 location as this well was drilled outside the control provided by previously drilled Costayaco wells. The report indicated that effective July 1, 2008, the Costayaco field had gross proved reserves of 20.5 million barrels of oil, gross proved plus probable reserves of 34.9 million barrels of oil and gross proved plus probable plus possible reserves of 61.4 million barrels of oil. If hydrocarbon testing is successful, these new reserves will be incorporated in Gran Tierra Energy's year-end 2008 reserve report.
Gran Tierra Energy is expected to commence testing of Costayaco-4 in early August, 2008; delayed due to the extended testing at Palmera-1 by the test rig. Log interpretations from data acquired after drilling indicate potential hydrocarbon pay in the Kg Sand Unit of the Rumiyaco Formation, in addition to 14 feet in the U Sandstone Unit of the Villeta Formation, 38 feet in the T Sandstone Unit of the Villeta Formation and 125 feet in the Caballos Formation. This is almost 25% more potential net pay than in any of the previous three wells in the field. Gran Tierra Energy expects this testing program to take approximately one month.
The drilling of Costayaco-6 and initiating of drilling of Costayaco-7 remain on the program for 2008, with a continuous delineation and development drilling campaign in the Costayaco field continuing through 2009. The details of the 2009 program will be finalized in the fourth quarter of 2008.
An 8 inch, 10 kilometer pipeline from the Costayaco field to the Uchupayaco Station on the existing pipeline system was completed on July 29, 2008 and is currently being tested. This new pipeline will have a capacity of approximately 25,000 barrels of oil per day. Initial throughput will be approximately 8,500 barrels of oil per day due to facility constraints further downstream in the existing pipeline system. The company is developing options to increase production utilizing trucks to by-pass infrastructure constraints and expects gross Costayaco field production to rise to approximately 13,000-15,000 barrels of oil per day by year-end 2008, with additional production capacity behind pipe.
The Costayaco field is located in the Chaza Block in the Putumayo Basin, where the company has a 50% working interest and is the operator, with Solana Resources holding the remaining 50% working interest.
Azar Block: Palmera-1 Tests First Oil
Gran Tierra Energy initiated re-entry operations of the Palmera-1 well in May 2008, an exploration well drilled in 1996 that had potential oil pay in the Kg Sandstone of the Rumiyaco Formation indicated on logs but was never tested. Drill stem testing operations were conducted in June and July after a liner was set and perforated from 7,876 to 7,878 feet measured depth in the Kg Sandstone.
Stabilized natural flow of 13-15 degree API oil at a rate of approximately 47 barrels of oil per day with no water was obtained. The reservoir and oil appear to be similar to the producing Miraflor field in the adjacent Santana Block operated by Gran Tierra Energy. The well has been completed with a production string and will be shut-in for two months to evaluate optimum artificial lift systems and production facilities. The company expects initial production rates from the well to be in the range of 150 bopd to 250 bopd gross with artificial lift, with early production to be transported by truck.
Gran Tierra Energy is operator of the Azar Block and has an 80% working interest. Under the terms of a farm-in agreement, Lewis Energy will earn a 50% share of the company's interest by paying 100% of Gran Tierra Energy's costs associated with the first three exploration periods, including the Palmera-1 workover and drilling of one exploration well. The Azar Block is subject to the Agencia Nacional de Hidrocarburos (ANH) contract terms, with attractive fiscal terms including a sliding scale royalty commencing at 8% and no back-in rights by the state company Ecopetrol.
Rio Magdalena Block: Popa-2 Testing Operations Continuing
Gran Tierra Energy initiated drill-stem testing operations of the Popa-2 exploration well in the Rio Magdalena Block in the Middle Magdalena Basin, on July 4, 2008. The company encountered oil and gas shows during drilling in the Cretaceous Monserrate Formation, the primary reservoir target in the Popa prospect, and in the underlying basement. Four drill-stem tests have been completed and three additional drill-stem tests have been added. Results of the testing are expected in late August.
Gran Tierra Energy, with a 100% working interest, is the operator of the 144,670 acre Rio Magdalena Block. Under the terms of a recently completed farm-in agreement, Omega Energy Colombia will earn a 60% share of the company's interest by paying 100% of the costs associated with drilling, testing and completing the Popa-2 well. In the event of a commercial discovery, Ecopetrol S.A. has a right to back in for a 30% working interest, to be split proportionally between Gran Tierra Energy and Omega Energy Colombia.
Surubi Block -- Proa.x-1 Exploration Well
Gran Tierra Energy began drilling the Proa.x-1 exploration well on July 9, 2008. The well is planned to be drilled to a depth of 12,992 feet to test the Cretaceous Palmar Largo reservoir section, which is productive in the Palmar Largo field approximately 2 miles to the northeast in the adjacent Palmar Largo Block. The company expects drilling to be completed in late August.
In addition, Gran Tierra Energy obtained provincial ratification of a new contract for the 90,688 gross acre Surubi Block with the Formosa Province on July 29, 2008. This new contract includes a 10-year contract extension to August 15, 2026. As part of this revised agreement, Gran Tierra Energy has assigned a 15% working interest to REFSA (Recursos Energeticos Formosa S.A.), the provincial government company, while retaining an 85% working interest and operatorship. REFSA will be carried by Gran Tierra Energy during drilling of the Proa.x-1 well. In the event of success, Gran Tierra Energy will be reimbursed for all of the costs incurred during drilling from 50% of the net production assigned to REFSA. The provincial royalties payable on production in the revised contract vary from 12% for cumulative production below 750,000 cubic meters of oil (approximately 4.7 million barrels), to 14% for cumulative production between 750,000 to 1,500,000 cubic meters of oil (approximately 9.4 million barrels), and to 16% for cumulative production above 1,500,000 cubic meters of oil.
Commenting on the drilling and testing progress, Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy Inc., stated, "These are outstanding preliminary results from Costayaco-5. Successful testing of oil from this well has the potential to significantly add to the total reserve potential of the Costayaco field, which has already grown significantly in size as delineation drilling has shown in the first half of 2008. With our first produced oil on the nearby Azar Block, and the promising testing taking place in the Rio Magdalena Block, and exploration drilling continuing in Argentina, the third quarter of this year is proving to be particularly exciting for Gran Tierra Energy."
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