Emerald Energy reports that drilling commenced on the Gigante No.2 well on the Matambo Block in Colombia. Gigante No.2 is planned primarily as a development well in the currently producing Tetuan reservoir. Located close to the crest of the structure, this well is expected to be approximately 250 feet higher than the existing Gigante No.1A well. The Company expects Gigante No.2 to recover approximately 4 million barrels of existing oil reserves from this reservoir, with initial rates similar to the rate of 3,000 barrels of oil per day experienced in the early production from the Gigante No.1A well.
The cost of the well to the Tetuan reservoir will be shared equally between Emerald and Ecopetrol S.A. ("Ecopetrol"), the Colombian oil company with a 50% interest in the Gigante field. In addition, Emerald, at its own cost which is expected to be approximately $2 million, will deepen the well to the prospective Caballos formation approximately 120 feet below the Tetuan reservoir to evaluate the exploration potential of this deeper horizon. The Company estimates the Caballos formation may contain 15 million barrels of unrisked recoverable resources. In the event of success, Ecopetrol has the right, under the Association Contract, to participate at a 50% interest in development of the Caballos formation by reimbursing a 50% share of exploration costs.
Gigante No.2 is expected to have a total drilling depth of approximately 16,000 feet and take approximately 6 months to drill and evaluate. The total cost of the well is expected to be approximately $36 million, with Emerald paying $19 million and Ecopetrol paying $17 million.
Prior to the end of the third quarter of 2008, Emerald had pre-invested approximately $5 million in site preparation and materials for the project. The Company therefore expects that Emerald's remaining expenditure for the Gigante No.2 well will be approximately $14 million.
The Gigante No.2 well forms part of the Company's 2008/2009 capital investment program, all of which is expected to be funded from existing cash and cash generated from operations.
The Gigante field, located in the Matambo block in the Upper Magdalena Valley, commenced production in 1999 from the Gigante No.1A well and has subsequently produced over 2.75 million barrels of oil with a current production rate of approximately 950 barrels of oil per day.
Emerald's Chief Executive Officer, Angus MacAskill, said: "We are delighted to have started drilling this well with our partner, Ecopetrol. The well has the potential to materially add to both the production and the reserves of the Company, and we look forward to the results towards the middle of 2009."
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