Canoro Resources Ltd. has completed production testing operations in the Amguri field on both the A-12 and A-14 appraisal wells drilled in October and November 2008 respectively. The A-14 production test was successful, delivering test rates up to 4.8 mmscfd of dry gas from the Tipam formation. The A-12 well production testing of the two main Barail intervals was unsuccessful in spite of log analysis indications of hydrocarbons and primarily tested water in both the Barail and mid Barail sands. However, an estimated flow rate of 0.5 million cubic feet per day, with associated water, from the Basal Sandstone, while not making this a commercial success, does indicate another prospective zone in the field. The A-12 well appears to be in a separate compartment and not connected to the larger compartment at A-11. The Company has temporarily suspended follow-up drilling to re-evaluate its geological model of Amguri. This will be assisted by the completion a detailed Pre-Stack Depth Migration ("PSDM") seismic analysis of Amguri to further the Company's understanding of the structural complexity of the field. This work has been advanced and is expected to be completed by the end of the first quarter in 2009.
The Amguri A-14 appraisal well was tested in the upper Tipam Formation. A three-day production test on this section yielded maximum rates of 4.8 mmscfd on an 8mm choke with a tubing pressure of 2100 pounds per square inch ("psi"), and a stabilized final rate of 2.7 mmscfd on a 6 mm choke with a tubing head pressure of 2,180 psi. These results, combined with a subsequent pressure buildup test, support the Company's view that the A-14 well is an excellent dry gas well which could be capable of flowing over 6 mmcfd dry gas at minimal pressure drawdown. This discovery allows the Company to sell dry natural gas to available local markets as well as re-injecting excess Tipam gas for voidage replacement thereby enhancing liquids production from the discovered Barail Formation currently producing. The Company plans to commence the building of a six-inch diameter flow line to the production facilities at the A-6 well site to facilitate both gas sales and gas re-injection from A-14.
The overall productive capability of the Amguri field is currently being reviewed and the Company is currently focused on optimizing the gas compression and re-injection scheme in the field to maximize cash flow and reserve recovery from the Barail Formation. Canoro submitted this month to the regulator a Full Field Development Plan ("FFDP"). The FFDP calls for the installation of compression and gas re-injection by September 2009 and, in addition, to facilitate the design and construction of a gas plant to process the liquids-rich gas from the field.
The Company is in a strong financial position with zero debt, working capital of US$18.5 million as of November 30, 2008 and has positive funds from operations in the current commodity price environment. In light of the economic environment and the need to complete the technical work on a revised geological model of Amguri, the Company is reducing 2009 capital expenditures to approximately US$15 million subject to economic and commodity issues. The Company will focus on increasing the production and cash flow from the existing wells through implementation of the compression and injection scheme and connecting previous successful wells to current infrastructure.
As a result of changing the drilling schedule, the Company has released one of the two active drilling rigs contracted in the area. The Dergaon # 2 appraisal well on the AA-ON/7 block was spud on December 17, 2009. The purpose of the appraisal well is to establish sufficient commercial gas reserves to justify development of the field. The existing discovery well Dergaon #1 was recompleted in 2005 in the Cretaceous sands and flow tested at 1.06 mmscfd. Under the terms of the Production Sharing Contract, the Dergaon #2 well will complete obligations in the Assam section of the block.