Petro Andina reported that oil production from the Company's core operating area in the Neuquen basin in Argentina during the month of December 2008 was approximately 16,050 barrels of oil per day (bbls/d), an increase of 18 percent compared to production during September 2008. Petro Andina had provided guidance for December exit rate production in excess of 15,000 bbls/d, which the Company exceeded primarily due to production from newly drilled development wells at the GA III Concession (70 percent working interest) exceeding initial expectations. Production for the fourth quarter of 2008 (Q4 2008) averaged approximately 15,300 bbls/d. This represents an increase of 90 percent compared to the fourth quarter of 2007.
During Q4 2008, production from the CNQ-7/A and CNQ-7 Concessions was sold in accordance with the Company's third quarter 2008 oil sales agreement resulting in a wellhead realization of approximately US$42.88 per barrel. Production from the GA III Concession has been invoiced at the same price as for the other concessions.
Production from the GA III Concession is sold under the same terms and conditions of the Company's oil sales agreement for the CNQ-7/A and CNQ-7 Concessions. As a result of the annual shut down of the purchaser's refinery for maintenance and turnaround during 2008, a portion of Petro Andina's production, (approximately 300 bbls/d), from the GA III Concession was not sold in 2008. That refinery is anticipated to be operating at capacity in mid-first quarter 2009 and the Company's inventoried production will be sold in 2009.
Petro Andina has been advised by its purchasers that oil sales in the near-term from January 1, 2009 are expected to be priced under the terms and conditions of the Company's existing oil sales agreement. This agreement is based upon the 2008 controlled price cap of US $60.90 less a negotiated quality discount, providing for an estimated wellhead realization of approximately US $40 per barrel. These agreements may be adjusted pending determination of final procedures for oil sales pricing under the government's recently announced Petroleo Plus program in Argentina.
An analysis of the Petroleo Plus program was disclosed in the Company's press release dated December 11, 2008. Petro Andina has met with officials of the Argentine Secretariat of Energy and is preparing its application in respect of the Q4 2008 production. Pursuant to the guidelines set out in the Petroleo Plus resolution, the export tax credits related to oil production for that period are estimated to be approximately US $5 million before tax. The Petroleo Plus program also outlined that export tax credits would be earned as a result of the replacement of total proved reserves over the previous year. The potential value of this component of the program to Petro Andina will be determined once the Argentine Secretariat of Energy communicates how it intends to apply the October 1, 2008 effective date vis-a-vi the calculation of the reserve replacement.
Oil pricing in Argentina is the subject of ongoing discussion between refiners, the federal government and producers. Historically, the Argentine government has adopted policies that protected consumers in times of high world oil prices and protected producers in times of low world oil prices. As such, at this time the Company is of the view that when world oil prices exceed US$50 per barrel, Petro Andina's realized wellhead price, excluding any benefit of the Petroleo Plus program, would remain at approximately US$40 per barrel. Uncertainty remains as to what oil price Petro Andina will ultimately realize if world oil prices remain at levels less than US$50 per barrel for an extended period of time, into the second quarter of 2009.
During Q4 2008 the Company's most significant exploratory success was at Cerro Huanul Sur (CoHS) (50 percent working interest). Petro Andina drilled three wells that further delineated the existing CoHS Upper Centenario pool, the CoHS UC-40 pool, to the south and east. The Company estimates the extension of the UC-40 pool size will reach approximately 4,800 acres at year-end from 2,600 acres. Two of the three wells also successfully delineated the uppermost member of the Upper Centenario, the CoHS UC-50 pool, to extend the current CoHS UC-50 pool size to 1,500 acres at year-end.
The first exploratory well drilled under the terms of the farm-in agreement with YPF on the La Banda Concession was abandoned without encountering indications of commercial hydrocarbons. Drilling of the second exploration well at La Banda is underway.
Petro Andina currently has three drilling rigs operating in Argentina. As contemplated in the 2009 forecast production and capital budget guidance provided previously, Petro Andina released one drilling rig at year-end 2008.
The Company's atmospheric treating facility enhancement is now fully operational. The Company has thus released additional trucks and is now operating a total of 30 trucks for in-field trucking operations only. The vessel expansion, which will bring water handling capacity to approximately 100,000 bbls/d is on schedule for completion early in the second quarter of 2009.
In Trinidad & Tobago, the Company received approval from the Ministry of Energy and Energy Industries and has commenced the airborne geophysical survey over the entire Central Range Block area. Preliminary work on the first phase of the seismic program is also underway.
The Company has retained Mr. Donald Jones as Country Manager for its Colombian operations. Mr. Jones brings 32 years of highly varied experience in the oil and gas industry, most recently as country manager in Colombia for a TSX listed junior oil company prior to that organization's merger. Since 1991 he has been engaged in a wide range of international assignments as a senior project engineer, Project Manager and Executive associated with several National Oil Companies and super majors on projects throughout the world. Mr. Jones' prior experience in Colombia equips him to quickly establish Petro Andina as an operator and industry participant in the country. Following the Company's successful bids on four exploration blocks in the Colombia Mini-Round 2008 with its partner, Petro Andina is proceeding to finalize contracts with the National Hydrocarbons Agency.
Petro Andina continues to maintain significant cash reserves, which along with budgeted internally generated cash flow is available to fund the Company's continued expansion in Argentina, exploration work commitments in Trinidad Tobago and Colombia, as well as purchases under the normal course issuer bid program and scheduled bank debt amortization payments.
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