Verenex Releases Operational, Financial Results
Verenex Energy Inc. reported its unaudited interim operating and financial results for the three and twelve month periods ended December 31, 2008. Verenex is a Canada-based international exploration and production company with a world-class discovered resource base and exploration portfolio in the Ghadames Basin in Libya.
On February 26, 2009, the Company announced a definitive agreement whereby a wholly-owned subsidiary of CNPC International Ltd. ("CNPCI") had agreed to make an offer to acquire all the outstanding common shares of Verenex by way of a take-over bid for C$10.00 per share in cash.
Operations - Libya Area 47
- Drilled and cased seven new field wildcat ("NFW") exploration wells and three appraisal wells in 2008, including three NFW exploration wells in the fourth quarter, increasing the total well count to 17 by the end of 2008.
- Announced four new oil and gas discoveries in 2008, increasing the number of announced discoveries to nine by the end of 2008.
- Successfully flow tested eight wells in 2008, increasing the maximum aggregate test rates to approximately 98,005 bopd of oil and 76.5 mmcf/day of natural gas (gross) by the end of 2008 from a total of nine announced discoveries and two appraisal wells which are suspended as future production wells.
- Shot and interpreted 2,494 kilometers of 2D seismic in 2008, increasing the 2D seismic coverage to 4,200 kilometers, which complements 1,707 square kilometers of 3D seismic shot by Verenex in 2006 and 2007.
- Announced DeGolyer and MacNaughton's ("D&M") September 30, 2008 best estimate of gross contingent resources and risked mean estimate of gross prospective resources totaling 2.15 billion barrels of oil equivalent, which was up 36% from D&M's initial assessment at February 1, 2008.
- Submitted the final appraisal report on the A1-47/02 Field to the Area 47 Management Committee and the Libyan National Oil Corporation ("NOC") in November 2008 requesting a declaration of commerciality and providing a preliminary development plan for a 50,000 bopd (gross) Phase 1 development that also includes the nearby fields at B1, C1, D1 and F1-47/02.
- Further improved the excellent operations safety record in 2008 which compares very favorably with the best of North American and international drilling operations experience. One of Company's contracted drilling rigs has worked for more than two years without a lost time injury.
- In the first two months of 2009 announced the tenth oil and gas discovery (H1-47/02), drilled and cased two NFW exploration wells (K1 and L1-47/02), spudded a third NFW exploration well (M1-47/02) and successfully flow tested two wells (I1 and J1-47/02) that are expected to be announced as discoveries following NOC review. The maximum aggregate test rates currently stand at 99,320 bopd of oil and 92.7 mmcf/day of natural gas from ten announced discoveries and two appraisal wells, which will grow upon the announcement of I1 and J1-47/02 results.
The Company will continue to work with CNPCI and the NOC to seek the NOC's consent for the sale of the Company to CNPCI under the definitive acquisition agreement announced on February 26, 2009. Such consent is required under the Exploration and Production Sharing Agreement for Area 47 and is a condition precedent for the mailing of the take-over bid offer to shareholders. While this process is underway, operations will continue in Libya.
Verenex and Medco International Ventures Limited, the Company's 50% joint venture partner in Area 47, have reassessed the near term exploration program for Area 47 in light of the current business environment and the need to incorporate impending feedback from the NOC with respect to the joint venture's proposed preliminary development plan for Area 47. As a result, the Company, as Operator of Area 47, plans to temporarily reduce the pace of the exploration drilling program and to immediately release one of two contracted drilling rigs which is nearing the end of its contract term.
The Company is awaiting NOC feedback on the A1-47/02 Final Appraisal Report, which was submitted to the Area 47 Management Committee and to the NOC in November 2008. The NOC has established a multi-function team to review the report. This feedback is expected to be decisive in shaping the overall acreage retention strategy and exploration, appraisal and development drilling program over the coming years. The Company expects that should a ramp up in the drilling program be warranted, drilling equipment at attractive rates should be readily available given the current industry downturn.
Accordingly, the Company has submitted a revised work program and budget for 2009 to the Area 47 Management Committee totaling US$93 million (gross) (Cdn$60 million net Verenex at a 1.3 Cdn$/US$ exchange rate) reflecting a one-rig drilling program as of March 2009. This is a 40% reduction from the original 2009 budget adopted in October 2008 of US$155 million (gross), which was based on a two-rig program. The revised 2009 budget compares to actual expenditures in 2008 of US$137 million (gross).
The revised 2009 work program includes spudding up to eight wells (including L1 and M1-47/02 already spudded) and the testing of seven wells (including I1 and J1-47/02 already completed). Under a one-rig drilling program, the contracted workover rig will not be required on a continuous basis. Therefore, the Company plans to immediately release the workover rig and to re-contract a workover rig in the August 2009 timeframe when a sufficient back-log of wells to be tested is available to support a more efficient, continuous program.
The Company has submitted flow tests results for the I1 and J1-47/02 wells to the NOC for their review and disclosure of these results is expected before the end of March 2009.
The Company recently completed drilling and casing operations on the K1-47/02 well after delays were encountered due to poor hole conditions in the bottom section of the well across the Basal Tanezzuft Hot Shale and Memouniat Formations. Very strong gas shows were encountered in both formations. The Basal Tanezzuft Hot Shale section also appeared highly fractured. This is a significant result since the organic rich Tanezzuft Hot Shales are the source rocks for the hydrocarbons in the Lower Acacus and Memouniat Formations and is a potential oil and gas resource play in its own right. Although the well was drilled to a depth of 10,965 feet, in attempting to run the normal 7 inch production liner it was only possible to reach a depth of 9,795 feet just below the Lower Acacus Formation. Given the very encouraging gas shows in the deeper section, it was decided to clean out the hole to the final drilled depth using a smaller drilling bit and to set a 4.5 inch liner across this section.
The Company plans to delay testing of the K1 and L1-47/02 wells, which are both indicated oil and gas discoveries, to later in 2009 consistent with the revised work program as described above. Concurrent with the sale process, Verenex had been in discussion with a number of banks concerning possible bridge financing to a corporate sale or to project sanction for the Phase I development at which time more substantial project financing could be available. Good progress was made with one international bank but this process has been put on hold in light of the acquisition agreement with CNPCI. The Company has sufficient cash reserves to fund its programs over the next few months as acquisition agreement is progressed.
Verenex is greatly saddened by the loss of Charlie Berard in February 2009, our corporate secretary since the inception of the Company in 2004. As one of the founders of Verenex, Charlie was committed to the success of the Company and his experience on many boards and with many start-up companies was invaluable. He provided insightful guidance and practical legal advice through a period of rapid operational growth in Libya, four financings and a major strategic review that culminated in the recent acquisition agreement with CNPCI. He would have been very proud of this latest accomplishment. Charlie is sorely missed by all of his friends and colleagues in Verenex but the memory of his time with us will not pass. Our hearts go out to Charlie's family and his many friends who have suffered a heavy loss.
- Marathon Struggles to Exit Libya as Unrest Grows (Oct 25)
- Verenex Completes Arrangement with Libyan Investment Authority (Dec 21)
- Verenex Updates on Acquisition Status (Dec 15)