Oil production from Petro Andina's core operating area in the Neuquen Basin in Argentina during the first quarter of 2009 was approximately 15,630 barrels of oil per day (bbls/d), an increase of two percent compared to production of 15,299 bbls/d during the fourth quarter of 2008.
First quarter production volumes were influenced by the following:
Petro Andina's production strategy for the first quarter was to produce the maximum volume that the Argentine market could absorb and any additional volumes that the Company could reasonably store. In addition, the Company deferred capital expenditures related to exploration and non-essential facilities enhancement.
Given current oil pricing and economic conditions in Argentina, Petro Andina expects its year-end exit rate production to be at the lower end of its guidance of 18,500 to 20,000 bbls/d.
First quarter oil sales volumes in Argentina averaged approximately 14,290 bbls/d, compared to production of 15,630 bbls/d. During the first quarter not all production volumes could be sold domestically. As noted above, the Company completed its first crude oil export shipment of approximately 260,520 bbls, which has cleared excess oil inventory. The Company expects to apply for and receive additional export licenses in the future.
The benefits of exporting are twofold. Upon being received, the Petroleum Plus tax credits will be used to offset the export taxes that would be payable on the export volumes. Export shipments will thereby have transparency with world oil prices. A second benefit of exporting is it allows Petro Andina to better manage foreign exchange risk since export sales are paid in US dollars.
Petro Andina is responding to the current domestic market environment by deferring a portion of its 2009 Argentine capital expenditures into later quarters and accelerating programs in other jurisdictions, specifically exploration in Colombia and Trinidad & Tobago. The Company has the flexibility to respond to improved Argentine oil prices when the benefits of the Petroleum Plus program are realized or as world oil prices increase. Petro Andina currently has three drilling rigs and four service rigs operating in Argentina. During the first quarter, the Company moved a rig from the La Banda exploration concession to the main operating area and now has three rigs dedicated to development drilling.
The expansion of the El Corcobo Norte oil treatment facility is on track for completion at the end of April with commissioning in May. This will lead to greater oil and water handling capabilities which will further reduce in-field treating and trucking requirements. The company is now operating a total of 20 trucks for in-field operations. The facility expansion will bring water handling capability to approximately 100,000 bbls/d.
During the fourth quarter 2008 the Company's most significant exploratory success was at Cerro Huanul Sur (50 percent working interest). The Company has continued to further delineate the UC50 member of the Upper Centenario formation, which is the highest stratigraphic unit proven productive to date, and plans to implement waterflood throughout the second half of 2009.
The second exploratory well drilled under the terms of the farm-in agreement with Repsol-YPF on the La Banda Concession was drilled and encountered oil and gas bearing sands. The primary objective tested 160 bbls/d of light oil, representing 20 percent oil cut on 800 bbls/d of total fluid. A delineation drilling program to determine commerciality is planned for the fourth quarter of 2009.
On March 17, 2009, the Company was officially assigned a 50 percent working interest and operatorship of the Central Range Shallow and Central Range Deep Blocks in Trinidad & Tobago. During the first quarter, the airborne geophysical survey over the entire Central Range Block area was completed. Work on the first phase of the two dimensional seismic program is also underway.
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