Petrolifera Focused on South American Field Development in 1H 2009

Magdalena Basin
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Petrolifera's focus during the second quarter and first half of 2009 was on the drilling and testing of the La Pinta well in Colombia, the possible sale of its Argentinean operations and continuing efforts to attract industry partners for certain of its high potential properties in Peru and Colombia. Production in Argentina was down, reflecting limited investment undertaken during the sale process period. New heavier oil accumulations were discovered on the company's Gobernador Ayala II block in Argentina.

Subsequent to the reporting period, the sale process in Argentina was terminated as there were no acceptable bids, despite a high level of interest in the company's operations. The La Pinta well, located on Petrolifera's 100 percent owned Sierra Nevada License in the Lower Magdalena Basin onshore northern Coloumbia, was suspended after testing light crude oil and experiencing a suspected casing split and it is anticipated it will be reentered at a later date to remediate the well, further evaluate the oil-productive zone and to test uphole zones. Discussions continue on the possible farm-out of both Blocks 107 and 133 in the Ucayali Basin, Peru and an agreement has been reached in principal on the Turpial Block in Colombia.

Highlights for the period were as follows:

  • La Pinta well an indicated crude oil discovery
  • New heavy oil accumulations identified in Argentina; evaluation continues
  • Continued record of profitability
  • Farm-out discussions advancing, emphasizing Peru

Petrolifera's second quarter and first half of 2009 were dominated by the drilling and testing of the La Pinta well on the company's 100%-owned Sierra Nevada License in Colombia and by the sale process with respect to the company's Argentinean operations.


As has already been reported, drilling of the La Pinta #1 well in Colombia was challenging due to overpressured subsurface conditions, which resulted in unstable downhole conditions in the lower portion of the well. During drilling, heavy mud weights were necessary to control the numerous gas kicks encountered throughout the section to prevent a blowout. Fortunately, we were able to log and then case the well, although there was a minor casing misalignment while running the seven inch casing. This reflected the very challenging drilling conditions which characterize this particular portion of the basin in which the well is located. Fortunately, in other sectors of the Block drilling is anticipated to be shallower and less complicated. In the La Pinta well we were most encouraged by logs and the subsequent analysis thereof and commenced a testing program approximately three months ago. Testing has also been challenging, again arising from the need to guard against the risk of blowout due to the overpressured conditions.

We used state of the art equipment and procedures to enable us to test La Pinta's prospective formations in an underbalanced mode, with special high powered perforation equipment to enable us to penetrate past any damage to the prospective producing formations which might have arisen from the heavy mud weights used during the drilling process. As La Pinta was a deep test and any testing required certainty of packer seals, pressured up to approximately 10,000 pounds, we did encounter misruns, each of which utilized approximately seven to ten days of testing time to run in the testing assembly, attempt to secure stable conditions and then test or pull out for reassembly if a suitable seal was not secured.

We continue to evaluate the results of the testing program from La Pinta, which has been suspended, after testing light oil, due to a suspected casing split. We did encounter significant oil and gas shows in one thick sand package spanning over 410 feet at the base of the well. Log analysis and shows provided the basis for the extensive testing program. Follow up drilling will be assessed after we complete our evaluation of the well results and assess the financial commitment and drilling and completion risk against the well’s outcome and alternative priorities. We will be applying to extend the license for one more exploration term.

Elsewhere, we have elected to proceed with the Magdalena License and will create a US $4.1 million trust, as required by the Colombian authorities, in effect prepaying the costs of our obligatory work program on the Block.

At Turpial, we have reached an agreement in principle with an American independent company whereby Petrolifera expects to recover US $2.5 million of its sunk costs for seismic on the Block and will be carried, as operator, through the next US $1.9 million of work on this license, retaining a 50 percent interest therein.


In Peru, we have completed our first round of discussions with respect to adjoining Blocks 107 and 133 in the Ucayali Basin, Peru. Several large international companies have examined our technical analysis, under confidentiality agreement and we are anticipating several formal proposals in the near future from among the participants. Again, we are attempting to secure recovery of a portion of our sunk costs of approximately US $28 million for seismic and a drilling commitment to earn an interest. Petrolifera also anticipates retention of operatorship during the exploratory phase. We do not have any urgency with respect to drilling deadlines, as no wells are required until 2012 at the earliest.

Our seismic program over Block 106 in the Maranon Basin was completed earlier this year and the data has now been processed and interpreted. Once these results have been finalized further farm-out discussions are anticipated with respect to this oil-prone block, which surrounds Peru's largest oil field and in turn is surrounded by a number of oil fields which are filled to spill point. The block is bisected by an underutilized pipeline which positions us favorably for early production once a new discovery is made.


During the reporting period, we were engaged in an effort to sell our Argentinean operations as a going concern. Had we secured sufficiently attractive proposals and concluded a sale, it was our intention to deploy proceeds in a debt reduction exercise at our discretion and to invest remaining proceeds in new ventures in Colombia, Peru and possibly other jurisdictions where we had identified attractive new opportunities.

The process did not result in any acceptable bids. Accordingly, we decided to retain our Argentinean properties and we are now developing a new capital budget to enable us to restore production growth and capitalize on the upside of the properties as identified by us and our engineering advisors.

During the past several months, we have conducted a multi-well drilling program to meet our contractual obligations on our 100 percent owned Gobernador Ayala II block in La Pampa province, Argentina. We have identified two heavier oil accumulations at extremely shallow depths in unconsolidated sandstone reservoirs. Several of the drilled wells have been completed as heavier oil (21 degree -23 degree API gravity crude oil) producers at modest rates and we are continuing our assessment of completion techniques, in order to ascertain the overall commerciality of these accumulations. Reasonably thick oil columns have been encountered, indicating considerable potential for decent reserve accumulations and well productivity with the application of applicable drilling and completion technology. Limited activity is contemplated for our other Argentinean holdings during the balance of this year. We do, however, anticipate drilling several infill wells, installing high volume lift pumps and conducting some modest capital programs at the Puesto Morales Norte Field, in order to capitalize on identified productive capacity in this field.

There have recently been some suggestions that Argentina may move to reduce the level of price controls for crude oil and natural gas in the country, in light of declining productivity, lack of suitable levels of reinvestment and the risk of shortages, especially for natural gas, during colder winter months. The country is approaching levels of production which may result in the need to import crude oil to meet internal requirements. Also, there is growing pressure on authorities from industry unions in view of layoffs and the absence of aggressive new
investment in seismic and drilling activity. Any moves in this direction may help achieve better economic returns, both for the industry and the government through the taxation and royalty process.


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