In its financial and operational results for the second quarter 2009, Gran Tierra Energy has provided an update on its exploration and production in South America.
Colombia Operations Update
Gran Tierra Energy is one of the largest exploration landholders in the Putumayo Basin of Southern Colombia, with production from three contract areas, in addition to five other exploration blocks. The total Putumayo acreage encompasses 494,758 gross acres, or 384,329 net acres. Gran Tierra Energy is the operator of all of its Putumayo licenses.
New Exploration Licenses Granted
Gran Tierra Energy successfully negotiated three new exploration and exploitation licenses during the quarter for three blocks totaling 235,264 acres. Two of these blocks are on the same geological trend with the Costayaco Field discovery. The Piedemonte Norte Block, encompasses 78,742 acres, and lies southwest of the Chaza Block where the Costayaco field is located. The Piedemonte Sur Block, which encompasses approximately 73,898 acres, is located immediately west of the Orito Field, the largest oil field in the Putumayo Basin. Further south, the Rumiyaco Block, encompasses 82,624 acres in the central Putumayo Basin. Gran Tierra Energy has a 100% working interest and is the operator of these blocks. These new blocks will be the focus of exploration drilling efforts by Gran Tierra Energy in 2010.
Chaza Block (100% working interest, 80,242 gross acres)
Gran Tierra Energy successfully completed the drilling and logging of Costayaco-8 towards the end of the quarter, revealing that both the Upper T Sandstone of the Villeta formation and the Caballos formation were within the field's oil column. Subsequent to the quarter, the well underwent further testing. The Caballos interval produced oil at an average rate of 2,640 BOPD with no water for 11 hours using a jet pump.
The Upper T Sandstone interval produced oil at an average rate of 2,211 BOPD with no water for 7 hours when tested with a jet pump. This well is currently being tied into existing infrastructure. Costayaco-9 spudded July 17, 2009 and Costayaco-10 is scheduled to follow this year.
New infrastructure construction is planned to continue, including support facilities, crude gathering lines, water lines, two pumping stations, and storage batteries. The company will continue evaluating the optimum production plateau for the field taking into consideration reserves, reservoir performance, good operating practice, and net present value of the project. Current plans for the Costayaco field contemplate reaching a plateau of 19,000 BOPD gross in the fourth quarter of 2009, and maintaining that plateau for approximately four years.
The 2D seismic program planned for the Chaza block has been completed. There continues to be one exploration well budgeted for 2009 in the Chaza Block. The Rio Mocoa-1 prospect is scheduled to be drilled to the west of the Costayaco field in the fourth quarter of 2009.
Drilling of a second prospect, Moqueta, is planned for early 2010.
Guayuyaco Block (70% working interest, 52,366 gross acres)
The Guayuyaco Block contains both the Guayuyaco and Juanambu producing oil fields. At this time, no further exploration activity is budgeted for this block in 2009.
Azar Block (40% working interest, 51,639 gross acres)
The two seismic programs planned for the Azar Block, a 40 kilometer 2D program and a 50 square kilometer 3D program, have been initiated.
Mecaya Block (15% working interest, 74,128 gross acres)
In the third quarter of 2009 a work-over test of Mecaya-1 is planned. The exploration well (Mecaya-2) that was planned for the third quarter of 2009 has been deferred to 2010.
Santana Block (35% working interest, 1,119 gross acres)
No exploration activities are planned for the Santana block during 2009.
In April 2009, Gran Tierra Energy closed the sale of the company's interests in the Guachiria Norte, Guachiria, and Guachiria Sur blocks in Colombia. Principal terms included consideration of $7.0 million comprising an initial cash payment of $4.0 million at closing, followed by 15 monthly installments of $200,000 each which began on June 1, 2009 and extending through August 3, 2010. Gran Tierra Energy recorded net proceeds of $6.3 million after settlement of outstanding obligations. Gran Tierra Energy retained a 10% overriding royalty interest on the Guachiria Sur block, which, in the event of a discovery, is designed to reimburse 200% of the costs for previously acquired seismic data.
Gran Tierra Energy has an interest in two other blocks in the Llanos Basin; one of which it operates, encompassing 180,471 gross acres, or 142,503 net acres.
San Pablo Block (100% working interest, 104,534 gross acres)
The 50 square kilometer 3D seismic program, which replaced the commitment to drill one obligation exploration well, has been initiated to further define the prospectivity of the identified leads prior to drilling.
Garibay Block (50% non-operated working interest, 75,936 gross acres)
The 110 square kilometer 3D seismic program, to further define the exploration potential of the area, has been completed.
Gran Tierra Energy is the operator of three blocks in the Magdalena Basin encompassing 201,293 gross acres, or 58,396 net acres; two in the Middle Magdalena Basin (Rio Magdalena and Talora Blocks) and one in the Lower Magdalena (Magangue Block).
Rio Magdalena Block (40% working interest, 72,312 gross acres)
The 75 square kilometer 3D seismic program over the new Popa gas-condensate discovery and an adjacent exploration prospect has been completed along with the long-term production test of the Popa-2 gas-condensate discovery.
While this block previously encompassed 144,670 gross acres, Gran Tierra Energy was required to relinquish 50% of its area during the first quarter of 2009 as part of the end of the fifth phase of exploration on this block.
Talora Block (20% working interest, 108,334 gross acres)
Approval has been sought from the National Hydrocarbon Agency of Colombia for Gran Tierra Energy to assign its interest to PetroSouth Energy. No additional work is budgeted for this block.
Magangue Block (37.8% working interest, 20,647 gross acres)
A new compressor has been installed at the Guepaje gas field, which is forecast to produce an average of 2.7 MMCF/D gross, 0.8 MMCF/D NAR, during 2009. Production is currently shut in while liquid metering is being installed. No exploration activities are planned for the Magangue block during 2009.
The Catatumbo Basin is an extension of the Maracaibo basin in Venezuela. Gran Tierra Energy is the operator of one block encompassing 393,150 gross acres, or 294,351 net acres.
Catguas Block Area A (50% working interest, 113,792 acres gross)
No work is scheduled in Catguas Area A in 2009.
Catguas Block Area B (85% working interest, 279,358 acres gross)
The well re-entry and two exploration well commitments scheduled for the second half of 2009 have been deferred until 2010.
Peru Operations Update
Blocks 122 and 128 (100% working interest and operator)
The expanded environmental impact assessments for Blocks 122 and 128 have been submitted to the Peruvian government for review and approval. Consultations with communities in the region have begun.
These assessments are in preparation for a 500 kilometer 2D seismic survey expected to be acquired in the first quarter of 2010 over 16 principal leads amongst the 24 leads identified on the two blocks. Stratigraphic test drilling on up to four prospects is expected to take place in 2010 also. In addition, the pre-feasibility engineering field development study has been completed.
Argentina Operations Update
Gran Tierra Energy is the largest exploration landholder in the Noroeste Basin of northern Argentina. The company has a working interest in eight blocks of land, seven operated by Gran Tierra Energy, encompassing approximately 1.6 million gross acres, or 1.3 million net acres.
The company drilled one exploration well in 2008, Proa-1, resulting in the discovery of the Proa oil field. The work program for 2009 consists of conducting nine workovers of existing producing wells, and facilities upgrades. A 162 square kilometer 3D seismic acquisition in the Chivil and Surubi Blocks, to define additional structural and stratigraphic traps on the Proa oil field discovery trend, is currently being deferred.
Additional exploration drilling is contemplated in 2010 once the 3D seismic program is acquired. Production is expected to be maintained at approximately 1,000 BOPD NAR in 2009.
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