PetroLatina announced that Colombia's hydrocarbon regulatory agency (the Agencia Nacional de Hidrocarburos (ANH)) confirmed that Petroleos del Norte S.A. (PDN), PetroLatina's wholly owned Colombian operating subsidiary, was the successful bidder for two new blocks in the recent Colombian license bidding round 2010. The blocks awarded to the Company were VMM28 in the Middle Magdalena basin and LLA57 in the Llanos basin.
Block VMM28, covering an area of 54,552 hectares (136,390 acres), lies to the west of and immediately adjacent to the Company's existing La Paloma block containing the Colon field. The newly acquired block has some historic 2D seismic coverage which suggests that the type of structure which has proven to be oil productive on the La Paloma block may also hold commercial oil reserves on VMM28. The award represents a continuation of the Company's strategy of building a large and profitable area of core license interests in the Middle Magdalena basin and increases to five the number of contiguous blocks held by PetroLatina in this area.
Block VMM28 should potentially enable the Company to leverage its existing operational capacity and local expertise and expand its current aggregate production from its current level of more than 2,000 bopd gross. The block was awarded amidst strong bidding competition; the block located immediately to the north was awarded to Shell in the current round and Ecopetrol S.A. previously acquired the block immediately to the south. Under the proposed terms of the exploration and production contract (the E&P Contract) with ANH, PetroLatina will be required to drill at least one exploratory well within the first three years of the license term. PetroLatina's proposal for the VMM28 block also included US $8.6 million in additional seismic work commitments, and a 1 percent net production revenue payment after royalties to ANH. The E&P Contract comprises two 3 year exploration phases and a 24 year production phase.
The second block, LLA57, covers 42,304 hectares (105,760 acres) and is located in the Llanos Basin. It forms part of the Company's new strategy to develop a second production base in Colombia. The Llanos basin in general, and particularly the area in which LLA57 is located, has experienced very high commercial success rates (> 40%) by other operators such as Gran Tierra, Hupecol, Lewis Energy Group, C & C Energy Canada Limited Petrominerales and, Canacol Energy in recent years. Although the average field sizes (1 to 10 MMBO recoverable) are typically smaller than in the Middle Magdalena and Putumayo basins, where the Company already holds acreage, the oil quality and individual well flow rates are higher (1,000 to 4,000 bopd). In addition, well costs are moderate and local infrastructure is well developed as a consequence of recent discoveries in the surrounding acreage by other operators.
Block LLA57 is located between the Cano Garza producing field to the west and a string of discoveries to the east including the Primavera, Los Aceites and Palmitas fields operated by Pereneco, originally discovered during 2006 to 2009 by Solana Resources Limited/Gran Ttierra Energy Inc and Lewis Energy Group in the adjacent Guachiria and Guachiria Sur blocks. The existing 2D seismic data available on the LLA57 block indicates that the same structural play type which has now been proven to hold commercial sized reserves to the east and west, also exists on block LLA57.
Under the proposed license terms for the LLA57 block, PetroLatina will be required to drill at least one exploratory well within the first three years. PetroLatina's proposal for the LLA57 block also included US $12 million in additional work commitments and a 1 percent. net production revenue payment after royalties to ANH. The proposed E&P Contract comprises two 3 year exploration phases and a 24 year production phase.
PetroLatina expects to finalize and sign the formal E&P Contracts for the two blocks with ANH during the fourth quarter of this year.
Juan Carlos Rodriguez, CEO of PetroLatina, commented, "Having been awarded the Putumayo-4 block in the 2009 licensing round we are delighted to have now won two further attractive exploration licenses in the current round. As a consequence, the Company will now be represented in all three of the most prolific basins in Colombia namely Middle Magdalena, Putumayo and Llanos. With the oil industry's ever-increasing interest in Colombia the competition for licenses was intense and PetroLatina was one of only a limited number of small-cap independent companies to have been awarded blocks in this licensing round reflecting our experience and track record in the country."
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