Parex Resources provided an update of the Company's drilling activity in Colombia and in Trinidad, highlighted by successful test results from the Colombian Llanos Basin Kona-1 oil well and the award of Block LLA-57 in the 2010 Colombia Bid Round.
Wayne Foo, the Company's President and CEO stated that "being able to start our exploration program with positive drilling results in both Colombia and Trinidad plus expand our prospect inventory with the award of a new Colombian block provides momentum to our business plan. This has also given us the opportunity to add a second drilling rig to our Llanos Basin blocks."
Colombia Exploration Update
Parex's first well in its eight well 2010 Llanos Basin exploration program, Kona-1 on the LLA-16 Block (Parex 50 percent working interest), commenced drilling operations on May 16, 2010 and reached a final total depth of 13,250 feet on June 18th, 2010.
Kona-1 penetrated multiple objectives as programmed and encountered shows of hydrocarbons during drilling from the Upper C7, Mirador, and Gacheta formations at depths ranging from approximately 11,090 to 13,000 feet. Well logs indicate potential net oil pay, measured as true vertical depth, of 82 feet consisting of 35 feet in the upper C7, and 47 feet in the Mirador. Due to the well bore deviation required to drill through multiple horizons, Kona-1 could only be cased to 12,765 feet, above the top of the Gacheta Formation. As a result, subsequent testing operations were focused on the overlying Mirador Formation and were conducted using the drilling rig. The Upper C7 was not tested at this time to maintain integrity of the well bore for future use. The C7 is expected to be tested in follow up drilling.
Cement bond logs indicated that there was no cement across the pay zone and therefore the 47 feet of prospective oil pay section was not isolated from the 280 feet of underlying wet reservoirs. Even though water free production was unlikely, the Company perforated 11,552 to 11,560 feet at the top of the Mirador interval to determine oil gravity and reservoir quality while preparing for a remedial cement treatment. The well flowed naturally without pumping at a rate of up to 500 barrels of oil per day ("bopd") plus 750 barrels of water per day with a lab tested 35 degree API oil. Bottom hole pressure measurements during the test indicated a reservoir pressure of 4,750 psi and measured bottom-hole flowing pressure of 4,550 psi indicating a 5 percent drawdown. Testing was terminated after 14 hours as the water cut had stabilized at 60 percent of total fluid rates.
Internal analysis of the well test indicates that with a successful cement remediation, Kona-1 could flow from the Mirador Formation at an initial rate of up to 2,500 bopd. With the installation of a pump an initial rate of up to 3,500 bopd could be achieved while limiting bottom-hole flowing pressure drawdown for prudent reservoir management. As a result of this analysis, Parex is proceeding to install production facilities with an initial capacity to produce 3,500 bopd.
Wayne Foo commented that "in light of the mechanical difficulties caused by the casing not being able to get to the total drilled depth and the resulting poor cementing operation, this was a great outcome as we confirmed the presence of light gravity oil and high reservoir deliverability."
The drilling rig is being skidded from Kona-1 to the next exploration prospect Kona-2 based on the successful Kona-1 Mirador test. Kona-2 is on the same surface pad and will drill through the C7 and Mirador formations to the deeper Gacheta and Une formations, approximately 600 meters subsurface from Kona-1. The objective of Kona-2 is to provide additional structural and reservoir information to program 2011 development activity. Parex estimates that testing results will be available in 45 days after the expected spud date of late July, 2010. After drilling Kona-2, the drilling rig is expected to move to the Goroka exploration prospect on Block LLA-16.
Parex is contracting a service rig for August to move onto the Kona location after the drilling rig moves to Goroka. The service rig will attempt to complete remediation work and final testing on the Kona-1 well along with the initial completion of the Kona-2 well if required. In addition, Parex is evaluating proposals to add a second drilling rig for drilling on Block LLA-16 and Block LLA-20 in 2010.
Parex expects to defer a Block LLA-29 exploration well into the 2011 drilling program with the addition of the Kona-2 well into the 2010 program.
With the encouraging Mirador Formation test results, Parex has commissioned a study to evaluate the construction a seven kilometre oil pipeline from the Kona location to a terminal located on the main paved all-season road. The pipeline would allow for all-season trucking of oil production and lower transportation tariffs.
Also in Colombia, Parex has been advised by the National Agency of Hydrocarbons ("ANH") that following their comprehensive review of bidder qualifications and bids submitted on June 22, 2010 in the 2010 Colombia Bid Round, Parex was deemed to be the successful bidder for Block LLA-57 in the Llanos Basin. Block LLA-57 covers 104,532 acres and lies immediately north of Parex operated (50 percent working interest) Block LLA-20. The Company's bid terms for Block LLA-57 (100 percent working interest) were a Phase 1 work program of $10.1 million and a supplemental royalty (x-factor) of one percent over the base ANH royalty. The block has a six year exploration term divided into two 36 month exploration phases. The Company has identified several leads in the southern half of Block LLA-57 which are along trend to the two drilling locations currently being constructed on Block LLA-20.
Parex anticipates signing the ANH contract in 2010. After signing the contract, the Company is required to place a guarantee of approximately $3.85 million with the ANH. Block LLA-57's Phase 1 work program is expected to be funded through existing working capital. With the signing of Block LLA-57, Parex's total gross acreage in Colombia's Llanos Basin would increase from approximately 489,000 acres to 595,000 acres.
Trinidad Exploration Update
Firecrown-1, the first of three Trinidad exploration wells planned in 2010, reached a total measured depth of 8,701 feet on June 14, 2010 and penetrated both the primary and secondary objectives in the Herrera formation. Based on the interpretation of wireline logs, mudgas, and cutting samples the well encountered potential hydrocarbon bearing sandstones with oil shows. Parex elected to case the well to a depth of 8,400 feet to enable future testing of the prospective zones.
Parex expects to have a service rig move onto the Firecrown-1 location to conduct a multi-zone testing program, subject to obtaining regulatory approvals. The drilling rig has been mobilized to the second Moruga Block location, Snowcap-1 which was spud on July 16, 2010. The total measured depth of Snowcap-1 is expected to be 8,600 feet and will test a 3D defined structure in the Herrera formation.
Following the drilling of Snowcap-1, Parex plans to move the drilling rig from the Moruga Block to the Central Range Block. An application for regulatory approval to drill a shallow horizon prospect was submitted in June, 2009.
The earning terms of the Moruga Block require Parex to drill one exploratory well to a depth of 8,600 feet or the top of the Cretaceous, whichever occurs first and one exploratory well to 10,500 feet. The exploration term of the Moruga Block license expires on August 29, 2013.
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