Enap to Complete Lago Mercedes Well in February 2006

Chile's state oil company Enap expects to complete its first gas exploration well in the Lago Mercedes basin of Tierra del Fuego in the country's southern Region XII in February 2006, an Enap spokesperson told BNamericas.

Drilling for natural gas started on November 15 and is being carried out by US-based Helmerich & Payne International Drilling (NYSE: HP). Enap signed a contract with the company in July 2005.

This marks a key step in Enap's US$52mn natural gas exploration project in Lago Mercedes, US$12mn of which is earmarked for this stage of the project, Lago Mercedes 2.

Enap expects that the well in Lago Mercedes, with an estimated depth of 4,200m, will ultimately yield five million cubic meters of gas a day, equal to 25% of total natural gas demand in central and southern Chile.

The project includes the construction of three parallel 18-inch diameter pipelines - multipurpose, oil and gas - stretching 123km from the Lago Mercedes field to Enap's Cullen plant in Tierra del Fuego.

The project will be carried out in two phases. The first US$25mn phase is the construction of the multipurpose pipeline, for which Enap is seeking approval from Chile's regional environmental authority Corema.

The second will be the construction of the oil and gas pipelines and complementary production facilities at Lago Mercedes, increasing total investment to about US$70mn.

The idea is to supply gas to Canadian company Methanex's methanol plant near Punta Arenas, which has reduced its output due to Argentine gas restrictions.

Chilean mining services and explosives company Enaex is also in talks with Enap to build an ammonium plant in southern Chile that would use gas from Magallanes, the spokesperson said.

In the longer term, Enap is considering building a natural gas liquefaction plant to export the gas to a proposed regasification terminal in central Chile's Region V, where most of the country's energy demand is concentrated.

The Magallanes region where Lago Mercedes is located forms part of the gas-rich Austral basin, which extends from Argentina's Tierra del Fuego province into Chilean territory.

Enap has known about sizable gas reserves in Magallanes for decades but only now has the price of gas domestically risen to the point where exploration and production in this region has become feasible, the spokesperson said.

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