Petrolifera Provides Drilling Results Update
Petrolifera Petroleum announced the results of a number of recently drilled wells on its 100 percent-owned Puesto Morales/Rinconada Concession onshore the Neuquen Basin, Argentina.
The company's 1028 well on the eastern limits of the of Puesto Morales Block flowed 46 degree API light gravity crude oil to surface from the shallow Centenario Formation on test through an 24 millimeter choke at a calculated rate of 1,500 bbl/d and then at a calculated rate of 1,200 barrels a day through a 18 millimeter choke. The well was subsequently completed and placed onstream at a stabilized rate of 500 bbl/d and continues to produce as a flowing oil well at yesterday's rate of 435 bbl/d. Follow-up drilling of offset locations in the vicinity of the 1028 well is anticipated later this year. This is the first and only test of the Centenario on the Block since Petrolifera activated its drilling program in late 2005. The Centenario Formation was naturally penetrated with all wells, which have been drilled on the block. Oil shows have been encountered in this zone in a number of other wells on the block, although none were previously tested due to the deeper and more prolific productivity encountered in the Sierras Blancas or Punta Rosada Formations. Some follow-up drilling of shallow twins to existing Sierras Blancas producers to further evaluate the breadth of the play is anticipated, including in proximity to the 1018 well and the 1027 Sierras Blancas discovery, which tested 34 degree API Medanito crude oil through an 18 millimeter choke at a rate of 2,200 bbl/d and is currently producing through a 12 millimeter choke at rates slightly in excess of 1,000 bbl/d.
The company is continuing its testing program of the Puesto Morales 1022 well, which encountered a calculated 25-meter thick, well-developed Sierras Blancas section. This well is within the 1002-1012-1013-1023 central accumulation and flowed light gravity 34 degree API crude oil to surface on test at rates in excess of 900 bbl/d. Further testing is anticipated before the well is tied in and placed on permanent production.
Petrolifera's Puesto Morales Oeste 1001 well ("O 1001"), drilled in the southern portion of the Puesto Morales Block near its western border, yielded disappointing results from the Sierras Blancas Formation. On test, the well yielded natural gas at rates up to 1.4 mmcf/d, with significant associated water, thus rendering the zone uncommercial at this time. A bridge plug was set above the tested zone and the service rig was moved to 1022 for its test program; uphole zones in the Quintuco Formation in the O-1001 well remain to be evaluated at a later date.
At Rinconada, the 1003 well has been completed as an indicated Sierras Blancas crude oil well after a small frac program and testing at initial rates approaching 600 bbl/d, similar to rates encountered in the Rinconada 1001 well. Due to the nature of the reservoir at the Rinconada 1003 location, this well will be placed on pump immediately, rather than waiting for the natural flow to cease before installing artificial lift, unlike at many of Petrolfiera's other Sierras Blancas wells at Puesto Morales, which will only see artificial lift installed and productivity enhanced after the natural flow ceases. It is anticipated the Rinconada 1003 well will produce light gravity Medanito crude oil at rates approximating 200 bbl/d-300 bbl/d. Remedial work is continuing at the original Rinconada No.6 well, which was suspended in the 1970's but has been reentered by Petrolifera to determine if the well can produce oil following a recent frac program. Frac fluid is currently being recovered at the well.
A total of 22 new locations are in the process of being prepared and licenses have been applied for to drill these wells, which will evaluate a small portion of the Rinconada Block between now and year end 2007. The shallow Quintana rig presently on location at Rinconada will be dedicated to drilling these wells, which should each take about eleven days for the rig move, drilling time, logging and testing and running casing, if warranted. With the anticipated addition of a second drilling rig for this play, this schedule means that in the absence of any unusual developments or delays, Petrolifera could drill approximately 19 of the proposed 22 wells prior to the end of the current calendar year. A separate service rig is being arranged and will be dedicated to completion programs on Rinconada.
Currently, Petrolifera is operating with three drilling rigs and one service rig, with two of the drilling rigs and the service rig under long-term renewable contracts. The third Quintana drilling rig, which is also under long-term contract and recently arrived in Argentina from China, is expected to be available shortly for drilling deeper and directional wells on the Puesto Morales Block this year. Negotiations are also continuing to secure a fifth rig, as well as to contract up to three additional completion rigs. If negotiations are successfully completed, this could then allow Petrolifera to complete most if not all of its anticipated 55 well program for Argentina this year and leave the company with an enviable inventory of drillable locations headed into early 2008. Included in the company's 55-well program for Argentina in 2007 are water injection wells for its proposed waterflood program, aimed at enhancing well productivity and recoveries on Puesto Morales in ensuing years. This enhanced recovery scheme, which should be operative before year-end 2007, is similar to actions taken by other operators for these types of reservoirs in the region. Reservoir response will take several months as water is injected to replace voidage from production. Also, a number of non-associated natural gas wells are anticipated to be drilled to allow the company to substantially increase its natural gas production at improving prices and move volumes to market through its new high-pressure natural gas pipeline, which is under construction and expected to be fully operational with compression during September 2007.
Petrolifera will release its second quarter and first half 2007 financial and operating results on August 7, 2007 after Board review and approval. As previously announced, the company faced some unusual challenges during the second quarter 2007, which resulted in curtailed production and attendant sales of crude oil during the period. Most of the associated challenges were considered to be transitory in nature and have been or are being addressed, to the extent they are within the company's control. However, the receipt of actual financial and operating results, analysis of production performance and review of actual drilling and well test results and changing circumstances will now cause management to reassess the full year outlook and guidance previously placed in the public domain. In particular, a reassessment of the risk-weighted production from new exploration in the southern portion of the Puesto Morales Block will be necessitated by the recent disappointing test results at the O 1001 well. This is accordingly likely to reduce targeted third and fourth quarter 2007 crude oil production and forecast December 2007 exit rates.
As part of this review process, the company will also be examining its full year 2007 capital program in order to ensure appropriate risk distribution and risk management against a backdrop of escalating costs and competition, even though Petrolifera is extremely well financed and enjoys a high level of current liquidity. Updated guidance will be provided with the second quarter Board-approved operating and financial results. The company remains constructive about its near-term and longer-term outlook, as it expands its exploration and development programs in Argentina and prepares for new drilling of high potential prospects in both Peru and Colombia in 2008.
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