PELE Petrolatina

 

TIDMPELE 
 
RNS Number : 0226U 
Petrolatina Energy PLC 
17 June 2009 
 

17 June 2009 
 
 
PetroLatina Energy Plc 
("PetroLatina" or the "Company") 
 
 
Drill Programme and Funding Update 
 
 
Further successes on the Los Angeles-12 and 14 development wells in the ongoing 
drill programme together with a significant increase in net oil production 
 
 
PetroLatina (AIM: PELE), an independent oil and gas exploration, development and 
production company focused on Latin America, announces positive results for its 
recently drilled Los Angeles-12 and 14 development wells and the completion of 
an increased second tranche of convertible loan note funding. 
 
 
Highlights: 
 
 
  *  First four wells in the ongoing drill programme have all proven to be 
  successful. Net oil production to the Company now running at a level of 
  approximately 1,025 barrels of oil per day ("bopd") compared with an average 
  level of 244 bopd for 2008. Gross production operated by the Company is 
  approximately 2,000 bopd. 
 
 
 
  *  The Los Angeles-12 development well was successful and was placed on production 
  from the newly discovered Umir section at a rate of 80 bopd. Fraccing is planned 
  to increase this production rate. The main target, the Lower Lisama formation, 
  was found to be considerably thicker than expected and will be produced in due 
  course. 
 
 
 
  *  The Los Angeles-14 well encountered the Lower Lisama reservoir as expected and 
  is currently producing at 200 bopd. 
 
 
 
  *  The Colon-1 discovery well is now on commercial production at a rate of more 
  than 600 bopd. As previously announced, the Los Angeles-11 development well 
  commenced production and is currently producing at a rate of approximately 170 
  bopd. 
 
 
 
  *  The Company's fifth well, the Chuira-1 exploration well, on the Midas block has 
  recently been spudded and is drilling at approximately 6,000 feet. 
 
 
 
  *  Increased US$6.29 million second tranche of convertible loan note funding 
  secured from Tribeca Oil and Gas Financing, Inc. ("TOGF"), a subsidiary of 
  existing substantial shareholder Tribeca Oil & Gas Inc., on revised terms. 
 
 
 
Juan Carlos Rodriguez, Chief Executive of PetroLatina, commented: 
 
 
"PetroLatina is aiming to drill a minimum of four wells across its three 
Colombian licence areas during the remainder of 2009 in addition to the four 
already drilled this year. The first four wells in the programme have each 
proved successful and current net oil production to the Company is significantly 
higher than that achieved in 2008. We are on track to meet our objectives of 
delivering considerably increased production, cash flow and reserves in 2009." 
 
 
Drill Programme 
 
 
Net oil production from PetroLatina's Colombian interests has increased from a 
rate of approximately 210 bopd on 1 January 2009 to a current level of 
approximately 1,025 bopd. During the current year to date, the number of 
production wells has increased from 11 to 15 as a result of the recently drilled 
Colon-1, Los Angeles-11, Los Angeles-12 and Los Angeles-14 wells coming on to 
production. 
 
 
Colon-1 
 
 
The Company's Colon-1 discovery well was tested between 18 May 2009 and 24 May 
2009 on various choke sizes to gauge deliverability and produced 4,674 barrels 
of oil during that test period. The well was then shut in for pressure buildup 
until 29 May 2009 when it was re-opened and the reservoir pressure was found to 
have built back up to its initial value of approximately 6,250 pounds per square 
inch. It was subsequently put on production at near to the expected rate of 
1,200 bopd and is currently on a six month government mandated test producing at 
a controlled rate of 613 bopd on a restricted choke of 20/64 inch. Production 
data gathered in recent days indicates that when the choke size is reduced 
further the flowing pressure increases significantly suggesting that this 
reservoir has pressure support and considerable extent and testing continues to 
determine the optimum production rate for this well taking into account the fact 
that it has high porosity (greater than 20 per cent.) but modest permeability 
(50 to 80 millidarcies) and that the sand is relatively unconsolidated. The well 
is also producing gas at a gas oil ratio of approximately 200 cubic feet per 
stock tank barrels and electricity generation equipment will be installed to 
utilise this gas to power field operating equipment. PetroLatina currently has 
title to 100% of the production from the Colon-1 well minus an 8% royalty and 
that situation will continue until a total of approximately $US12 million worth 
of oil has been recovered. At that point in time a partner, which has not funded 
its share of costs to date, will back in for a 15% interest. 
 
 
The well has produced more than 20,000 barrels of oil to date which is currently 
being sold to Ecopetrol S.A. ("Ecopetrol"), the Colombian state oil company. A 
development well, Colon-2, is currently planned to be drilled immediately 
following completion of the Chuira-1 exploration well which is now underway in 
PetroLatina's adjacent Midas block. 
 
 
Los Angeles-12 
 
 
Los Angeles-12, drilled in the Los Angeles field located in the Middle Magdalena 
valley of Colombia, was a successful development well which, in addition to 
encountering thicker than anticipated oil pay in the Lower Lisama reservoir, 
discovered deeper oil pay in the Umir Formation. The Umir Formation was found to 
contain 44 feet of oil pay and was placed on production on 25 April 2009. It 
currently produces at a stable rate of 80 bopd of 26.9 degree API oil. Plans are 
now being finalised to fracture the Umir reservoir in the expectation of 
increasing the production rate further. Recently concluded studies by 
Schlumberger suggest that fracturing should be very effective in this relatively 
low permeability reservoir. In the event good results are achieved with a Los 
Angeles-12 fracture programme there is considerable scope to perform the same 
technique on other wells with Umir oil pay. 
 
 
This Umir pay represents a new and previously untapped producing horizon in the 
Los Angeles field which is significant because: 
 
 
  *  this oil zone is interpreted to underlie much of the Los Angeles field and it is 
  expected that the field's reserves will therefore eventually be increased as a 
  result; 
 
 
 
  *  the oil is of higher gravity (26.9 degrees API versus 13 degrees API) than 
  previously produced oil and will therefore command a higher price; and 
 
 
 
  *  the oil is produced from an exploration zone which is below the producing zone 
  directly targeted in the existing agreement between PetroLatina and Ecopetrol. 
  As a result, this zone is being produced under the "sole risk" provisions of 
  that agreement and at this time 100% of the production minus royalties accrues 
  to PetroLatina. Ecopetrol has the option to back into 50% of the production from 
  this zone by paying a penalty equal to 200% of its share of the well cost. 
 
 
 
In addition to the Umir formation oil pay noted above, the Los Angeles-12 well 
encountered 344 feet of net oil pay in the traditional Lower Lisama reservoir, 
considerably thicker than expected prior to drilling. That oil pay has been 
perforated, is currently shut in and will be produced in due course after the 
production from the Umir Formation has been fully evaluated. 
 
 
Los Angeles-14 
 
 
Los Angeles-14 was also drilled successfully in the Los Angeles field and 
encountered 150 feet of oil pay in the Lower Lisama reservoir, which includes a 
new 25 feet thick zone not previously tested in the field. This well was 
directionally drilled from the Los Angeles-11 surface location. The Los 
Angeles-14 infill well is located between the existing Los Angeles-10 and Los 
Angeles-11 wells. Los Angeles-14 was placed on production on 7 June 2009 and is 
currently producing at 200 bopd. 
 
 
Chuira-1 Exploration Well 
 
 
The fifth well in the current PetroLatina drilling campaign, Chuira-1, located 
on the Midas block, has spudded and is currently at approximately 6,000 feet 
drilling towards its targeted total depth of 10,000 feet. The primary target, 
the La Luna limestone is expected at approximately 7,700 feet and will be 
drilled after casing is set above it at approximately 7,500 feet. Drilling to 
date in the Umir formation, equivalent to that described in this announcement in 
the Los Angeles-12 and Colon-1 wells, has encountered Umir sands of modest 
thickness (< 40 feet) with good oil shows in samples and on the mud logs, 
however, the significance of this will not be known until the well is logged and 
tested. Following completion of Chuira-1, the Latco-1 drilling rig, which has 
drilled all of the wells in the current campaign, will be moved back on to the 
Colon field where it will drill the Colon-2 appraisal well. 
 
 
Funding Update 
 
 
In light of the Company's rapid drilling progress and in order to maintain 
momentum on the ongoing work programme and avoid any delay or curtailment, 
additional working capital is required to be drawn down to meet certain 
expenditure commitments. Following discussions with TOGF, a subsidiary of 
existing substantial shareholder Tribeca Oil & Gas Inc. ("TOGI"), in respect of 
the Company's option to request up to a further US$5 million note subscription 
by 21 July 2009 under the existing facility, it has yesterday been agreed that 
this option will be lapsed and replaced with an increased note subscription by 
TOGF of US$6.29 million. In return for the increased funding amount, the terms 
of the second tranche of the convertible loan notes have been varied to allow 
for conversion, in whole or in part, into new ordinary shares at a fixed 
conversion price of 25 pence per share on any of the interest payment dates from 
December 2009 onwards. Save for the variation in the amount, the first possible 
conversion date, and the conversion price of the second tranche, all other terms 
of the original convertible loan note instrument remain unaltered from those 
details announced on 21 January 2009. Following the second subscription, TOGF 
holds an aggregate principal amount of US$11.165 million of secured convertible 
12 per cent. loan notes due 2011. 
 
 
Under the terms of the amended loan note instrument, the second tranche of notes 
are not capable of conversion prior to the first six monthly interest payment 
date on 17 December 2009 and, at the Company's option, can be redeemed in whole 
or in part, without penalty, on any of the interest payment dates prior to their 
scheduled maturity on the second anniversary from drawdown in 2011. Unless 
converted, the notes are redeemable immediately prior to any sale or de-listing 
of the Company and repayable in the event of any default. At TOGF's option, the 
second tranche notes are convertible in whole into new ordinary shares on any of 
the interest payment dates, in the event of early redemption and only after the 
first interest payment date (in respect of the amount specified to be redeemed), 
on maturity or on any instance of default, sale or de-listing of the 
Company.  In the event of conversion, the number of new ordinary shares to be 
issued to the noteholder will be determined by dividing the principal amount of 
the relevant notes by the revised second tranche conversion price per new 
ordinary share of 25 pence. 
 
 
The revised second tranche conversion price referred to above is less than the 
current nominal value of an ordinary share of US$0.50 (approximately 31 pence at 
the prevailing pounds sterling to US dollars exchange rate). Accordingly, since 
English company law prevents the Company from issuing new shares at a price 
below the prevailing nominal value of its ordinary shares, the Company has 
previously undertaken to implement a capital reorganisation prior to the first 
interest payment date in respect of the first tranche notes in order to ensure 
that the nominal value of each ordinary share is reduced to an amount 
sufficiently below the initial conversion price of the first tranche notes of 
20.9375 pence. The Company has recently tabled resolutions to effect the 
sub-division of its existing issued ordinary shares into new ordinary shares of 
a lower nominal amount and a new class of non-voting deferred B shares of a 
lower nominal amount at the forthcoming Annual General Meeting to be held at 
11.00 a.m. on 23 June 2009. 
 
 
Following the subscription of the second tranche notes, the Company will have 
cash resources of approximately US$7 million and, although the directors are 
satisfied that the Group has access to sufficient financial resources to meet 
its working capital requirements for the remainder of 2009, it is currently 
expected that additional funding will be required in order to complete its 
entire planned work programme. In this regard, negotiations are continuing with 
a number of major investment banks and the board remains confident that the 
Group will, in due course, be able to raise the required funds to finance its 
future working capital requirements. 
 
 
TOGI is a significant shareholder in the Company and currently holds 15,360,999 
ordinary shares, representing approximately 35 per cent. of the Company's issued 
share capital and existing warrants over a further 1,875,260 ordinary shares 
which are automatically exercisable if, and to the extent that, any exercise of 
the Company's other existing outstanding 3,482,625 warrants occurs. Accordingly, 
the issue of the second tranche notes on revised terms to TOGI's wholly owned 
subsidiary TOGF, as set out above, is considered to be a related party 
transaction under the AIM Rules for Companies. The independent directors of the 
Company (being John May and Menno Wiebe) consider, having consulted with Strand 
Partners Limited, that the terms of the issue of the second tranche notes are 
fair and reasonable insofar as the Company's shareholders are concerned. 
 
 
Mr Menno Wiebe, a Non-executive director of the Company, has reviewed and 
approved the technical information contained within this announcement in his 
capacity as a qualified person, as required under the AIM rules. Mr Wiebe is a 
Petroleum Geologist and has been a Member of the American Association of 
Petroleum Geologists for more than 25 years and a Member of the Geological 
Society for more than 5 years. 
 
 
Enquiries: 
 
 
+-------------------------------------------------------+------------------------+ 
| PetroLatina Energy Plc                                | Tel: +57 1627 8435     | 
| Juan Carlos Rodriguez, Chief Executive Officer        |                        | 
+-------------------------------------------------------+------------------------+ 
| Pawan Sharma, Executive Vice President - Corporate    | Tel: +44 (0)207 956    | 
| Affairs                                               | 2821                   | 
+-------------------------------------------------------+------------------------+ 
|                                                       |                        | 
+-------------------------------------------------------+------------------------+ 
| Strand Partners Limited                               |                        | 
+-------------------------------------------------------+------------------------+ 
| Simon Raggett / Matthew Chandler                      | Tel: +44 (0)20 7409    | 
|                                                       | 3494                   | 
+-------------------------------------------------------+------------------------+ 
|                                                       |                        | 
+-------------------------------------------------------+------------------------+ 
| Financial Dynamics                                    |                        | 
+-------------------------------------------------------+------------------------+ 
| Ben Brewerton / Susan Quigley                         | Tel: +44 (0)20 7831    | 
|                                                       | 3113                   | 
+-------------------------------------------------------+------------------------+ 
 
 
Additional Information on PetroLatina Energy Plc: 
PetroLatina Energy Plc (AIM: PELE), formerly known as Taghmen Energy Plc, was 
founded in 2004. The Company is presently focused on Colombia after the sale of 
its assets in Guatemala in which it retains a 20% interest in the first three 
wells and a 20% working interest in future wells. In Colombia, the Company 
currently holds 45% and 20% interests in the Los Angeles and Santa Lucía fields 
on the Tisquirama licence respectively, and a 100% interest in the Doña María 
field. In November 2007 the Company secured the extension of the Tisquirama 
licence for the economic life of the fields. In April 2006 the Group acquired an 
interest in two exploration blocks with an 85% interest in Midas and an 80% 
interest in La Paloma. PetroLatina also owns the Río Zulia-Ayacucho pipeline in 
the prolific Catatumbo basin which transports crude oil. Present 
exploration/exploitation activities in this area should increase the volume of 
crude oil transported resulting in an increased cash flow. Further information 
is available on the Company's website (www.petrolatinaenergy.com). 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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