PELE Petrolatina

 

TIDMPELE 
 
RNS Number : 4802Y 
Petrolatina Energy PLC 
03 September 2009 
 

3 September 2009 
 
PetroLatina Energy Plc 
("PetroLatina" or the "Company") 
 
 
Drill Programme and Operational Update 
 
 
100% success rate continues with two more successful wells completed resulting 
in a total of six wells drilled in the programme to date 
 
 
PetroLatina (AIM: PELE), an independent oil and gas exploration, development and 
production company focused on Latin America, announces successful results for 
both the Chuira-1 and Colon-2 wells together with an operational update. 
 
 
Highlights: 
 
 
  *  Two more wells; Chuira-1 and Colon-2 have proven to be successful making a total 
  of six successful wells drilled in the programme to date. These wells are 
  Colon-1 and 2, Chuira-1 and Los Angeles-11, 12 and 14. 
  *  The Chuira-1 exploration well on the Midas block encountered, logged and tested 
  two oil pay zones in the La Luna formation. 
  *  The Colon-2 appraisal well was drilled through the Umir sand oil pay which 
  tested up to 1,200 barrels of oil per day ("bopd") in the Colon-1 discovery. Log 
  analysis of Colon-2 indicates that it contains the same pay zone as Colon-1 and 
  has additional oil bearing sands beyond those tested in the Colon-1 discovery. 
  *  The Los Angeles-12 well, a previously reported oil discovery in the Umir sand 
  formation which lies below the producing Lower Lisama sands, has now been 
  successfully fractured to increase the production rate. It is expected that this 
  well will be put on production this week at a rate of approximately 300 bopd 
  with API crude of 26 degrees. 
  *  A new workover rig, recently purchased by our key local drilling contractor, 
  Latco, is now in service and has completed its first successful field operation 
  in the Los Angeles-12 well. 
  *  A cost optimisation review has been completed to take advantage of recently 
  reduced equipment and drilling services costs in Colombia. Cost reductions of up 
  to approximately 15% are anticipated on the average total costs per typical well 
  experienced by the Company to date. For example, the average cost of 
  approximately US$1.83 million per completed well at the Los Angeles field is 
  expected to be reduced to approximately US$1.60 million on future wells once the 
  identified cost reductions have been fully implemented. 
  *  An updated independent reserves report is being commissioned which will 
  integrate the results of the six wells drilled in 2009 to date, with the report 
  expected to be available towards the end of this year. Given the success of all 
  six wells, a significant uplift in the Company's proven and probable reserves is 
  anticipated. 
  *  The Company ultimately elected not to participate in 20% of the Atzam-3 well 
  recently drilled in Guatemala by Quetzel Energy Limited (TSX-V: QEI.V), to whom 
  PetroLatina sold its Guatemalan interests in July 2007, and the Company instead 
  continues to focus its resources on the development of its Colombian assets. 
 
 
Juan Carlos Rodriguez, Chief Executive of PetroLatina, commented: 
 
 
"PetroLatina is targeting the drilling of at least a further two wells across 
its three Colombian licence areas during the remainder of 2009 to supplement the 
six successful wells already drilled to date. The first six wells in the ongoing 
drill programme have each proven successful and we remain on course to meet our 
key objectives of delivering considerably increased production, cash flow and 
independently audited reserves in 2009." 
 
 
Drill Programme 
 
 
Chuira-1 - Midas Block 
 
 
The Chuira-1 exploration well located at the northern end of the Company's Midas 
block was drilled to a total measured depth of 8,315ft, logged and cased and has 
resulted in a new discovery. This discovery is located approximately 12 
kilometres east of Emerald Energy Plc's Totumal field which represents the 
nearest producing field. The well encountered oil pay in two sections of the La 
Luna limestone reservoir rather than the single fractured pay zone expected. The 
results of this well confirm the structural mapping performed prior to drilling 
on the basis of a high quality 3D seismic survey on this area. 
 
 
The La Luna limestone pay consisted of an upper zone from 7,942ft to 7,980ft 
(38ft gross) with approximately 34 net feet of oil pay with porosity in the 
range of 18 to 22% based on a third party log analysis. This porosity is 
abnormally high, for the area, relative to the 3 to 8% porosity normally found 
in La Luna fields in this region which is considered to be very positive since 
it suggests not only that the upper La Luna limestone at Chuira is likely to 
contain up to three times more oil in place within a unit volume of rock, 
but also that the recovery factor and production characteristics are likely to 
be better than those for other fields once certain mechanical issues, described 
below, are resolved in this well. 
 
 
A second, unexpected, limestone unit was found below that described above in the 
interval 8,144ft to at least 8,210ft (66ft gross) where the full wireline log 
coverage ended. This interval contained at least 46ft of net oil pay with 
porosity in the range of 12 to 18%. Calculated oil saturations are in the range 
of 70 to 85%. 
 
 
Below the oil pay described above the well encountered a unit, at least 25 feet 
thick of gilsonite, an unusual hydrocarbon type which exists in a plastic state 
at bottom hole temperature and pressure conditions but which becomes solid at 
surface conditions. It was not possible to drill through this unit without 
putting the well at risk and for that reason the well was terminated at 8,315 
feet. 
 
 
The well was logged with an extensive suite of modern wireline logs including an 
Extended Range Micro Imager which showed a clear zone of fractures from 7,943ft 
to 7,977ft - corresponding to the upper pay zone described above. The existence 
of such fractures are critical to achieving commercial production rates in this 
area. 
 
 
The well was then completed with an uncemented slotted liner over the two pay 
zones with swellable packers run above, below and between the pay zones to 
provide isolation. Production testing of the well produced oil on natural flow 
at approximately 180 bopd of 21 degrees API oil for two days and the flow rate 
then dropped abruptly to 40 bopd where it remained at a stable level with 
essentially no water cut for more than a week. Production to date in this well 
is approximately 1,002 barrels of oil.  Interpretation of these results, as well 
as a pressure test which showed the pressure returning to its original level 
after a few hours of shut in, suggests that the annulus between the tubing and 
casing may have become plugged by barite settling out of the drilling fluid or 
by gilsonite invasion or a combination of these factors. For that reason, a 
workover of this well is planned in about two weeks time, when the service rig 
currently on the Los Angeles-12 well becomes available, in order to restore the 
well to full production. 
 
 
The results for Chuira-1, regardless of the current production rate issues, 
indicate that this well has achieved a discovery of; good quality oil, higher 
than expected reservoir quality and at least twice the net pay expected prior to 
drilling. Studies are now under way to correct the apparent plugging problems 
encountered in the well and to determine whether a reservoir stimulation job, 
such as fracturing, acidizing or radial jetting may lead to significantly higher 
flow rates than those seen on test. Furthermore, as the rates noted above were 
produced by natural flow, it is most likely that considerably higher production 
rates could be achieved by installing a downhole pump in this well. As this well 
was evaluated with a high technology logging suite including the Extended Range 
Micro Imager and Vertical Seismic Profile, the data has been gathered to 
determine critical information such as fracture direction and reservoir 
characteristics thereby enabling a targeted recompletion and follow up appraisal 
programme. One immediate additional implication of these logs is that they 
indicate that at least 900 gross feet of prospective La Luna sections remain to 
be drilled below the total depth of the Chuira-1 well. 
 
 
The Chuira-1 well was drilled on the Midas block, in which the Company holds an 
85% interest. It will therefore be produced under the favourable terms secured 
from the Agencia Nacional de Hidrocarburos ("ANH") whereby the royalty is 8%, no 
"high price" or "windfall profits" formula applies until 5 million barrels have 
been produced and there is no state back in right. As such, each barrel of oil 
produced in this block is approximately three times as valuable to the Company, 
in terms of net cash flow, as a barrel produced from one of the Company's 
traditional fields such as Los Angeles. 
 
 
Colon-2 - La Paloma Block 
 
 
This well, the first appraisal of the early 2009 Colon-1 discovery, and located 
about 0.25 miles (450 metres) north of that well, has now been successfully 
drilled to a total measured depth of 9,300ft. The objective of this well was the 
Umir pay sand which flowed at rates as high as 1,200 bopd on test in the Colon-1 
well. In addition, other Umir sands which appear to be oil bearing on the logs 
of Colon-1 but which were not tested previously, as well as untested possible 
pay zone in the La Paz/Lisama section in the same well, were secondary targets. 
The Colon-1 well, which has been on an extended production test to meet 
statutory requirements has, to date, produced approximately 47,000 barrels of 
oil and continues to produce at a stable rate of approximately 400 bopd with no 
water. The Company plans to install a pump in this well in the near future to 
increase the production rate. 
 
 
The Colon-2 well encountered the primary target Umir sand between 8,775ft and 
8,810ft (35ft gross oil pay) essentially on prognosis and only 12 feet downdip 
from the Colon-1 discovery. This attests to the high quality of the 3D seismic 
data covering this area. The primary target Umir sand was cored; with 94% 
recovery (103 feet), from top to bottom and the core data is now undergoing 
analysis. This core data is expected to be important for the independent 
reserves assessment which is currently underway. 
 
 
The well has now been logged and casing has been run. The logs indicate that the 
primary Umir oil pay has high porosity (> 19%) and contains about 34 feet of net 
oil pay. In addition, the three thinner sands in the Umir section which appear 
oil bearing on the logs could add up to 15 feet of additional oil pay if 
confirmed by testing. Oil and gas shows were also encountered in the Lisama 
section in the same interval as they were seen in Colon-1 and these will also be 
evaluated in due course. 
 
 
Testing of the Colon-2 well is expected to begin in approximately two weeks and 
preliminary results are expected to be available approximately three weeks 
following completion of testing. 
 
 
The Colon-2 well was drilled on the La Paloma block in which the Company holds 
an 80% interest. This block is also held under the same attractive terms from 
the ANH as those outlined for the Midas block above. 
 
 
The success of the Colon-2 well is the first hard data confirmation that the 
Colon-1 discovery is likely to prove to be of considerable extent. Remapping is 
under way and on the basis of the Colon-2 well it is expected that at least 
7 additional development well locations will be justified in this accumulation. 
 
Los Angeles-12 - Tisquirama Contract 
 
 
As previously reported, the Los Angeles-12 well encountered the expected oil pay 
in the Lower Lisama sand, which produces in the Los Angeles field, and in 
addition, encountered oil pay in the deeper Umir formation. This Umir discovery 
is considered to be significant for the following reasons: 
  *  it is thought to underlie the entire Los Angeles field and therefore have 
  considerable extent; 
  *  the oil quality is higher (at 27 degrees API) than the 13 degrees API produced 
  from the traditional Lower Lisama reservoir; and 
  *  since this oil is being produced from a new exploration zone the terms under 
  which it is produced are more favourable than those governing the oil produced 
  in the other wells in the field. 
 
The Los Angeles-12 Umir section has now been extensively tested and has produced 
1,227 barrels of oil to date. 
A stimulation job study has recently been completed in conjunction with BJ 
Hughes and it was concluded that the Umir sand oil production in the Los 
Angeles-12 well would benefit from a fraccing job, due to the fact that it has 
low oil permeability and high formation pressure. This study predicted that the 
Umir Interval might produce up to 320 bopd in natural flow if the frac job was 
done. 
The frac job was performed with the Latco 2 service rig using an 11,000 
horsepower pumping unit. The initial back flow test showed excellent results, 
with oil potential at about 300 bopd. This test will be completed and the well 
placed on production this week. 
Further Development Plans 
Based on the success of the development wells drilled in the Los Angeles field 
during the past six months (Los Angeles-11, 12 and 14) the Company plans to move 
the Latco-1 rig from its current location on the Colon-2 well, to the Los 
Angeles field to drill two additional development wells. These wells, Los 
Angeles-15 and 16 will be drilled from the Los Angeles-12 surface location and 
will be targeted on an area of known thick Lower Lisama oil pay sands proven by 
previous drilling. The planned drilling of these wells will complete the first 
phase of the Company's obligation to Ecopetrol S.A. to earn an extension of the 
term of the field area from 2010 to the economic life of the field. 
Subsequent to the planned drilling of the two Los Angeles wells described above, 
it is currently intended to move the rig to the Zoe exploration well location on 
the Midas block and thereafter to the Santa Lucia field for additional 
development drilling. 
Operations Update 
 
 
Latco-2 Service Rig 
 
 
The Latco-2 service rig was purchased new in Texas and mobilised to the Middle 
Magdalena field area by Latco, a key contractor to the Company. This rig, a 
modern 550 horsepower workover rig, is fully equipped for all types of remedial 
and service jobs and is expected to be under contract to PetroLatina for at 
least 4 months. It has just completed its first field operation, the Los 
Angeles-12 frac job described above. 
 
 
Expected Reduction in Future Drilling Costs 
 
 
A review of the Company's operations has been completed to assess whether 
significant cost reductions are potentially achievable following recent falls in 
equipment and drilling services costs in Colombia. In addition, a review of 
casing programme options has also been carried out to ensure maximum cost 
effectiveness. The results of these reviews indicate that it should be possible 
to drill future wells at approximately 15% less than the average total costs of 
a typical well experienced to date. A study of the Los Angeles field drilling 
costs indicate that for the normal Lower Lisama formation completions it should 
be possible to reduce the past average drilling costs from approximately US$1.83 
million to approximately US$1.60 million per well. 
 
 
Updated Independent Reserves Report 
 
The Company is currently in the process of commissioning an updated independent 
reserves report. The last review was performed at the end of 2007 and in light 
of the subsequent drilling activity a considerable improvement in the Company's 
reserves position is anticipated. The results from the six successive successful 
wells drilled in 2009 to date, will form the basis of the Company's new proven, 
probable and possible reserves with the report expected to be available towards 
the end of the year. 
 
 
 
 
Atzam-3 Non-Participation 
 
 
The Company ultimately elected not to exercise its right to obtain a 20% 
participation interest in the Atzam-3 well by paying its proportioned share of 
costs and expenses. This well was recently drilled in Guatemala by Quetzel 
Energy Limited, to whom PetroLatina sold its Guatemalan interests in July 2007. 
The Company instead continues to focus its resources on the development of its 
Colombian assets, but will still appraise and review its right to participate in 
future wells in Guatemala as appropriate. 
 
 
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)207 766    | 
| Affairs                                               | 0075                   | 
+-------------------------------------------------------+------------------------+ 
|                                                       |                        | 
+-------------------------------------------------------+------------------------+ 
| 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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