Petrolifera stops La Pinta No. 1 after 776 bbl/d test

Petrolifera stops La Pinta No. 1 after 776 bbl/d test

2009-07-27 08:49 ET - News Release

Mr. Richard Gusella reports

PETROLIFERA PETROLEUM SUSPENDS LA PINTA NO. 1 WELL AFTER TESTING LIGHT GRAVITY CRUDE OIL, EXPERIENCING CASING BREACH BELOW PERMANENT BRIDGE PLUG; RIG TO BE TEMPORARILY RELEASED TO ANOTHER OPERATOR

Petrolifera Petroleum Ltd. has suspended the La Pinta No. 1 well, drilled solely by it on its 100-per-cent-owned Sierra Nevada licence in the Lower Magdalena basin onshore northern Colombia, after testing light-gravity 44-degree API crude oil at instantaneous measured rates of up to 776 barrels per day with limited associated natural gas and no water, from a 25-foot perforated interval at depths between 10,695 feet and 10,720 feet at the top of the Cienaga de Oro formation. Instantaneous rates are not reflective of sustainable production rates and if the La Pinta No. 1 well is remediated such that commercial production is established, these production rates may differ materially from the recorded instantaneous flow rate reflected herein.

The flow of crude oil ceased approximately 30 minutes after the above flow rate was measured. A subsequent wireline survey indicated that this likely occurred as a sand plug had formed in the well's tubing string at a depth of approximately 6,856 feet subsurface, well above the perforated interval. A coiled tubing unit was brought in to clean out the sand plug but this operation had to be discontinued due to the presence of high pressures (estimated up to 8,000 pounds per square inch) below the sand plug and the lack of pressure control on the well during the coiled tubing operation.

There was evidence, including the presence of large pieces of gravel and coarse sand found in the separators and the presence of formation water with the same salinity as that recovered with crude oil in an earlier test of a lower CDO zone, which led the company to conclude that the well may have suffered a casing split, or separation, below the perforated producing interval. This could have propagated downward from the perforations in the upper portion of the CDO due to high pressures and the fluid flow from the producing interval. The casing failure may have allowed the influx of sand and water into the well, which then terminated the flow of crude oil from the perforated interval at the top of the CDO.

The well has been suspended pending remediation of the sand problem, and the drilling rig will be released to another operator for one well for approximately 120 days. The drilling rig will then be returned to Petrolifera for future exploratory drilling, likely also on the Sierra Nevada licence, which the company anticipates renewing for one additional year. This renewal of the Sierra Nevada licence will require a work commitment of 150 kilometres of 2-D seismic and one new exploratory well, likely to be located at either the La Pinta No. 2 location on a separate, shallower prospect or at Brillante, also located on the block.

In the meantime, Petrolifera will evaluate the results of the La Pinta No. 1 well to determine the company's preferred course of action. The rapid influx of fine- to coarse-grained sand, then gravel, and the frequently high instantaneous measured flow rates recorded during the testing program of the upper perforated portion of the CDO is, in the opinion of Petrolifera's technical management, indicative of high permeability within the producing formation. It was the opinion of Petrolifera's technical management, prior to and during the drilling and test of the La Pinta No. 1 well, that the most significant identifiable risk associated with the La Pinta prospect on which the La Pinta No. 1 well was drilled was the possibility of encountering low-permeability reservoirs at the CDO level. This identified risk appears to have been mitigated, although there can be no assurance that the indication of a highly permeable reservoir, based on the influx of sand and gravel and the frequently high measured flow rates of light-gravity crude oil during the testing program, is satisfactory evidence of consistently high permeability over the entire indicated structure in the absence of further testing and drilling activity or that commercial production could be obtained from the well until there is a resolution of the sanding issues which arose during the testing program.

Oil gravities averaging 44 degrees API and assay data indicate that the oil is high quality. Other technical parameters indicate further efforts to complete the well and develop the indicated accumulation are warranted. Accordingly, consideration will be given to timely procurement of a lower-cost snubbing unit to conduct the remedial activity in the upper portion of the CDO. Subsequently, a service rig could be mobilized for the testing of the uphole zones above the CDO in the well, as warranted by drilling results and log analysis. It should also be noted that artificial lift would likely be required at an early stage of production, if not immediately, to produce crude oil from the upper portion of the CDO (if, as and when completed satisfactorily), due to the low indicated volumes of associated natural gas produced with the crude oil while being tested. The company views this situation to be constructive, as since the natural gas volumes are indicated to be low, flaring would likely be permitted. Accordingly, it is anticipated this would allow the company to produce crude oil from the upper portion of the CDO, without having to install high-cost natural gas handling facilities and without having to reinject natural gas back into the formation while producing crude oil from the indicated reservoir.

While this is not the ideal or preferred outcome of the La Pinta No. 1 testing program for Petrolifera, in the opinion of management the cumulative evidence of reservoir, free-flowing high-quality light crude oil, an indicated thick hydrocarbon-bearing section (based on drilling results, logs and some testing) and structural closure, with considerable thickness above an apparent oil/water contact, suggest considerable potential for future development and exploitation. As the drilling and testing costs of the La Pinta No. 1 well are anticipated to be approximately $25-million (U.S.), considerably over the original budget, it may in the future be prudent for the company to attract third party participation by way of farm-out or other form of similar agreement with a third party, with a view to reducing the company's prospective financial and operational risks fully and finally to evaluate the related La Pinta prospect and other identified opportunities on the Sierra Nevada I licence. This approach will be assessed in the near term and determined in the context of the broader range of projects currently in Petrolifera's inventory and having regard to the company's overall financial capacity.

The La Pinta No. 1 well was spudded as reported in Stockwatch news on Jan. 26, 2009, after a 38-day rig mobilization. The well encountered numerous drilling challenges and drilling was completed as reported in Stockwatch news on May 6, 2009. Completion operations were commenced on May 7, 2009, but testing could not commence for 14 days, as an alternate campsite had to be constructed due to landowner complications. Three packer failures contributed a further 16 days to the duration of the testing program. The well will be classified as suspended on July 27, 2009.

Exploration, appraisal and development of reserves is speculative and involves a significant degree of risk. There is no guarantee that exploration or appraisal of the La Pinta No. 1 well will lead to a commercial discovery or, if there is a commercial discovery, that Petrolifera will be able to realize such reserves as intended.

We seek Safe Harbor.

Recession is bust: Carney

Recession is bust: Carney

BLAIR GABLE/REUTERS

Bank of Canada Governor Mark Carney laughs at a question following the release of the Monetary Policy Report July 23, 2009.

BANK OF CANADA FORECAST

Real Gross Domestic Product (percentage change, annualized rate)

-3.5%
Second Quarter

1.3%
Third Quarter

3%
Fourth Quarter

87¢
Average worth of the Canadian dollar against the U.S.

QUARTERLY REPORTS: "Extraordinary measures" by policy-makers have the economy back on track, but the governor of the Bank of Canada warns Canadians to brace themselves for the eventual return of interest rates to historically higher levels

July 24, 2009

RITA TRICHUR
BUSINESS REPORTER

Ultra-low interest rates will not last forever and Canadians should be preparing for the day when their borrowing costs eventually return to more "normal levels," says Bank of Canada Governor Mark Carney.

Carney offered that rare bit of consumer advice yesterday after releasing the bank's latest Monetary Policy Report, which predicted Canada's recession would come to a screeching halt this quarter.

While the economic recovery remains "nascent" and subject to plenty of risks, Carney stressed that "extraordinary measures" taken by policy-makers were already helping the economy get back on track.

Much of the anticipated growth is tied to the central bank's commitment to keep its key interest rate at 0.25 per cent until June 2010, provided that inflation remains tame.

When asked what guidance he'd offer Canadians on the raging "floating- versus fixed-rate" mortgage debate, Carney said it wasn't his place to offer that type of advice. Still, he did warn the days of rock-bottom interest rates would eventually end.

"There's a long way to go, but over time, things will normalize – interest rates will normalize. And the way to think about managing your personal affairs, I would submit, is can I borrow at what would be a normal rate?" Carney said.

"Because at some point down the road – and I'm not predicting when that's going to be – but if we're on track, we'll get to a point where rates are at more normal levels."

Carney also cautioned yesterday that a return to economic growth during the July-to-September quarter would not halt painful layoffs in the job market. Nonetheless, the central bank's rosier-than-expected economic forecast prompted some economists to wonder how long Carney would be able to keep the bank's key lending rate at a record low.

"On the interest rate front, Governor Carney reiterated the conditional commitment to keep rates steady until mid-2010, but warned it was not a guarantee," observed Doug Porter, deputy chief economist with BMO Capital Markets.

"Indeed, given the Bank's relatively robust growth outlook over the next four quarters, questions will increasingly build on that commitment if their call is accurate. If growth comes in even stronger, something's gotta give – rates would then be on the rise before mid-2010."

Already, improved financial conditions, firmer commodity prices and recovering consumer confidence are being factored into the impending recovery. "There is the possibility that we could get into a virtuous circle where improving confidence leads to a better economy, which leads to further improvement in confidence in financial markets," Porter said.

Bond yields, for one, soared sharply earlier this year as the market bet on a quicker-than-expected global recovery. That jump in yields led to two sizeable hikes in medium-term mortgage rates in June. For now, however, the central bank is forecasting economic growth of 1.3 per cent on an annualized basis in the third quarter – an upward revision of its earlier projection of a 1 per cent contraction for the period. That effectively means the end of the recession is imminent.

Overall, the central bank projects the Canadian economy will contract by 2.3 per cent this year, to be followed by growth of 3 per cent in 2010 and 3.5 per cent in 2011.

Inflation expectations, meanwhile, remain "well-anchored" for the medium-term, Carney said. The consumer price index is expected to decline 0.7 per cent on a year-over-year basis this quarter, but increase by 1.2 per cent during the final quarter of this year.