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Operational update from Parex Resources

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Oilfield Technology,


Production:

Q3 2014 oil production was approximately 25 175 bpd, an increase of 26% over the three months ending June 30, 2014 and in excess of the Q3 guidance range of 24 500 – 25 000 bpd. As previously guided, we expect Q4 2014 production to average approximately 25 500 – 26 500 bpd.

Commodity price and risk management:

For Q4 2014, Parex has hedged 6000 bpd of ICE Brent at US$ 103/bbl. For September 30, 2014 (Q3) we expect working capital to be in excess of bank debt. Accordingly, the Company will have no net debt.

During November 2014, we expect to release our 2015 budget and guidance. Our preliminary 2015 outlook requires approximately US$ 150 million of maintenance capital to sustain 2015 full year average production flat to Q4 2014 (~26 000 bpd). Incorporating current Brent pricing of US$ 85/bbl would generate 2015 cash flow (funds flow from operations) of approximately USD US$ 300 million, which is in excess of maintenance and committed exploration capital, providing free cash flow for continued production growth. 

Parex' high operating netback production, extensive development inventory and strong balance sheet permits the Company to continue with our high growth capital program in the current Brent oil price environment. Also, Parex has the financial and operating capability to capitalize on opportunities to expand our land holdings that lower global oil prices may provide in the future.

Colombia bid round 2014: 

The Company was awarded two new blocks at 100% working interest in the Magdalena Basin, VIM-1 and VMM-9, totalling 375 965 acres. Exploration and production contracts for both blocks were signed on September 18, 2014.

Block VMM-11 & VMM-9 (operated, WI 100%):

During Q4 2014 we will be commencing a 3D seismic acquisition program of 410 km2 over the two blocks with 120 kmto be acquired on VMM-11, followed by a 290 km2 seismic acquisition on the adjacent block VMM-9.

Akira (operated, Cabrestero Block, WI 100%):

Successfully drilled Akira-9 and Akira-10. During Q4 2014 we expect to test and complete four Akira wells and drill Akira-11. Current field production from Akira-1, Akira-4, Akira-6 and Akira-9 wells is approximately 2200 bpd.

Block LLA-32 (Operated, WI 70%):

Current gross oil production from Kananaskis-1, Kananaskis-3 and Carmentea-1 wells is approximately 7800 bpd with less than 0.1% water-cut. Calona-1 well water disposal facilities are being constructed and the well is expected to begin production in late 2014.

Block LLA-40 (operated, WI 50%): 

During Q3 production from Celtis and Begonia fields began and the combined block gross production is approximately 1000 bpd and may be increased in the near-term pending well performance and transportation enhancements.

Cerrero Block (Operated, Katmandu Norte WI 65%, non-operated Chacharo WI 25%): 

The Katmandu Norte-1 exploration well was drilled to a total depth of 13 680 ft and was cased for testing of the Une and Mirador formations. A short term test was conducted on the Une formation for a period of 163 hours during which time the well flowed under natural conditions at an average rate of 458 bpd of 48° API condensate and 2 million ft3 of gas. The water-cut during the test remained at 1 - 2% and the final flow rate from the well was 375 bpd. Pressure recorders have been placed in the wellbore to conduct a pressure buildup test.

The Katmandu Norte-1 Mirador Formation was also evaluated. Although the cement bond logs indicated poor isolation between the oil bearing zone and the adjacent water bearing zone, a short-term test was conducted to assess the oil quality. The Mirador Formation was tested over a period of 50 hours utilising an electric submersible pump and recovered a total of 326 bpd of 23 API oil and 710 bpd of water for an average oil rate of 156 bpd and 341 bpd of water per day. Parex is working with partners to drill a follow up well for the Mirador discovery in Q1 2015.

The Chacharo-1 exploration well was drilled to a total depth of 13 190 ft and was cased for testing of the Gacheta Formation. A short term test was conducted for a period of 113 hours during which time the well flowed under natural conditions at an average rate of 682 bpd of 17° API. The final rates were 1164 bpd and stabilised water-cut of 42%. We expect the well to be placed on long term test during Q4 2014.

Tua & Tigana (non-operated, Block LLA-34, WI 55%):

September production for Block LLA-34 averaged approximately 20 725 bpd gross, 11 400 bpd net.

The appraisal well Tigana Sur-3, located approximately 1.1 kilometers west of Tigana Sur-2 (1.6 kilometers west of the fault), tested water. A second appraisal well Tigana Suoeste-1, located approximately 1.5 kilometers south-west of Tigana Sur-2, is producing oil with a watercut of 1%. During 2015, we expect to continue delineating the field to the south and north along the fault trend.

Tua-7 was successfully drilled, cored and is awaiting tie-in. An appraisal well Tua-8 is currently drilling. Following Tua-8, Parex expects the operator to drill an exploration well Tilo-1, located directly north of the Tigana field.

Drilling schedule:

During September and October 2014, the Company had active 1-2 operated drilling rigs plus one non-operated drilling rig on block LLA-34. With the expected start of the Llanos Basin dry season in November through to March we have budgeted up to a total of 4 drilling rigs in operation. During Q4 2014 we expect to spud the following exploration prospects: LLA-34: Tilo, LLA-26: Rumba, Los Ocarros: Zampona and an earning well on the El Porton Block.

Redemption of US$ 85 million convertible debentures:

On September 25, 2014 Parex redeemed all of its outstanding 5.25% Extendible Convertible Unsecured Subordinated Debentures due June 30, 2016. As set out in the Company's press release dated August 12, 2014 holders of the Debentures had the right to convert their Debentures, at their option, into Parex Shares at a conversion price of C$ 10.15 per Parex share. Approximately 8.34 million Parex shares were exchanged for the Debentures. The Debentures were delisted from trading on the Toronto Stock Exchange. At present, there are approximately 134.3 million Parex shares outstanding.


Adapted from a press release by David Bizley

Read the article online at: https://www.oilfieldtechnology.com/exploration/17102014/operational-update-from-parex-resources/

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