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Petrominerales Ltd. is a Latin American-based exploration and production Company producing oil in Colombia with 16 exploration blocks covering a total of 1.9 million acres (100% interest) in the Llanos and Putumayo Basins and 2.6 million acres (55% interest) in the Ucayali Basin of Peru. Petrominerales is 76.5% owned by Petrobank. http://www.petrominerales.com/
Country of Columbia: The situation of our neighbors, especially countries such as Venezuela, Bolivia and Ecuador have announced or have started to nationalize foreign companies, which results to Colombia's benefit, because the judicial stability that our country offers is synonymous to investor confidence. "Colombia has never broken a signed contract nor has it unilaterally modified contracts, and this provides a guarantee to the companies, both national and international, and is taken into consideration at the moment of investing. It is an asset that we must preserve" Minister of Mines and Energy, Hernan Martinez Torres
Petrominerales is now one of the country's largest land holders with 18 blocks spread across three prolific hydrocarbon basins. Petrominerales was one of the first exploration companies in the country to use 3D seismic as a primary exploration tool.
Three Pillars in our Strategy: 1) Near-Term Development: - Rapid development of our major Corcel discovery, as well as cost-effective, low risk activites in develpment project at our Orito and Neiva fields. 2) High Impact Exploration - Selecting basins in both Columbia, and now Peru, which are in the early stages of development, but with excellent prospectivity for large reserve accumulation 3) Heavy Oil - A longer-term strategy, we are starting to explore in Colubmia's heavy oil belt, which has massive potential for future development. Our goal is to develop major heavy oil projects with world-class production potential. Petrominerales plans to be at the forefront of the expansion of the Columbian heavy oil industry through the application of technology. We are targeting large accumulations of heavy oil and offer world-class exploitation expertise including the opportunity to deploy the THAI tecnology in Columbia. THAI has significant operational and environmental benefits over other processes and represents a step chane in recovery efficiencies. Petrominerales has the exclusive rights for the application of the technology in Columbia.
John Wright, CEO - Petrominerales' competitive advantage comes from years of accumulated experience working in Columbia and our demonstrated ability to innovatively plan and execute complex projects in Colombia better than the competition.
Employing leading technology: Learning from our exploration results, our technical team is building an in-depth understanding of the geology and potential in all of our exploration and development areas. We integrate the latest seismic acquisition, interpretation and modeling techniques with production and core sample data to improve our geological interpretations and understanding of the potential of our exploration acreage.
Aggressive plans for 2009 - Develpment at Corcel is our primary focus for 2009. The initial 3D seismic database only covered 15 percent of the Corcel Block, on which we identified seven potential structures. In 2008, three of these structures were drilled, all successfully yielding highly productive discoveries. We have now completed additional large 3D programs over the northeastern portion of Corcel and the adjoining Guatiqula Block. This year we are planning to drill at least six wells, targeting five new structures. ->Activity will continue at our development projects. At Neiva, an aggressive infill drilling program is underway incorporating multi-stage fracture stimulation techniques with early indications of significant production improvements. At Orito, we will be continuing our program of field optimization, as well as expanding our 3D seismic coverage to new areas over the block and the adjacent Las Aguilas Block. In our heavy oil blocks we expect to drill our first three exploration wells as we move forward with our longer-term strategy to develop Colomiba's significant heavy oil resources. We will commence seismic acquisition on our newest frontier, Block 126 in Peru.
THE LLANOS BASIN:
Our major discovery at Corcel in 2007 is the seventh most productive field in the basin. To give a sense of the significance of the disvoery, the closet production to Corcel is over 40 kilometres away, demonstrating that we have proved up a new oil fairway. We have now secured over 400,000 contiguous acres in the area. -> Exploration activities are in three distinct areas: the Deep Llanos Basin which includes our Corcel area, the Llanos Plains area, and southern and eastern ends of the basin containing the Llanos heavy oil belt. We have initially identified 39 leads and prospects from our growing base of 3D seismic.
DEEP LLANOS BASIN:
***To the end of Jan. 2009, eight wells had been drilled and Corcel production averaged 21,764 bopd in Feebruary 2009; facilities have been constructed to handle 70,000 barrels of fluid per day, currently being expanded to 140,000 barrels of fluid per day; and, construction has commenced on an offloading station at Monterrey to handle Corcel oil deliveries. To the end of 2008 the block had already produced over 3.5 million barrels of oil. ->Our aggresive and integrated development plan has allowed us to already achieve full payout of all Corcel exploration and development costs. In addtion, operating and drilling costs have declined significantly through efforts to optimize operations and improve our drilling performance. As a result, Petrominerales' operating costs are among the lowest in Columbia. When combined with low royalties and light sweet crude oil production Corcel has some of the highest eperating netbacks in Columbia and the world.***
2008 Highlights at Corcel: Drilling times have been reduced to approximately 33 days from 65 days in 2007, Operating costs dropped by 50 percent from the start of the year, averaging $6.16/bbl in the fourth quarter of 2008. Acquired 120 square kilometres of 3D seismic in late 2008 generating an additional 11 leads and prospects.
Improved oil transportation costs: In 2008, we managed a fleet of 500 trucks which transported more than 2.7 million barrels of oil. Corcel volumes were trucked to offloading stations at Araguaney (200 km), Chichimene (180 km) and Vasconia (510 km) and the shipped through the Ocensa and Ecopetrol pipelines. The logistics and costs of transporting Corcel volumes will improve significantly in 2009 when construction is completed on a crude oil offloading station at Monterrey, only 77 kilometres from Corcel, which will connect to Ecopetrol's Araguaney pipeline. The Monterrey station will initially provide 20,000 bopd of incremental offloading capacity. Construction of the station started in December with early deliveries scheducled to commence in the second quarter of 2009 and full facility commissioning early in the third quarter of 2009. This new facility will provide control of strategic offloading capacity, reduce the risk of downtime, and will substantially improve netbacks. Trucking costs in 2009 are expected to be reduced by up to $6.00 per barrel for volumes delivered to Monterrey.
Prospect generation: The discovery of the Corcel field validates our commitment to 3D seismic as a primary exploration tool. We initially identified seven potential structures from seismic data which originally covered only 15 percent of the Corcel Block. A large 120 square kilometre 3D seismic program was acquired over the northeast portion of the block late last year. As a result, we have identified an additional 11 leads and prospect including two new play concepts, as we continue to expland our prospect inventory. Core sampling has also increased our geological understanding of the area, which can help reduce exploration risk associated with our future drilling program.
DEEP BASIN EXPLORATION: CORCEL REPRESENTS JUST A small PORTION OF THE POTENTIAL IN OUR DEEP LLANOS EXPLORATION PROGRAM. WE ARE NOW EVALUATING TWO NEW BLOCKS WITH THE POTENTIAL FOR GIANT PROSPECTS. IN 2008 WE WERE GRANTED TWO CONTIGUOUS BLOCKS, BLOCK 25 & BLOCK 31, IN THE COLOMBIAN 2008 MINI ROUND. BOTH BLOCKS ARE NORTH OF CORCEL AND HAVE ADDED 33,708 ACRES TO OUR ASSET BASE. MORE IMPORTANTLY, THEIR POTENTIAL APPEARS TO BE SIMILAR TO, AND POSSIBLY MUCH GREATER, THAN, CORCEL. BOTH BLOCKS 25 & 31 ARE ON-TREND WITH THE GIANT CUSIANA-CUPIAUA FIELDS WHICH HAVE PRODUCED MORE THAN A BILLION BARRELS SINCE BEING DISCOVERED IN 1990 & 1992, RESPECTIVELY. IN ADDITION, THE SOUTHEAST PORTION OF BLOCK 31 IS ON-TREND WITH CORCEL.
Both blocks have an existing grid of 2d seismic from which several preliminary leads have been identified. First phase work commitments include acquiring 3D seismic and drilling exploration weels on both properties. In 2009, we will conduct our environmental studies with plans to commence our exploration program in early 2010.
The Guatiquia Block, immediately wouth of Corcel, was acquired in 2007 adding 26,349 acres to our exploration portfolio. In 2008, a 40 sqare kilometre 3D seismic program was acquired, from which we identified a significant prospect which we plan to drill this year.
LLANOS PLAINS EXPLORATION:
Exploratory drilling in the majority of the basin is concentrated during the dry season which typically extends from mid-December to mid-April.
Petrominerales has eight exploration blocks totalling 571,380 acres. The blocks are at various stages in the exploration cycle. Exploration actvity in 2008 was concentrated on several of the blocks, with our main focus being Mapache.
Mirasol-1 (formally Mapache-2) commenced early in 2009 and the well flow tested at 1,300 bopd from the Carbonera 7 zone......Final rates from our initial 24-hour flow test at Mapache-1 were 1,400 bopd of 34 degree crude oil, at less than 2 percent water cut. Mapache-1 and Mirasol-1 have been placed on long-term test through production facilities with an initial capacity of 5,000 barrels of fluid per day during which time we will evaluate alternatives for delivering Mapache oil to market on a year-round basis. To further evaluate the potential of the block, a 3D seismic survey convering an additional 91 square kilometres will be acquired adacent to our existing 3D seismic. The two surveys will alow us to evaluate approximately 30 percent of the 107,861 acre block.
LLANOS HEAVY OIL BELT:
The Llanos heavy oil belt extends along the southern and eastern edges of the Llanos Basin, sharing the same La Luna source rock as the Faja del Orinoco accumulations in Venezuela that are expected to produce app. 600,000 bopd by the end of the decade. This region in Colombia currently produces app. 100,000 barrels of heavy oil per day from the Aplay, Castilla, Castilla Norte, Chichimene and Rubiales fields. ....These were among the first heavy oil blocks awarded and have very attractive terms and royalties when compared to blocks awarded at more recent bid rounds. Virtually all the acreage in the heavy oil belt has now been contracted through these recent rounds, which have attracted record high bids from industry in terms of work commitments and incremental government participation levels. Petrominerales is in the enviable position of being an early entrant into the area; we were able to secure a large acreage position with rational work commitments and highly favorable fiscal terms. We are several years ahead of these new entrants, having already acquired an extensive seismic database with plans to drill our first three exploration wells in 2009. Our goal is to leverage our geo-technical experience in this under-explored area of Colomibia and be a leader in developing Colombia's emerging heavy oii industry.
Last year, 576 kilometres of 2D seismic and 62 square kilometres of 3D seismic were acquired over our three blocks. To date, we have identified 14 leads. Our 2009 exploration campaign will include drilling one exploratory well on each of the three blocks and acquiring an additional 50 square kilometres of 3D seismic over Rio Ariari.
For Petrominerales, our heavy oil acreage has a number of commercially attractive characteristics. First, the oil is relatively shallow, which should mean low drilling costs, low operating costs and the opportunity to rapidly recover initial investments. Our heavy oil properties are located in the core heavy oil area and offsetting acreage is held by major industry players. This should lend itself to cost sharing on required infrastructure development. Our first goal is to convert prospects into exploration successes and then ultimately, we plan to incorporate the THAI technology into a large scale development to maximize the value of heavy oil pools that may be encountered in our blocks.
PUTUMAYO BASIN:
The Orito field is the largest oil field in the Putumayo Basin of southern Colombia.....Since 2002, Petrominerales has increased total producton by 3,500 bopd. In 2008, the 66 wells at Orito produced an average of 5,994 bopd of light oil (30-42 degrees API) Under the IPC, Petrominerales initially receives 79 percent of all incremental production in excess of the pre-defined declining baseline production curve.
2008 Activity: We completed a total of 10 wells in 2008, the most successful being Orito-169 in the southern portion of the field that came on production at 850 bopd. Our share of production from the field averaged 2,946 bopd in 2008 and averaged 2,920 bopd in February 2009.
Increasing potential: The Orito field has not yet fully reached its maximum potential. The recently updated reserves report from our reserve evaluator, DeGolyer & MacNaughton (D&M) indicates 23.8 million gross barrels of company interest proved, probable and possible (3P) reserves to be recovered at Orito. D&M has identified 43 development locations and we see the opportunity for at least 13 additional locations with ongoing success. An extensive 3D seismic program is planned over the south and central areas of Orito, as well as the adjoining Las Aguilas exploration block, which will image and confirm the viability of up to 13 additional drilling locations in undeveloped areas of the field.
Operating efficiencies: In 2008, we reduced driling costs at Orito by approximately $1 million per well. Our experienced team of engineers continues to create solid working relationships with contractors and Ecopetrol, employing a diverse range of optimization techniques to ensure maximum recoveries in a mature field with several complex reservoir intervals......Ecopetrol operates the field's production at a fixed per-barrel fee which, when combined with a high quality oil and direct access to an under-utilized export pipelin, results in superior operating netbacks.
UPPER MAGDALENA BASIN:
Our Neiva block, located in the Upper Magdalena Basin, is a mature field where low-risk activities are being pursued to optimize existing wells and where we have an extensive inventory of development drilling opportunities. An infill drilling campaign of up to 36 wells has been initiated which incorporates innovative multi-stage fracture stimulations, with our early production results far exceeding initial expectations.
Geology: Since Petrominerales entered into this Incremental Production Contract (69% working interest) with Ecopetrol in 2002, field optimization has focused on Neiva's multi-zone potential. Neiva's reservoir consists of sand-shale sequences totalling up to over 1,500 feet of groos pay in the Honda formation and up to 700 feet of gross pay in the slightly depper Dolma--Chicoral zones. The maximum drilling depth is 4,500 feet.
Development Drilling Campaign: Our current development drilling program at Neiva commenced in November 2008. The first two wells were drilled into the Dima-Chicoral formation and completed with Multiple fracture stimulations, with results greatly exceeding expectations. The first well came onstream in December and the second in January 2009, with initial production rates in excess of 500 bopd, which is 3-4 times higher than results without this innovative completion technique. Our share of historical production at Neiva was 438 bopd in 2008 and increased to 1,056 bopd in February 2009. Four new wells are currently on production and have more than doubled our share of production, highlighting the impact that technology can have on mature fields.
The current drilling campaign at Neiva is focused on maximizing profitability by taking advantage of economies of scale to reduce drilling costs, identifying operating efficiencies and utilizing enhanced technology. We have strengthened our drilling team and along with vastly improved production results we are seeing cost savings with faster rig moves and reduced drilling times.
The drilling program includes 17 Doima-Chicoral wells and 19 Honda wells, with up to 10 wells likely to be drilled in the first quarter of 2009. A highly efficient rig has been dedicated to the drilling program, and we will be adding a second completion rig starting in the second quarter 2009.
Other optimization activities include fracture stimulation of existing wells, with at least 29 candidates in inventory. In addition, postitive results have been received from a waterflood pilot initiated in 2007, and there are now plans for expansion to other areas of the block.
PERU:
UCAYALI BASIN: The Ucayali Basin in east central Peru has seen relatively little drilling, but has yielded large hydrocarbon reserves....Excellent prospectivity is found from a variety of play types, multiple reservoirs and the presence of several source rocks within a sedimentary column of up to 16,000 feet. Only about 50 wells have been drilled in the basin, but it has produced over 50 million barrels of oil equivalent from three oil fields discovered in the 1930s and 1950s, and world-class giant Camisea gas/dondensate complex comprised of five gas/condensate fields that were discovered in the 1980s. Like basins in Colmbia, the Ucayali has a similar tectonic history to the Western Canadian Sedimentary Basin.
Work Commitments: The license for Block 126 defines a minimum work program to be completed over seven years which is separated into four Exploration Phases. The first phase, the reinterpretation of 1,200 kilometres of existing 2D seismic, has been completed and confirmed the existence of a large anomaly, the La Colpa structure, which was intersected by the well drilled on the block 20 years ago. Initially, two other structural leads have also been identified from the existing reprocessed 2D seismic.
The next exploration phase will inlcude the acquistion of 150 square kilometres of 3D seismic and 50 kilometres of 2D seismic, which is likely to take place later this year. An Environmental Impact Assessment has been submitted to the Peruvian government and a public consultation process was completed in February 2009. Approval for the seismic program is expected in the coming months and the first exploration well on the block could be drilled as early as 2010.
