₪ David Pescod's Late Edition May 7, 2007
AN INTERVIEW WITH GARY WINE, President of Petrolifera Petroleum
(As of May 1, 2007)
It has already become one of the “fairy-tale” success stories of the oil patch, with it’s unprecedented move from 0 to 10,000 barrels day, because of discoveries in Argentina.
However, as we go up and down the oil patch looking for the next big play, that could make for yet another huge success story, Petrolifera is a name we still hear on the tongues of many analysts.
First of all, there are expectations of even more discoveries in Argentina but for the big huge success people are looking north to Peru where two huge exploration projects commence early next year. We figured it was time we touch base with Petrolifera President Gary Wine and one thing to remember for Connacher shareholders is that Connacher has recently maintained a 26% interest through exercise of options in the company.
Dave: We are here with Gary Wine who is the brains behind Petrolifera Petroleum and the properties that have become so successful in Argentina that have quite a history. Kelly Ogle of Diamond Tree Energy and others mention that those properties have actually bounced around for quite some time before circumstances in Argentina just got right. Is that correct?
Gary: More or less. I believe one of the big issues with the Puesto Morales Block that precluded it from being explored extensively was its contract. The petroleum rights to all zones were not owned and the Sierras Blancas and Punta Rosada, the formations in which we have been so successful, had to be acquired to justify any exploration on the block.
It was Connacher and Alpa, the then Argentine operator of the Block, who acquired these rights from YPF for $250,000 in total, thus enabling exploration of new zones. Justinian, the precursor of Connacher, only had the zones from which stripper oil was being produced. So Connacher and Alpa did the deal for good and valid reasons– why would you explore lands to hand over the results to YPF?
After that I came on the scene initially as an advisor to Connacher and some new work began, drawing on my experience in the basin and offsetting properties. Eventually these interests ended up in Petrolifera when Connacher decided to focus on the oilsands, (while keeping a healthy sponsoring stake in Petrolifera) and with new geological concepts which I brought to the table, new geophysics and a bit of money we have had great success and value appreciation for all our shareholders, including Connacher.
Dave: Royalties and taxes and all that and the prices you receive in Argentina for oil, seem pretty good. While natural gas isn’t quite as good. Any comments?
Gary: Gas prices are continuing to rise in Argentina at this time.
Argentina is presently importing a lot of gas from Bolivia at I believe, over US$5.00 per mcf and exporting it at less while selfsufficiency wanes. So ultimately we are hoping that domestic sales prices will begin to converge with the price of imported Bolivian Gas. Generally speaking, I believe producers are pretty bullish on where gas prices will go in the future in Argentina.
Dave: And finding oil in Argentina is still quite profitable and a good place to be looking?
Gary: It’s very good. There are additional royalties that one has to now bid in the provincial tendering rounds and we have an oil export tax that was imposed on producers a few years ago, but fundamentally today, it is still a very reasonable contract. Other things that makes Argentina work are the available infrastructure, services, and the low cost of operations. And finally let’s not forget favorable geology, relatively shallow drilling, multiple objectives and light oil are all pluses!
Dave: One has got to call you one of the success stories of the last two years, going from zero to 10,000 barrels a day. What do you hope for the next 50 holes?
Gary: A similar-type success. We have expanded our land position substantially in the NE Neuquén Basin. We are exploring for essentially the same play type and variations on that theme throughout the region. We definitely are advancing in a positive manner that will allow us to repeat what we’ve done in the past.
Dave: Some of the wells you’ve discovered so far (the last 20 or so) you’ve been getting wells doing up to 1500 barrels a day. The newer areas that you are going into, can you even dream of numbers like that?
Gary: Some areas are obviously going to be different. As we move to the east, we will be drilling shallower prospects with potentially tighter reservoirs. Consequently the production rates in those wells, if successful, will be less. However, we do have a good number of new prospects that have the potential to be as prolific as what was drilled previously. And some of our wells flowed at quite a bit higher rate than you quoted!
Dave: Which gets us to the really tough questions and I don’t know how any President of an oil company can answer it, but if you had to guesstimate an exit rate for the end of this year, what number would you be using?
Gary: I can’t say definitively at this time until we disclose our revised guidance to all our shareholders at our AGM next week and these are estimates! But we are expecting to see significant growth in our production through our upcoming exploration drilling in Argentina.
Dave: Looking down the road, there are an awful lot of people who have absolutely enormous hopes for your plays in Peru. For those who aren’t aware of it, could you bring us up-to-date?
Gary: We have two Blocks, Block 106 in the Maranon Basin and Block 107 in the Ucayali Basin. Operationally we’ve moved forward faster on Block 107 than on 106 so I will start with it first.
What makes Block 107 significant is the fact that it is on trend with the giant Camisea gas condensate discovery that was recently put on production by Pluspetrol and Hunt. It’s a world-class accumulation in the fold thrust belt and we’re playing in a very similar geological environment.
Petrolifera has almost finished its high resolution airborne gravity/magnetics – I believe one of the first high resolution surveys ever done in Peru. A total of 18,500 line kilometers will be acquired and the preliminary results on what we have seen so far, looks encouraging.
The next exploration phase will be the acquisition of 800 kilometers of seismic that we will be commencing shortly, once our EIA (Environmental Impact Assessment Study) is completed.
Following that we will integrate all of our airborne and land-based geophysical data and select one or more drilling locations, then initiate drilling EIA’s. Fortunately drilling EIA’s are much simpler to do than seismic EIA’s, because much smaller areas are being affected. Then hopefully, we should start drilling in early 2008.
Block 106 in the Maranon Basin surrounds the largest oil field in the Basin, Corrientes, which has over 200 MMBO recoverable reserves, and Petrolifera is looking for similar sized pools on our acreage.
An under-utilized pipeline runs through the Block so even if we find something much smaller than Corrientes it should be economic because of the proximity of infrastructure and a contract that was designed to economically support the smaller, more marginal type fields.
On this Block Petrolifera has completed its seismic reprocessing and surface geochemistry program and we are in the middle of the seismic EIA. Seismic acquisition and drilling are anticipated for 2007 and 2008 respectively.
Dave: What is the data that has got some of these followers so excited, if you can comment?
Gary: To start, fold and thrust belts anywhere in the world can be home to giant hydrocarbon accumulations. What makes Block 107 particularly intriguing is the presence of a significant number of surface structures that have not been shot out by seismic.
This is like going back to western Alberta in the days before the discovery of Turner Valley. We have one surface structure identified that is over 200 square kilometers in size. Additionally, Petrolifera has found indications of excellent reservoir and mature source rock in its field investigations in the southern part of the Block.
Only six wells have been drilled on the block which is over 13,000 km2 in size, five drilled in the 60’s with gas shows and one in the 90’s with oil shows. Block 107 has all the necessary ingredients for the potential discovery of a giant accumulation. Operationally everything is moving forward in a very positive way and we are extremely optimistic as to the potential outcome on this Block.
Dave: All of this brings us to the question of Latin America. Latin America is a little tricky these days, your thoughts on Peru?
Gary: We believe Peru has a very stable government led by President Alan Garcia – very pro-business and we feel extremely positive that things will remain that way through the rest of his term. In Argentina, it is business as usual. The country has had its ups and downs in recent years but in the end, the petroleum sector has generally done well throughout the years which is why Argentina has the largest number of indigenous oil
companies in all of South America.
Dave: And infrastructure? This is in the interior of Peru – the jungle right?
Gary: That’s correct; both blocks are in the jungle. Block 106 is reachable via major rivers so everything can be barged in or out. As I had mentioned earlier, it also has an underutilized oil pipeline dissecting the block north to south.
Block 107 on the other hand is a little unusual in that it is accessible by road.
The main highway between Lima and Pucallpa crosses the Block west to east. Additionally the southern portion of the Block has a fairly extensive network of rough but passable dirt roads.
In terms of existing pipeline, infrastructure and such – there presently is little close by. The nearest that we have at this stage is at Camisea where the field with its multi-trillion cubic feet of gas reserves and multi-million barrel consendate and liquids reserves supports a large volume gas pipeline that crosses the Andes to the coast. Closer by, the Aguaytia gas/condensate field supports an electricity cogeneration plant and a small diameter pipeline for the liquids to the city of Pucallpa.
Dave: You have recently acquired some land in Colombia. How raw should one consider this land and being right next door to Venezuela, is that where your hopes lie?
Gary: We are in what I would call relatively mature basins in Colombia that have been explored since the early 20th Century. Our block in the lower Magdalena Basin, called Sierra Nevada, had a number of wells drilled on it by Shell in the 1940’s that were subcommercial discoveries at that time.
Additionally we are adjacent to two gas/oil fields that were discovered during Shell’s 1940 drilling campaign. One field, called El Dificil, was put on production with the completion of a pipeline to the coast. Petrolifera will be drilling a well on this block sometime over the next 18 months. The other Block is in the Middle Magdalena Basin and is called Turpial.
It was contracted under the terms of a Technical Evaluation Agreement which will give us the right to convert it to an exploration license once our geological and geophysical studies are competed over the next 10 months.
We look at the blocks in Colombia as being a mix of what we have in Peru and in Argentina. Argentina is very low risk with nearby production and infrastructure. Peru is much more a frontier play but with very large potential. We find that Columbia nicely fits in between the two.
Dave: You being in the oil and gas game for a while, what are your thoughts on oil and gas prices for the next few years.
Gary: Having been in the business for awhile I can honestly say I have no idea where prices will be in the future. I have a feeling that oil will at least maintain its present price level in the $60 level range.
Dave: Now the last question is usually the toughest that we ask everyone we interview, if you could buy one oil and gas stock other than your own, what would it be?
Gary: I have one I have been following recently and that is Anterra Energy on the TSX-V, the end product of a recent amalgamation between Anterra Corporation and Resolve Energy. Prior to this, Anterra was a solid exploration company but with the addition of Resolve, they now have an excellent portfolio of W5 Devonian light oil plays which if successful, would have a very positive impact on the company.
Dave: Thank you for your time, Gary.
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