FIELD ACTIVITIES / Petrolex Energy Corporation announces results of
third quarter activities
VANCOUVER, Dec. 3 /CNW/ - Petrolex Energy Corporation
Trading Symbol: PXV - TV
PETROLEX ENERGY CORPORATION (the ''Company'') is pleased to report the
results of its third quarter activities. Since our last report to
shareholders for the second quarter, significant progress has been made in
Colombia. Activities on all of the Company's projects have been positive, the
results of which are expected to be realised in the New Year.
Los Toches
Activities on the Los Toches license have been suspended since the
kidnapping of three personnel in 1997. Guerrilla activity in the area has
continued to be a problem, however, following discussions and negotiations
with both the Government and Ecopetrol, Petrolex has now received certain
assurances regarding security in the area. As a result of these discussions
and assurances Petrolex has submitted a proposal to Ecopetrol to proceed with
the next phase of exploration. The proposed work program calls for completion
of the one suspended well plus the drilling of one additional exploration
well. If Ecopetrol approves the program, a return to field activity is
anticipated during the second quarter of 1999.
Maracas
Exploration activities on Maracas continued with the drilling of two
wells. The first well, Compae No.2, is a step-out evaluation well of the
Compae No.1 discovery well that was completed in September 1997.
The Compae No.2 well was spudded on August 24, 1998, drilled to a total
depth of 2,912 feet subsurface, and completed as an open hole natural gas
well. Electric logs indicated 298 feet of gross gas pay in both the Socuy and
La Luna formations. The well tested a gas flow of 7.9 million cubic feet per
day (''mcfd'') on a 43/64'' choke with a calculated absolute open flow of 20
mcfd.
The well was tested during four separate flow periods of approximately 4
hours duration each. The results of the flow tests were as follows:
Tubing Pressure Choke size Stabilized Flow Rate
--------------- ---------- --------------------
(psi) (mcfd)
750 1/4'' choke 1.04
775 3/8'' choke 2.44
725 1/2'' choke 4.80
710 5/8'' choke 5.20
610 43/64'' choke 7.86
The rig was then moved to the Compae No.3 well location, which is
approximately 1-km northeast of Compae No.1. The well was spudded on October
2, 1998 and reached a total depth of 2,501 feet on October 16, 1998. Although
the well encountered gas, testing results were not encouraging. Work on the
Compae No.3 well has been suspended pending a decision on how to best proceed.
Petrolex has a 15% interest in the 224,000-acre Maracas Association
Contract, fully carried through to commerciality.
Rubiales Oilfield
The bulk of management's time this year has been dedicated to fulfilling
the long-term development plan for Rubiales. As was indicated in the
Chairman's message in our 1997 Annual Report, to bring the field into optimum
production it is necessary to secure access to an export pipeline within
Colombia and to build a pipeline to connect Rubiales to the export line.
Significant progress has been made since our last report.
During October the Company received a revised evaluation of the
recoverable reserves in the Rubiales field from independent reservoir
engineers, Ryder Scott Company of Houston, Texas. The estimated proven
recoverable reserves at Rubiales have been increased from 134 million barrels
to 211 million barrels, representing an increase of 58%. The recent
evaluation takes into account the long-term production profiles of the wells
that were put into production prior to the suspension of operations in 1997.
In calculating the reserves Ryder Scott has applied a recovery factor of 14%.
Based on new technologies available in the market and the results of similar
heavy oil operations in North and South America, management is optimistic that
actual recoveries may be greater than 14%.
Discussions earlier in the year with Oleoducto Central S.A. (''Ocensa'),
the operators of the largest export pipeline in Colombia, resulted in
confirmation that the Company would be able to access up to 100,000 barrels
per day (''bopd'') of capacity in the line provided that we provide crude oil
that meets Ocensa's minimum pipeline specifications. Since that time, the
Company has proceeded with both computer simulations and physical upgrading
tests, to determine how Rubiales crude characteristics can be enhanced to meet
pipeline specifications. These computer studies have been carried out by the
National Centre for Upgrading Technology (''NCUT''), the pre-eminent Canadian
Government-backed research institute that is a world leader in ''heavy oil''
technology. Over the last six months NCUT have studied the effects on Rubiales
crude over a wide range of upgrading scenarios, from simple vis-breaking
technology that has been around for over 70 years, to the latest technology in
slurry hydrocracking. The results have only recently been obtained and
indicated that with a simple vis-breaking system, that is both relatively
cheap and easy to install and operate, Rubiales crude may fall close to Ocensa
pipeline specifications.
Following the encouraging indications from the NCUT report, Southwest
Research Institute, a large independent facility based in San Antonio Texas,
was engaged to run physical testing on Rubiales crude to confirm the NCUT
results. The physical test results indicated that vis-breaking of Rubiales
crude results in a crude stream that exceeds the minimum requirements of the
Ocensa line. Analysis of the Southwest results determined that a blend of 74%
vis-broken crude and 26% raw Rubiales crude will result in a blended crude
with a specific gravity of 21 degrees API and a density of less than 100
centistokes. These results have been relayed to Ocensa who have indicated
tentative approval for access to the line with no tariff penalties and no
modifications to the existing line. The crude will not form part of an
existing blend within the Ocensa system, but can be pumped through the
pipeline as a separate batch. We are currently waiting for formal approval
from Ocensa.
Management has had advanced discussions with two parties regarding
building a tie-in line from Rubiales to the Ocensa line at El Porvenir,
including discussions with TransCanada International (''TCI''), a subsidiary
of TransCanada Pipeline Limited and Operator of the Ocensa line. These
discussions have included two options; building the line at Petrolex's cost
and a build, own and operate scenario under which Petrolex would be charged a
throughput tariff. With the technical specifications of upgraded Rubiales
crude known, it is now possible to prepare the engineering for the tie-in line
and finalise the necessary pipeline arrangements.
An internal economic evaluation of the Rubiales field, encompassing all
of the above information, has recently been completed. This evaluation is
based on sales of 50,000 bopd of upgraded Rubiales crude into the export
market and confirms the potential of the field. Using constant parameters the
evaluation has determined that the project will break-even at a price of
US$11.57 for benchmark West Texas Intermediate crude.
The results of the upgrading tests have allowed for a significant
reduction in the estimated capital costs of the project. An initial review of
upgrading indicated a potential crude stream of 16 degrees API and capital
costs to build the upgrader in excess of US$200 million. Preliminary cost
estimates for a tie-in line to pump Rubiales crude to El Porvenir were in
excess of US$250 million, with additional costs of US$40 to US$50 million
necessary to upgrade the Ocensa line to accept our crude. Initial total
development costs were previously estimated at over US$600 million, including
field development costs of approximately US$100 million. The ability to
upgrade the crude and deliver a 21 degrees API gravity product using low cost
upgrading techniques allows for a smaller diameter pipeline with fewer pump
stations, reducing the line cost to approximately US$120 million. This
reduction in cost, combined with the capital expenditure of US$46 million to
build the necessary upgrading facilities, now reduces total capital costs over
the life of the project to an estimated US$290 million including field
development costs.
The internal evaluation was also performed under escalated parameters.
Using third party price forecasts for the remaining term of the project and a
cost escalation factor of 2.5% per annum, the project generates cumulative net
profits after taxes of US$600 million (US$4.08 per barrel) and cumulative net
cash flow before capital of US$891 million (US$6.06 per barrel). This results
in a net present value of US$210 million at a discount rate of 10% and an
internal rate of return of 33%.
In response to a number of recent shareholder concerns, management is
currently putting together a detailed information package on the activities at
Rubiales. The package will include internal project economics, technical
results of upgrading tests and all information necessary to provide
shareholders with full disclosure of the enormous potential of the Rubiales
oilfield. It is anticipated that this package will be complete by the end of
the year and will be released to the market at that time.
In addition, management is in the final stages of negotiations to engage
a financial advisor to assist the Company in realising the maximum value for
the Rubiales asset. Negotiations are expected to be complete early in the New
Year, at which time management will review all options available.
Corporate
The Company is pleased to announce that Mr. Raymond C. Friend has been
appointed Executive Deputy Chairman of the Board effective December 1, 1998.
Mr. Friend has been a Director of the company since November 1996.
Subsequent to the end of the quarter the Company granted incentive stock
options under the Stock Option Plan of the Company to purchase a total of
25,000 shares in its capital. The stock options are exercisable on or before
October 27, 2001 at the price of $1.00 per share.
Summary Financial Information
U.S. Dollars, except per share data September 30 December 31
1998 1997
Cash $ 1,378,820 $ 1,272,036
Current assets 2,033,152 3,502,504
Deferred exploration and development costs 47,044,346 47,174,695
Total assets 49,406,040 51,218,263
Total liabilities 512,043 2,646,459
Shareholders' equity 48,893,997 48,571,804
Total liabilities and shareholders' equity 49,406,040 51,218,263
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
Net loss (earnings) for
the period (105,285) 625,460 1,070,976 1,707,208
Loss (earnings)per share Nil 0.01 0.02 0.03
Weighted average shares
outstanding 60,804,352 53,073,332 55,970,712 50,574,251
Net cash flow 673,753 (1,171,943) 106,784 (9,091,699)
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