Peru: BPZ Energy Receives Permit for 3D Seismic Survey in Block Z-1,Releases Third Quarter Results

BPZ Energy, an independent oil and gas exploration and production company, announced receipt of the approval to acquire 3-D Seismic Data in Offshore Block Z-1 and also provided financial and operational results for the three and nine-month periods ended September 30, 2011.

For three months ended September 30, 2011, the Company reported operating income of $7.1 million and net income of $5.7 million, or $0.05 on a per share basis, compared to an operating loss of $50.4 million and net loss of $43.7 million, or $0.38 per share, for the same period last year.

For the nine months ended September 30, 2011, the Company reported operating income of $16.4 million and a net loss of $2.1 million, or $0.02 per share, compared to an operating loss of $49.0 million and net loss of $49.7 million, or $0.43 per share, for the same period last year.

The increase in operating income for the three and nine month periods ended September 30, 2011, was the result of the impact in 2010 of non-recurring charges incurred in the third quarter of 2010, including dry hole costs of $32.1 million, and $12.7 million of charges reported as other expenses. There were no similar items during the comparable nine-month 2011 period. The other expenses in 2010 include $10.7 million of charges related to the planned gas plant, pipeline and gas-to-power project, and $2.0 million associated with the abandonment of two platforms. In addition, higher prices on crude oil sales were received during the three and nine months ended September 30, 2011 compared with the same periods last year. Nine-month 2011 results also benefitted from slightly higher sales volumes.

Earnings before interest, income taxes, depreciation, depletion and amortization and exploration expense and certain non-cash charges was $16.9 million and $53.4 million for the three and nine months ended September 30, 2011, respectively, compared to $7.6 million and $27.9 million for the same periods last year, respectively.

Included in the release for reference are the Company’s Consolidated Statements of Operations and a reconciliation of EBITDAX (non-GAAP measure) for the three and nine months ended September 30, 2011 compared to the same periods last year.

Operations Update

Block Z-1 Seismic Permit

The environmental permit to acquire approximately 1,500 square kilometers of 3-D seismic data in our offshore Block Z-1 granted by the Peruvian Ministry of Energy and Mines was received by the Company on November 3, 2011. The seismic survey is expected to begin in the first quarter of 2012. This will be followed by processing and subsequent interpretation of the acquired seismic data, resulting in detailed mapping of the identified structures, including the Corvina and Albacora fields, as well as future exploration prospects.

CX-15 Platform

The contracts to fabricate, mobilize and install the new CX-15 platform at the Corvina Field were signed in the third quarter. Fabrication began on schedule during October at the shipyard in China. Installation in Peru remains scheduled for July 2012 with first production expected during the fourth quarter of 2012.

Corvina Field

The previously announced workover program to optimize production at the Corvina field has now been expanded to include work to allow for reinjection of gas into the gas cap to better manage the field’s reservoir performance. The program for the CX11-15D was modified to incorporate a dual completion that will allow injection into the gas cap and production from the oil reservoir. The CX11-22D well, currently used only as a water injector, will be setup to also inject gas into the gas cap. Gas injection into the gas cap using these two wells is expected to begin during November 2011.

Work is also scheduled to begin shortly on the CX11-20XD well which conversely, is expected to eliminate the gas from the gas cap being produced from this well. As part of the expanded program, a similar workover will be conducted on the CX11-19D producing well to also eliminate the gas-cap gas being produced from this well.

Work has been completed on the CX11-14D which was previously shut-in. The intervention of the CX11-14D consisted in cleaning the sand and sediments accumulated at the bottom of the wellbores, which prevented the well from flowing. To date, the well has not reached the expected levels of production, so an added chemical treatment is being investigated. The oil sands in the CX11-15D were just opened, so no information is currently available regarding oil rates.

Albacora Field

During the third quarter of 2011, well work was completed on the pre-existing A-12F well, to convert it to a dual purpose well, and to convert the A-17D well to a water injector. The cost associated with this work was capitalized.

Interference testing that began June 1, 2011 to evaluate reservoir connectivity between the A-14XD well and the two pre-existing shut-in oil wells, the A-13E and the A-9G, was completed in the third quarter. Production was intermittent from all three wells during the third quarter. As a result of the interference testing, a determination was made that the A-13E and A-14XD wells were connected within the same zone, while the A-9G was successfully tested from a separate reservoir. Accordingly, we are evaluating the possibility of using the A-13E well as a gas injector to provide support to the A-14XD, instead of using the A-12F well that was intended either a gas injector or an oil producer. A gas flaring permit has been requested to open the A-12F well to test targeted oil zones and determine whether gas injection is optimal in either the A-12F or A-13E wells.

The previously granted Extended Well Testing permit is based upon opening new zones to allow for additional testing from October 1, 2011 through February 2012. Additional zones were opened in the A-14XD, A-13E and  A-9G wells mentioned above. In the A-14XD, a deeper zone was opened and comingled with the previous completion causing the oil well to just produce formation water from the deeper zone. Subsequently, plugs have been set to isolate the zone that produced water and an attempt to restore oil production from the well is underway.

We are acquiring two hydraulic jet pumps to assist in the production of the pre-existing wells, although one will first be used to return the A-14XD to production before being deployed to one of the pre-existing wells.

Installation of the Albacora reinjection equipment is underway.

Block XIX

Further studies continue on the Pampa La Gallina (PLG-1X) well to evaluate the source rock potential and the presence of fresh water encountered in the Heath sands.

The Company has received agreement from Perupetro to conduct a limited 3-D seismic survey as part of the Company’s minimum work commitment for the next exploration period to further evaluate future drilling locations. An environmental impact assessment (EIA) is currently being prepared for the additional seismic work.

Blocks XXII and XXIII

The interpretation of the new 2-D seismic acquired by the Company on Block XXII has been completed. Three prospects and one lead have been defined with the seismic data. Evaluation will continue with a detailed assessment of each prospect in order to define their technical merit and risk to determine their exploration potential.

The Company has notified Perupetro that the commitment for the next exploration period will be the drilling of one well. Timing of the actual drilling will depend on approval of the EIA, which is currently being prepared, and subsequent receipt of the necessary permits. Drilling on Block XXII is expected no earlier than 2013.

On Block XXIII, the processing of both the 2-D and 3-D seismic acquired by the Company has been completed and interpretation is underway.

President and CEO, Manolo Zúñiga commented, “The approval of the Block Z-1, 3-D seismic EIA after approximately a 14-month process is an important milestone which will allow us to progress our offshore exploration and development program. While our plans for a more active drilling campaign in 2012 have been delayed due to the timing of the EIA permit, we expect that the Company should see significant growth in production in 2013.”

“Loss of the A-14XD oil production at Albacora, as well as results to date on the Corvina workovers, have placed our guidance for 2011 in jeopardy. However, work continues at both fields to restore production from the respective wells. At Corvina, I’m encouraged that we will be initiating a new reservoir management program at the field, with the injection of gas into the gas cap.”

“With respect to our other key initiatives, the process to identify a joint venture partner for Block Z-1 is ongoing with an update on this process expected by the end of the year. The closing of the $75 million financing during the third quarter and recent listing on the Bolsa de Valores in Lima were also important milestones for the company,” concluded Mr. Zúñiga.

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Source: BPZ Energy, November 04, 2011