Parex Resources Inc.

Parex Resources Inc.

April 12, 2012 17:57 ET

Parex Announces Colombia Acquisition and Provides Operational Update

CALGARY, ALBERTA--(Marketwire - April 12, 2012) -


Parex Resources Inc. ("Parex" or the "Company") (TSX:PXT), a company focused on oil exploration and production in Colombia and Trinidad, announces an acquisition of the class A common shares of a Bermuda based, Colombian focused private company. The Company also provides an operations update on its current activities, including the test results of its Java-1 and Cumbre-1 wells and revised 2012 guidance.

Colombia Acquisition

Parex, through a wholly owned subsidiary, has entered into a purchase and sale agreement with a Bermuda based subsidiary (the "Seller") of Nabors Industries Ltd., to acquire its wholly owned subsidiary ("Targetco") (the "Acquisition"), the operations of which include interests in five exploration blocks located in Llanos Basin and two blocks located in Middle Magdalena Basin in Colombia for a total of approximately 567,000 gross acres (276,000 net acres). The Acquisition closed on April 12, 2012 with an effective date of February 29, 2012. RBC Capital Markets acted as financial advisor to Parex in respect of the Acquisition, and FirstEnergy Capital Corp. acted as strategic advisor.

The consideration paid for Targetco shares was approximately US$72.6 million in cash, including customary closing adjustments. Targetco has no bank debt and an estimated working capital deficiency as at February 29, 2012 of $2.4 million. Parex will also be assuming $17.7 million of letters of credit related to Targetco's interests post closing. The Acquisition was funded by Parex' working capital. Parex is also in the process of securing a $50 million revolving credit facility with a Canadian chartered bank.

TargetCo production is approximately 100 barrels of oil per day ("bopd") from the Middle Magdalena Basin. In the Llanos Basin operational activities include 3 currently drilling exploratory wells and the planned completion of one standing exploratory well. TargetCo operates in Colombia and has approximately 50 Colombian domiciled employees.

An independent reserves evaluation was prepared by GLJ Petroleum Consultants Ltd. ("GLJ") with an effective date of March 31, 2012 ("GLJ Evaluation") in respect of certain of Targetco's non-producing properties. GLJ evaluated existing well data related to such properties and assigned probable reserves of 2.3 million barrels. The GLJ Evaluation was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). GLJ was not asked to conduct a review of the Targetco producing properties at this time.

The recovery and reserve estimates of crude oil reserves provided in this news release are estimates only, and there is no guarantee that the estimated reserves will be recovered. Actual crude oil reserves may eventually prove to be greater than, or less than, the estimates provided herein.

Parex has been named as a defendant in a lawsuit (the "Lawsuit") filed in the 61st Judicial District Court of Harris County, Texas (the "Texas Court") by a Texas based private company (the "Plaintiff"). The Lawsuit relates to a share purchase agreement entered into by the Plaintiff and the Seller (prior to the agreement entered into by Parex and the Seller) respecting the proposed purchase by the Plaintiff of the shares of TargetCo, which prior agreement the Plaintiff claims was improperly terminated by the Seller. In the Lawsuit, the Plaintiff is seeking a temporary injunction preventing the sale of the shares of TargetCo by the Seller and an order of specific performance against the Seller to enforce the contract between the Seller and the Plaintiff, as well as an award of damages from the Seller. Parex has not been served with the Lawsuit. The Plaintiff is also seeking an undisclosed amount of damages from Parex alleging Parex' "tortious interference" with the Plaintiff's alleged contractual relationship with the Seller. Parex believes that the Lawsuit and the Plaintiff's claims against it are baseless and without merit and assuming Parex is ultimately served with the Lawsuit, Parex will vigorously defend the Lawsuit.

Parex Operations Update

Block LLA-16 (100% Working Interest)

The Java-1 well was drilled and cased to a total depth of 12,651 feet. The C7 Formation was perforated and a short production test was conducted with the drilling rig on location. The well was production tested under natural flowing conditions for a period of 27 hours at an average production rate of 524 bopd at 1% basic sediment and water ("BS&W"). A total of 589 barrels of 30° API oil was recovered during the test and bottom hole pressure recorders indicated a final measured bottom-hole drawdown of 2.8%, indicating excellent reservoir quality. The Java-2 well was spud on April 1, 2012 and was drilled to a bottom-hole target located 740 meters north of the Java-1 well. The well is being cased to complete the C7 Formation.

On April 1, 2012 the Java-1 well commenced production at a rate of approximately 400 bopd from the C7 Formation through a temporary facility. Parex is currently installing a permanent facility for the Java discovery.

The Malawi prospect located immediately south of the Sulawesi field is scheduled to be drilled followed by the Kona-16 well during the second quarter of 2012.

The Merida-1 well was drilled and cased in the fourth quarter of 2011. Parex plans to complete and test Merida-1 during April 2012.

Block LLA-20 (100% Working Interest)

The Cumbre-1 well was drilled and cased to a total depth of 9,646 feet. The well was perforated and short production tests were conducted separately on the C7 and Gacheta formations with the drilling rig on location. The Gacheta Formation was tested under natural flowing conditions for a period of 41 hours at an average production rate of 350 bopd of 35° API oil at 1% BS&W. A total of 597 barrels of oil was recovered during the test and bottom-hole pressure recorders indicated that the final measured bottom-hole drawdown was 18% indicating good reservoir quality. The C7 Formation was tested under natural flowing conditions for a period of 47 hours at an average production rate of 737 bopd of 30° API oil at a final BS&W of 11%. A total of 1,444 barrels of oil was recovered during the test and bottom hole pressure recorders indicated that the final measured bottom-hole drawdown was 12% indicating good reservoir quality.

The Company expects the Cumbre-1 well to commence production at a rate of approximately 500 bopd later this month from the C7 Formation through a temporary facility. Parex is installing a permanent facility for the Cumbre discovery.

The Cumbre-2 well was spud on March 27, 2012 and is currently drilling to a bottom-hole target located 350 meters north of the Cumbre-1 well.

Block LLA-29, LLA-30 & LLA-57 (100% Working Interest)

During 2012, Parex budgeted to drill 6-7 exploration wells on blocks LLA-29, LLA-30 and LLA-57. In order to execute the program, Parex required surface access prior to the start of the rainy season. Due to on-going civil disruptions in the eastern Llanos region and now the onset of the rainy season, Parex elected to defer the commencement of its exploration program to the next dry season, with activity likely to commence in the fourth quarter of 2012 or early 2013. Parex has applied for contract extensions for blocks LLA-29 and LLA-30.

Los Ocarros Block (50% Working Interest)

As previously reported, the Las Maracas-2 side-track well was drilled to the Mirador Formation and with formation damage tested rates of up to 938 bopd of 37° API oil with negligible BS&W under natural flow. Parex now operates the block and has commenced construction of the long-term production facility. Parex expects to place the Las Maracas-2 sidetrack on a long-term production test by early May 2012. Subject to regulatory approval in late June 2012, Parex expects to drill the first follow-up appraisal well.

Cabrestero Block (Farm-in 50% Working Interest)

Parex has entered into a farm-in agreement on the 29,562 gross acres Cabrestero Block, located in the Llanos Basin. The Company will earn 50% working interest on the block and be operator after completing its farm-in obligations by paying 100% of the cost to drill and evaluate the Kitaro-1 exploration well. Kitaro-1 is expected to drill to a target depth of 9,500 feet. The drilling rig is mobilizing to the lease and is expected to spud during April 2012.

Colombia Operations Update (excluding Colombia Acquisition)

For the three months ending March 31, 2012, the average production was approximately 11,700 bopd.

The Kona-14 well on Block LLA-16 was drilled to test the northern limit of the Gacheta Formation. The well encountered water bearing reservoir below the oil-water contact and is being completed as a water disposal well. The next well scheduled to be drilled on the Kona field is Kona-16, a Mirador delineation well targeting a southern extension of the field. Kona recompletion activities are on-going.

The Sulawesi field is producing at a restricted rate of 250 bopd which is lower than expectations. Later this month Parex expects to test the Gacheta Formation in the Sulawesi-4 well and if that test is unsuccessful, the well will be completed as a water disposal well. Following commissioning of a water disposal well, the currently shut-in Sulawesi-3 well is expected to produce from the Mirador Formation.

Over the next 45 days, Parex expects to bring additional production on-line through new facilities being commissioned at:

  1. Las Maracas-2ST - long-term test facility
  2. Sulawesi - disposal well
  3. Java - long-term test facility
  4. Cumbre - long-term test facility

Trinidad Exploration Update

On the onshore Moruga Block, the Company has re-entered Firecrown-1 and sidetracked the well to evaluate two Herrera objectives that it was unable to test in the original wellbore. The first Herrera objective has been drilled and intermediate casing was set. Parex is currently drilling the second deeper objective and expects to test Firecrown-1 ST2 during April 2012.

Also on the Moruga Block, located between the Carapal Ridge field and the Snowcap fault block is the Green Hermit prospect. Green Hermit-1 is currently drilling at approximately 1,500 feet and is expected to reach total depth at the end of April 2012. Parex' working interest for the Moruga Block is 83.8% subject to closing of the purchase of the additional 33.8% working interest.

The Company plans to start drilling its first high-impact Central Range Block ("CRB") Deep well, Tigre-1 during the third quarter of 2012. Construction activities are on-going.

Revised 2012 Guidance - Under Review

Due to recent civil disruptions near blocks LLA-29, LLA-30 and LLA-57, the Company was unable to access exploration prospects prior to the start of the rainy season, thereby delaying capital plans into late 2012. Activity on farm-in blocks that have year round access will substitute for some of the deferred activity.

Parex is revising its 2012 guidance as a result of the reduced 2012 activity on blocks LLA-29, LLA-30 and LLA-57 and lower than expected production from Sulawesi. Planned capital expenditure in Colombia and Trinidad, excluding the Acquisition, has been reduced by $30 million to $200-$245 million. Exit rate production, excluding both the Acquisition and Trinidad, has been reduced by 3,500 bopd to approximately 13,500 bopd, net before royalty. Parex expects to update its 2012 guidance after receiving test results from wells related to the Targetco Acquisition that are currently drilling or awaiting completion and the results of testing existing Parex wells in Colombia and Trinidad.

Advisory on Forward Looking Statements

Certain information regarding Parex set forth in this document contains forward-looking statements that involve substantial known and unknown risks and uncertainties. The use of any of the words "plan", "expect", "prospective", "project", "intend", "believe", "should", "anticipate", "estimate" or other similar words, or statements that certain events or conditions "may" or "will" occur are intended to identify forward-looking statements. Such statements represent Parex's internal projections, estimates or beliefs concerning, among other things, future growth, results of operations, production, future capital and other expenditures, plans for and results of drilling activity, business prospects and opportunities. These statements are only predictions and actual events or results may differ materially. Although the Company's management believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance or achievement since such expectations are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause Parex' actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Parex.

In particular, forward-looking statements contained in this document include, but are not limited to, statements with respect to the performance characteristics of the Company's oil properties and wells; results of drilling and testing; results of operations; drilling plans; activities to be undertaken in various areas; capital plans in Colombia; expected exit rate production; timing of drilling, completion and testing; planned capital expenditures, the timing thereof and the source of funding for such capital expenditures; terms of the Acquisition; credit facility with a Canadian chartered bank; Parex' assessment of the risks associated with the Lawsuit; application for contract extensions for LLA-29 and LLA-30; new facilities being commissioned; completion of acquisition of additional working interest on the Moruga block; timing of updated 2012 guidance; and details of the Company's exploration drilling and testing program. In addition, statements relating to "reserves" or "resources" are by their nature forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. The recovery and reserve estimates of Parex' reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered.

These forward-looking statements are subject to numerous risks and uncertainties, including but not limited to the impact of general economic conditions in Canada, Colombia and Trinidad & Tobago; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced, in Canada, Colombia and Trinidad & Tobago; competition; lack of availability of qualified personnel; the results of exploration and development drilling and related activities; obtaining required approvals of regulatory authorities in Canada, Colombia and Trinidad & Tobago; risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities; volatility in market prices for oil; fluctuations in foreign exchange or interest rates; environmental risks; changes in income tax laws or changes in tax laws and incentive programs relating to the oil industry; ability to access sufficient capital from internal and external sources; failure to assume the letters of credit; failure to realize the anticipated benefits of the Acquisition; failure to obtain a credit facility with a Canadian chartered bank on the terms currently contemplated or at all; that Parex is served with the Lawsuit; incorrect assessment by Parex of the risks associated with the Lawsuit; failure to obtain contract extensions for LLA-29 and LLA-30; failure to complete the acquisition of an additional working interest on the Moruga Block; the factors described under "Risk Factors" in the Company's annual information form for the year ended December 31, 2011; and other factors, many of which are beyond the Company's control. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Parex' operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (

Although the forward-looking statements contained in this document are based on assumptions which management believes to be reasonable, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this document, Parex has made assumptions regarding, but not limited to: current commodity prices and royalty regimes; availability of skilled labour; timing and amount of capital expenditures; future exchange rates; the price of oil; the impact of increasing competition; conditions in general economic and financial markets; availability of drilling and related equipment; effects of regulation by governmental agencies; royalty rates; future operating costs; the status of the Lawsuit and Parex' assessment of risks associated with the Lawsuit; that the Company will have sufficient cash flow, debt or equity sources or other financial resources required to fund its capital and operating expenditures and requirements as needed; that the Company's conduct and results of operations will be consistent with its expectations; that the Company will have the ability to develop the Company's properties in the manner currently contemplated; that the estimates of reserves volumes and the assumptions related thereto (including commodity prices and development costs) are accurate in all material respects and other matters.

Management has included the above summary of assumptions and risks related to forward-looking information provided in this document in order to provide shareholders with a more complete perspective on Parex' current and future operations and such information may not be appropriate for other purposes. Parex' actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits Parex will derive. These forward-looking statements are made as of the date of this document and Parex disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction.

Contact Information

  • Parex Resources Inc.
    Michael Kruchten
    Manager, Investor Relations

    Parex Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer