Parex Resources Inc.
TSX VENTURE : PXT

Parex Resources Inc.

February 15, 2011 16:56 ET

Parex Resources Announces 2010 Year-End Colombia Oil Reserves and Tests Oil in Trinidad

CALGARY, ALBERTA--(Marketwire - Feb. 15, 2011) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Parex Resources Inc. ("Parex" or the "Company" or "we") (TSX VENTURE:PXT), a company focused on oil exploration and production in Colombia and Trinidad, is pleased to announce the results of its 2010 year-end oil reserves evaluation and to provide an operations update on the Company's current activities.

Highlights include:

- Independent reserve evaluation for Colombian Kona discovery;

- Proved plus probable reserves of 5.85 million barrels of oil (net company working interest);

- Kona-1 production rates of up to 2,900 barrels of oil per day ("bopd") gross on natural flow (1,450 bopd net company working interest);

- Trinidad Snowcap-1 average production test rates of 580 bopd and 5.4 million standard cubic feet per day ("mmscfd") gross (290 bopd and 2.7 mmscfd net company working interest) on natural flow.

2010 Year-end Reserves

The following tables summarize information contained in the independent reserves report prepared by GLJ Petroleum Consultants Ltd. ("GLJ") effective December 31, 2010 ("GLJ Report"). The GLJ Report 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"). Additional reserve information as required under NI 51-101 will be included in the Company's Annual Information Form which will be filed on SEDAR by April 30, 2011. As this is the Company's first reserve evaluation no comparative amounts are provided.

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. All reserves presented are based on GLJ's forecast pricing effective December 31, 2010. Consistent with the Company's reporting currency, all amounts are in United States dollars unless otherwise noted.



2010 Year-end Reserves Volumes

Company Working Interest (6)
Reserves at Dec. 31, 2010
Reserves Category (1) (mbbl) (2)
----------------------------------------------------------------------------
Proved (3) 1,066
Proved plus probable (4) 5,854
Proved plus probable plus possible (5) 10,439


(1) Reserves are 100% light crude oil, therefore disclosure of heavy crude
oil, liquids and natural gas volumes has not been provided. Reserves
are before royalties.
(2) mbbl is defined as thousand barrels of oil.
(3) "Proved" reserves are those reserves that can be estimated with a high
degree of certainty to be recoverable. It is likely that the actual
remaining quantities recovered will exceed the estimated proved
reserves.
(4) "Probable" reserves are those additional reserves that are less certain
to be recovered than proved reserves. It is equally likely that the
actual remaining quantities recovered will be greater or less than the
sum of the estimated proved plus probable reserves.
(5) "Possible" reserves are those additional reserves that are less certain
to be recovered than probable reserves. There is a 10 percent
probability that the quantities actually recovered will equal or exceed
the sum of proved plus probable plus possible serves. It is unlikely
that the actual remaining quantities recovered will exceed the sum of
the estimated proved plus probable plus possible reserves.
(6) "Company working interest" means, in relation to the Company interest
in production or reserves, its working interest (operating or
non-operating) share before deduction of royalties, plus the Company's
royalty interests in production or reserves. "Company working interest"
is not a term defined or recognized under NI 51-101 and does not have a
standardized meaning under NI 51-101. Therefore, the "company working
interest" reserves of the Company may not be comparable to similar
measures presented by other issuers, and investors are cautioned that
"company working interest" reserves should not be construed as an
alternative to "gross" or "net" reserves calculated in accordance
with NI 51-101.


Discussion of Reserves Volume

The Company had no reserves at January 1, 2010. Parex' crude oil reserves are located in Colombia's Llanos basin. The reserve volumes only reflect the Company's 50% working interest in the Kona discovery. Production testing of the Company's other exploration wells in Colombia and Trinidad occurred in 2011 and has not been included in this reserve evaluation dated December 31, 2010.

Reserve additions in 2010 were achieved from successful oil exploration and the discovery of the Kona field in July 2010. The Company did not carry out acquisitions of any production or reserves in 2010. Proved reserves were assessed in the Mirador formation and probable reserves were assessed in the C7, Mirador and Gacheta formations. Due to the effective date of the reserve evaluation, the GLJ report only included results for the Kona-1 and Kona-2 wells. The results of the Kona-3 well and other testing discussed below in the Colombia Exploration and Operations Update were not incorporated in the GLJ Report.

In addition to Kona-1 and Kona-2 wells, GLJ included two, nine and eleven appraisal/development wells in the proved, proved plus probable, and proved plus probable plus possible, cases respectively. The Company's 2011 capital expenditure budget includes drilling of up to six appraisal/development wells into the Kona discovery subject to regulatory approval.

Reserves Evaluator Escalated Price Forecast

Reserves were evaluated on the basis of GLJ's price forecast. The crude oil price for the first five years of the GLJ evaluation is:



WTI Cushing Oklahoma Crude Oil Realized Price
Year (US$/bbl) (US$/bbl)
----------------------------------------------------------------------------
2011 88.00 69.55
2012 89.00 70.23
2013 90.00 70.91
2014 92.00 72.57
2015 95.17 75.41
2016+ +2%/year +2%/year


Colombia Exploration and Operations Update

The Kona-1 well on Block LLA-16 (Parex 50 percent working interest), was successfully remediated in the Mirador formation in late November 2010. Production began at an initial test rate of 500 bopd and was increased up to 2,900 bopd with a water cut of approximately 1 percent on natural flow. Oil sales have been interrupted at times due to seasonal delays in December and current transportation and offloading capacity limitations being experienced in the Llanos Basin. Over the past week, as trucking restrictions have been lifted, the Kona-1 well has produced at a gross average rate of 2,771 bopd (1,386 bopd net).

The Kona-2 well was scheduled to be completed in the deeper Gacheta Formation in January 2011, however, this operation has just recently commenced. If successful the well will be brought on-stream as a Gacheta producer. If the Gacheta Formation cannot be successfully completed at Kona-2, then we expect to remediate, complete and test the C7 formation, which indicated 50 feet of potential net oil pay on log analysis and has not yet been tested in either of the Kona-1 or Kona-2 wells.

On January 5, 2011 the Kona-3 well was spud. Kona-3 was designed to evaluate the northern extent of the field and programmed to drill to a depth of 13,058 feet. The bottom hole location for the Mirador formation is 445 meters north of Kona-1 and approximately 865 meters north from Kona-2. Initial evaluation of well logs indicates potential net oil pay, measured as true vertical depth, of 20 feet in the C7 Formation and 40 feet in the Mirador Formation which is in-line with the Company's pre-drill expectations. As of the morning of February 15, 2011 the rig was running intermediate casing at 9,378 feet and will complete the operation at 12,055 feet, prior to deepening the well to the target depth. Drilling operations are expected to be completed by late February 2011.

The Kona oil treatment facility and terminal, located on the region's main paved all-season road, currently has capacity for 8,000 barrels of fluid per day ("bfpd") and is being expanded to handle up to 25,000 bfpd by mid-April 2011. Original facility expansion plans were for a 10,000 bfpd facility.

Along a new fault trend in Block LLA-16 the Supremo-1 well was drilled to a depth of 12,035 feet and recently tested. The well produced on pump approximately 2,500 bfpd from the Mirador formation, with a 31 degree API oil rate of 500 bopd. The Supremo-1 well is currently suspended. Technical analysis has determined that Supremo-1 was drilled off structure and it is planned in 2011 to drill Supremo-2 from the same pad to a position up dip of the original bottom hole location to attempt to locate the top of the structure.

Along the same fault trend as Supremo-1, the Goroka-1 well was drilled to a depth of 12,037 feet. The well was cased and the Lower Gacheta and Mirador formations tested wet. Currently the Upper Gacheta Formation is being completed for testing if appropriate.

On January 19, 2011 the Kopi-1 well was spud. This well was drilled to a depth of 10,993 feet and is located 18 kilometres south of the Kona discovery on the same fault trend. The well has been cased to total depth and will be tested following the completion of testing the Goroka-1 well.

The next wells to be drilled on LLA-16 are scheduled to be Kona-4, located approximately 420 meters south of Kona-2, and Java-1 a new prospect located between the Kona field and the Barquerena field along the Kona fault trend. Current plans are to dedicate one drilling rig to the Kona discovery and one drilling rig to other LLA-16 drilling. In addition, Parex plans to acquire a further 70 square kilometres of 3-D seismic on the south-east corner of Block LLA-16 in 2011.

On Block LLA-20 (Parex 50 percent working interest) the Conoto-1 and Zocay-1 wells were drilled and cased to depths of 8,100 feet and 8,788 feet respectively. Both wells targeted un-faulted, low relief structures. Wireline logs and mud gas logs from the Conoto-1 well identified reservoir quality sand in the C7 and Mirador formations. We had previously cautioned that nearby wells suggest that it is difficult, on the basis of wireline log interpretation, to differentiate between oil saturated reservoirs and those that have been flushed by fresh water. The Conoto-1 well tested and flowed non-commercial rates of 18 degree API oil and was subsequently abandoned. The Zocay-1 well was drilled and abandoned without testing.

The next drilling prospect on Block LLA-20 is Cumbre, which will test a fault trend located east of a producing field and west of Parex' Block LLA-57. A further 100 square kilometres of 3-D seismic is planned to be acquired on the north-west corner of Block LLA-20 in 2011.

On blocks LLA-29 and LLA-30 (Parex 50% working interest), the block operator has advised Parex that it anticipates drilling will commence in the fourth quarter 2011, later than planned as a result of delays in obtaining regulatory approval.

Colombia New Exploration Block LLA-57

On February 11, 2011, Parex signed an exploration contract for Block LLA-57 (100% working interest) with the National Agency of Hydrocarbons ("ANH"). Block LLA-57 was awarded to Parex in the 2010 Colombia Bid Round. Parex is required to place a guarantee of approximately US$3.85 million with the ANH. Plans for 2011 on Block LLA-57 are to acquire and process 165 square kilometres of 3-D seismic, with drilling expected to commence in 2012.

Trinidad Exploration Update

Snowcap-1, an exploration well located on the Company's Trinidad onshore Moruga Block, was drilled and cased in the third quarter of 2010. Based on the Company's interpretation of wireline logs, mud gas, and cuttings samples, Snowcap-1 encountered potential hydrocarbon bearing sandstones. Regulatory approval for a multi-zone test program for this well was received in late 2010.

The Snowcap-1 well tested the primary Herrera zone (4,590-4,605 feet) in a multi-point test over the perforated interval at 4,597-4,603 feet. The final four day gross rate averaged 580 bopd of 35 API oil and 5.4 mmscfd with wellhead pressure of 600 psi on a 48/64th inch choke under natural flow. The final six hours of flow on that choke averaged 500 bopd and 4.7 mmscfd at 580 psi. During the initial seven hour clean-up period, the zone flowed at rates averaging 1,166 bopd and 1.6 mmscfd at 1,200 psi. The well is currently shut-in to record down-hole pressure build-up for analysis of the test.

Parex also reports that a deep Eocene zone (8,099-8,132 feet) and a Herrera zone (5,026-5,040) tested wet. In addition, a second Herrera zone (4,685-4,695 feet) flowed non-commercial rates of hydrocarbon.

The Company is evaluating follow-up appraisal locations to the Snowcap-1 discovery. At the completion of testing the Snowcap-1 well will be suspended until a development plan is concluded and approved.

We had previously reported on June 14, 2010 that the Firecrown-1 well, located on the onshore Moruga Block, reached a total measured depth of 8,701 feet and penetrated both the primary and secondary objectives in the Herrera Formation. The well was cased to a depth of 8,400 feet to evaluate the potential of these prospective zones. In March 2011, Parex expects to re-enter and deepen Firecrown-1 to a block qualifying depth of 10,500 feet prior to production testing. Regulatory approval to test this well was received in late 2010. Post-earning, Parex' working interest for the Moruga Block will be 50 percent.

2011 Guidance Update

Colombia

For 2011 Parex maintains its previously provided guidance that capital expenditure plans in Colombia would range between $70-$88 million with exit rate production guidance of 7,000-9,000 bopd, net before royalty.

Trinidad

Parex' current Trinidad portfolio is in the early stages of execution. Upon completion of well testing and the evaluation of the exploration results, and the determination of marketing arrangements, the Company will be better positioned to provide a 2011 production estimate for our Trinidad program. For 2011 Parex maintains its previously provided guidance that capital expenditure plans in Trinidad would range between $23-$32 million.

Presentation at RBC Capital Markets' South American Energy Conference

Parex is pleased to advise that Mr. Wayne Foo, President and CEO is scheduled to present at the RBC Capital Markets' South American Energy Conference in Toronto, Ontario on Tuesday, February 24, 2011 at 8:30 am MST (10:30 am EST).

Presentation at the FirstEnergy/Societe Generale Canadian Energy Conference

Mr. Dave Taylor, Vice-President Exploration & Business Development is scheduled to present at the FirstEnergy/Societe Generale Canadian Energy Conference in New York, New York on Friday, March 9, 2011 at 7:05 am MST (9:05 am EST).

Corporate Overview

Parex, through its direct and indirect subsidiaries, is engaged in oil and natural gas exploration, development and production in South America and the Caribbean region. Parex is conducting exploration activities on its 595,000 acre holdings in the Llanos Basin of Colombia and 223,500 acre holdings onshore Trinidad. Parex is headquartered in Calgary, Canada.

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.

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 (including the amount, nature and sources of funding thereof), competitive advantages, plans for and results of drilling activity, environmental matters, 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; supply and demand for oil; financial and business prospects and financial outlook; results of drilling and testing, results of operations; drilling plans; activities to be undertaken in various areas; capital plans in Colombia and exit rate production; plans to acquire and process 3-D seismic; timing of drilling and completion; and planned capital expenditures and the timing thereof. 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; the risks that any estimate of potential net oil pay is not based upon an estimate prepared or audited by an independent reserves evaluator; that there is no certainty that any portion of the hydrocarbon resources will be discovered, or if discovered that it will be commercially viable to produce any portion thereof; and other factors, many of which are beyond the control of the Company. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could effect Parex's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

Although the forward-looking statements contained in this document are based upon 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: 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, 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's current and future operations and such information may not be appropriate for other purposes. Parex's 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 there from. 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Parex Resources Inc.
    Michael Kruchten
    Manager, Investor Relations
    (403) 517-1733
    (403) 265-8216 (FAX)
    or
    Parex Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729
    (403) 265-8216 (FAX)