Parex Resources Inc.
TSX VENTURE : PXT

Parex Resources Inc.

June 20, 2011 17:03 ET

Parex Resources Announces Record Light Oil Production and Kona-6 Test Results

CALGARY, ALBERTA--(Marketwire - June 20, 2011) -

NOT FOR DISSEMINATION IN THE UNITED STATES

Parex Resources Inc. ("Parex" or the "Company") (TSX VENTURE:PXT), an oil focused exploration and production company with operations in Colombia and Trinidad, is pleased to announce that gross (defined as 100 percent working interest) Colombia production has exceeded 6,200 barrels of oil per day ("bopd") (3,100 bopd net (defined as Company net working interest)) and that the Kona-6 well has produced at a gross rate of over 3,085 bopd (1,543 bopd net) from the C7 Formation.

The Company's average working interest is 50 percent in its properties in both Colombia and Trinidad. Note that Parex has entered into a definitive agreement to acquire a company (the "Acquisition") which will hold the 50 percent interest Parex does not already own in four Llanos Basin blocks in Colombia, including the Kona discovery on Block LLA-16.

Colombia Operations Update

Current production since the Kona-6 well has been on-stream, is approximately 6,200 gross bopd (3,100 bopd net). A summary of the Company's production is provided below:

WellFormationStatusCurrent Gross bopd
Kona-1MiradorProducing2,605
Kona-2GachetaRemediation0
Kona-3MiradorSide-track0
Kona-4MiradorProducing375
Kona-5C7/MiradorDrilling0
Kona-6C7Producing3,085
Supremo-1MiradorProducing135
Total--6,200

On April 17, 2011, the Kona-6 well on Block LLA-16 was spud and completed drilling in 19 days. Kona-6, located between Kona-1 and Kona-2, was drilled as a C7 Formation well to evaluate the C7 Formation. An excellent cement bond in the well allowed for testing multiple objectives in the C7 Formation. Oil was tested from the two secondary objectives in the lower C7 at rates of 530 bopd and 190 bopd respectively prior to moving uphole to the primary objective. On June 9, 2011, the primary objective in the upper C7 was tested. Following the installation of an electric submersible pump ("ESP"), the well has produced, since June 17, 2011, at an average gross rate of 3,085 bopd (30 degree API oil) at less than 1% water-cut from the upper C7 Formation. The Kona-6 well was drilled, cased and completed under a revised well program that will be implemented going-forward for all wells.

After a successful cement remediation, the Kona-1 well began producing 37 degree API oil from the Mirador Formation in late November 2010 at initial rates of approximately 2,900 bopd on natural flow. In late May 2011, following natural production declines, Parex shut-in the Kona-1 well and installed an ESP which re-established production rates at approximately 2,900 bopd.

The Kona-2 well began producing from the Gacheta Formation on natural flow April 19, 2011 at a rate of 2,634 bopd and experienced above average production decline due to a poor completion. On June 15, 2011, the Kona-2 well was shut-in to commence a cement remediation operation to attempt to properly isolate the oil pay section from the underlying wet reservoirs. Following a successful cement remediation operation, Parex expects oil production rates to return to approximately 2,600 bopd.

As previously reported, the Kona-3 well was drilled in January 2011 and was designed to evaluate the northern extent of the Kona field. Both the C7 and Mirador formations tested oil with high water production. During cementing operations, mechanical problems resulted in sub-optimal cement placement. As a result, Parex believes that the prospective oil pay sections were not isolated from the underlying wet reservoirs. On June 18, 2011, a drilling rig re-entered the Kona-3 well to start side-tracking operations to re-set and cement a new liner across the C7 and Mirador formations of the well. Parex expects to commence production from the well in late third quarter 2011.

As previously reported, Parex believes that the Kona-4 well Mirador Formation reservoir was damaged due to mechanical problems during cementing operations. On May 24, 2011, the Kona-5 well was spud as a twin development well to Kona-4 to evaluate the C7 and Mirador formations. If the Kona-5 well successfully tests the Mirador Formation, Parex would likely shut-in the Kona-4 Mirador zone and complete the C7 Formation.

Due to unseasonal wet weather, commissioning of the Kona oil treatment plant was delayed to early June 2011. As previously stated, the commissioning of the 25,000 barrels of fluid per day Kona oil treatment plant and water disposal facility would allow total production from the Kona field to grow to approximately gross 4,000-6,000 bopd. The May 2011 exit rate for the Company was in excess of gross 4,000 bopd and is currently approximately gross 6,395 bopd (3,198 net bopd). Parex is on track to achieve its 2011 exit production rate guidance of 14,000 gross bopd.

Colombia Exploration

The next three exploration prospects on Block LLA-16 are Sulawesi, Merida and Java. The Sulawesi location is complete and location construction for Merida and Java are progressing. The Sulawesi prospect is expected to spud in July 2011. Drilling depths for these targets range from 11,000 feet to 13,000 feet. On Block LLA-20, the Company is working to spud its Cumbre exploration well in late fourth quarter of 2011. Operations on blocks LLA-29 and LLA-30 will be evaluated upon the close of the Acquisition and Parex becoming operator. On Block LLA-57 a 165 square kilometre seismic program is being permitted and field work is expected to commence shortly.

Colombia Llanos Basin Acquisition Update

On April 20, 2011, Parex announced it has entered into a definitive agreement to acquire a company which will hold the 50 percent interest Parex does not already own in the four Llanos Basin blocks in Colombia, including Block LLA-16 and the Kona discovery, for total consideration of US$255 million, subject to customary adjustments. The Acquisition will be funded through the bought deal public offering of CDN$217.35 million of subscription receipts and CDN$85.0 million of 5.25 percent extendible convertible unsecured subordinated debentures (the "Offering") for a total gross proceeds of CDN$302.35 million. The Acquisition represents a strategic fit for the Company as it doubles the Company's Colombian operating income, reserves and production. Parex expects the Acquisition to close on or before June 29, 2011.

The bought deal public offering of subscription receipts and 5.25 percent extendible convertible unsecured subordinated debentures closed on May 17, 2011. The proceeds from the subscription receipts will be held in escrow pending the closing of the Acquisition. Upon the Acquisition closing on or before July 15, 2011, the proceeds will be released to Parex and each subscription receipt will automatically be exchanged for one common share without any further action on the part of the holder and without payment of additional consideration.

Trinidad Update

The Company is currently finishing testing operations on the Moruga Block (50 percent working interest) Firecrown-1 well. Following the successful sidetrack operations to deepen the Firecrown-1 well to a depth of 10,300 ft and conclude the earning obligations of the Moruga contract, an attempt was made to complete and test the well. Mechanical limitations during original drilling operations resulted in sub optimal cement placement during the liner cementing operations. Attempts were made to test the Herrera formation in spite of the limitations of the wellbore. These operations have been completed and Parex has concluded that the well in its current condition will not be able to be tested properly. As such, testing operations are being suspended. Parex expects that sidetracking operations can be conducted to place and properly cement a new liner enabling a proper test on this well. This operation is under design and will be conducted upon availability of proper equipment to conduct the operations.

Parex expects to drill another two Moruga Block wells in 2011, subject to regulatory approvals. In order to accommodate Parex' ongoing exploration activity, the Company has initiated discussions with contractors to mobilize a modern and more efficient drilling rig to Trinidad.

On the Central Range Shallow Block (50 percent working interest), lease construction for the first of two shallow exploration wells is substantially complete. Parex expects to spud the first well early in the third quarter of 2011. Target depth for both shallow exploration wells will be approximately 4,500 feet and will be drilled using an existing onshore Trinidad rig.

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.

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's 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 concerning the Offering and the Acquisition, including the timing of closing of the Acquisition; the Subscription Receipts and Debentures to be issued pursuant to the Offering; regulatory and other approvals required for the Offering, the listing of the Subscription Receipt and the Debentures, and the Acquisition; and the use of proceeds from the Offering. In addition, statements relating to "reserves" are by their nature forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future.

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 elated 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; risk that the board of directors of Parex determines that it would be in the best interests of Parex to deploy the proceeds of the Offering for some other purpose; failure to receive all required regulatory and other approvals for the Offering or the Acquisition; 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: receipt of regulatory and other approvals for the Offering and the Acquisition; 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, the Acquisition and the Offering 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)

    Parex Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729
    (403) 265-8216 (FAX)