Parex Resources Inc.
TSX VENTURE : PXT

Parex Resources Inc.

April 15, 2011 16:39 ET

Parex Resources Provides Operational Update

CALGARY, ALBERTA--(Marketwire - April 15, 2011) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR 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 provide an update of the Company's operational activities in Colombia and Trinidad. Parex' average working interest is 50 percent in its properties in both Colombia and Trinidad. All amounts below are in United States dollars unless otherwise stated.

Colombia Operations Update

Light oil production from the Kona-1 well during March 2011 has averaged approximately 2,520 barrels of oil per day ("bopd") (company working interest before royalty ("net") 1,260 bopd) with a water cut of approximately five percent on natural flow. For the first three months of 2011, Parex' sales and production volumes averaged approximately 1,145 and 1,160 bopd net respectively. Cumulative Kona-1 production from December 2010 to March 31, 2011 is approximately 264,000 barrels of light oil (132,000 barrels net). The Company's operating netback has increased along with the increase in world oil prices. During March 2011 the Company estimates its operating netback, defined as net revenue less field operating costs on a per barrel basis, was approximately $64 per barrel, compared to $56 per barrel reported for the fourth quarter of 2010.

In May 2011, Parex expects to complete the construction of the Kona oil treatment plant with a capacity of 25,000 barrels of fluid per day ("bfpd") located on the Kona-1 lease. Clean oil from the oil treatment plant will be piped seven kilometres to the oil loading facility located on the region's main paved road allowing for all-season tanker truck access. After commissioning of the oil treatment plant and drilling a shallow zone water disposal well on the Kona-Norte location, the Company will temporarily shut-in Kona-1 which is producing on natural flow and install an electric submersible pump to maintain production at an expected level of approximately 2,000 bopd (net 1,000 bopd).

The commissioning of the Kona oil treatment plant and water disposal well is also expected to allow for the production start-up of other Kona wells that exhibit poor cement isolation from water bearing zones thereby prohibiting dry oil production, but which are capable of production and are currently shut-in.

Southwest of the Kona field on Block LLA-16 along a separate fault trend the Supremo-1 well is expected to commence oil production in early May following the completion of a water disposal well and associated handling facilities. This well had previously tested approximately 2,500 bfpd from the Mirador Formation, with a 31 degree API oil rate of 500 bopd (net 250 bopd).

Based on test results or log analysis of Kona-1, Kona-2, Kona-3, Kona-4 and Supremo-1 and upon the commissioning of the Kona oil treatment plant and the water disposal wells, Parex expects production of approximately gross 4,000-6,000 bopd (net 2,000-3,000 bopd).

Kona Field Drilling Update

In March 2011 a drilling rig re-entered the Kona-2 well to drill out below the existing casing to redrill the Gacheta Formation potential oil pay and prepare to complete this deeper zone. Depending on the Gacheta Formation testing results the Company may move up hole to remediate, complete and test the Mirador Formation. The Mirador was initially tested in the Kona-2 well and flowed naturally up to a rate of approximately 3,000 bfpd, comprising 1,600 bopd (net 800 bopd) of 35 degree API oil plus 1,400 barrels of water per day.

The Kona-3 well was drilled in January 2011 and was designed to evaluate the northern extent of the Kona field. 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 was consistent with the Company's pre-drill expectations. During March 2011 the Mirador Formation was tested and the recovered fluid was on average 40 percent oil of a quality consistent with oil recovered in Kona-1 and Kona-2 wells. Cement bond logs indicated that there was poor cement across the pay zone and therefore the 40 feet of prospective oil pay section was not isolated from the underlying wet reservoir. Remediation attempts were unsuccessful and the Company suspended the zone and moved up hole to the C7 Formation. The C7 Formation was completed and tested at approximately 750 bfpd, with a 42 percent light oil cut. An electrical submersible pump will be installed to produce the C7 Formation. The Company is of the opinion that the initial water production from the C7 Formation may be caused by poor cement isolation from water bearing zones.

On March 1, 2011, the Kona-4 well was spud. Kona-4, located approximately 420 metres south of Kona-2, was drilled to a total measured depth of 12,827 feet and evaluated the C7, Mirador, and Gacheta formations. Logging-while-drilling tools indicated potential net oil pay of 20 feet and 30 feet in the C7 and Mirador formations respectively, consistent with the Company's pre-drill expectations, while the Gacheta Formation was evaluated as wet. The well has been cased and the Mirador Formation will be completed.

Parex has skid a drilling rig and has spud Kona-6, which is being drilled as an appraisal well for the C7 Formation which has not yet been tested in either of the Kona-1 or Kona-2 wells. Log analysis of the C7 Formation has indicated 35 feet and 50 feet of potential net oil pay in the C7 on Kona-1 and Kona-2 respectively.

Colombia Exploration Update

On January 19, 2011 the Kopi-1 well was spud and was drilled to a depth of 10,993 feet. The Mirador Formation tested wet and the C7 tested low swab rates of 31 degree API oil. Due to the low flow rates the well was acidized and subsequently produced 100 percent water. As Parex believes the testing results were inconclusive, the well has been suspended. Parex is currently evaluating the potential to drill an exploratory sidetrack well up-dip from Kopi-1.

The Company's next new exploration drilling prospects on Block LLA-16 are Sulawesi-1 and Java-1. Both these prospects are defined by 3D seismic and are programmed to test multi-zone targets with drilling depths of 11,000 feet and 12,000 feet respectively. Both these prospects are located on the same fault trend as the Kona discovery. Lease construction is complete on the Sulawesi prospect. As previously disclosed, Parex intends to drill an exploratory well, Supremo-2 to test the potential up-dip of the Supremo-1 well. This well is expected to spud mid year 2011. For the remainder of 2011, Parex' drilling strategy is to utilize two to three drilling rigs and a service rig to allow for continuous operations on the Kona discovery and on additional block LLA-16 and LLA-20 drilling prospects.

Reserves Update for Colombia Kona Discovery

Notwithstanding the Kona-4 well has been deemed successful with internal log analysis calculating approximately 50 feet of potential oil pay in the C7 and Mirador formations, the Company's independent engineer GLJ Petroleum Consultants Ltd. ("GLJ") had ascribed probable reserves in the Company's December 31, 2010 oil and gas reserve report ("December 31, 2010 Evaluation") that projected thicker potential pay zones in the C7 and Mirador and anticipated oil pay in the Gacheta Formation. GLJ has advised that, in their opinion as at March 31, 2011, taking into account the outcome of the Kona-4 well, and the Company's Kona field oil production year-to-date, compared to the previously disclosed December 31, 2010 Evaluation the proved plus probable reserves volumes as of March 31, 2011 would be revised lower by approximately 11.9 percent, comprised of a technical revision of 10.1 percent and production of 1.8 percent; and the proved plus probable plus possible reserves would be revised lower by approximately 7.8 percent, comprised of a technical revision of 6.8 percent and production of 1.0 percent. GLJ also advised that their forecast of oil prices at April 1, 2011 has increased from that of January 1, 2011 (as used in the December 31, 2010 Evaluation) and accordingly the proved plus probable reserves net present value, before tax discounted at 10 percent as at March 31, 2011, is 15.2 percent higher than the December 31, 2010 Evaluation, excluding cash flow generated by the year-to date production. Calculated on the same basis, the proved plus probable plus possible reserves net present value, before tax discounted at 10 percent, is 21 percent higher as at March 31, 2011. The Company plans to drill south of the Kona-4 well to continue to delineate and appraise the Kona field and test the C7 and Mirador formations.

Company Working Interest Reserves and Net Present Value at March 31, 2011

                                                                 BT NPV10(3)
Reserves Category(1)                                (mbbl)(2)       ($000's)
----------------------------------------------------------------------------
Proved                                                 1,801         99,195 
Proved plus probable                                   5,151        237,701 
Proved plus probable plus possible                     9,614        413,720 
(1) Reserves are 100 percent light crude oil. Reserves are before royalties.
(2) mbbl is defined as thousand barrels of oil.                             
(3) Net present value before tax discounted at 10 percent. See the Reserve  
Advisory below.                                                             

Further information in respect of the reserves data and other oil and gas information as at March 31, 2011 contained in this press release has been disclosed in compliance with National Instrument 51-101 in a material change report, filed today by the Corporation on its SEDAR profile at www.sedar.com.

Trinidad Exploration Update

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. A drilling rig re-entered the well in order to drill to the required contract earning depth of 10,500 feet. The well was drilled to depth of 10,330 feet prior to the drilling rig encountering mechanical problems. The Company is now awaiting written communication of the earning status from the Ministry. Accordingly, and subject to written confirmation from the Ministry that Parex and its partners have fulfilled the earning commitments for the Moruga Block, completion and testing operations on Firecrown-1 are expected to commence in May 2011. Also in the second quarter of 2011 Parex expects to spud the first of two exploration wells on the Central Range Shallow block.

2011 Guidance Update

Recall Parex' previously provided 2011 guidance was for capital expenditures of $93-$120 million with exit rate production of 7,000-9,000 bopd, net before royalty. Based on (i) the non-Kona exploration drilling results to date; (ii) not accounting for success at the new exploration prospects; and, (iii) anticipated deferral in the non-operated blocks LLA-29 and LLA-30 drilling schedule, the Company expects that both capital expenditures and exit rate production from the current asset base will be in the lower end of the stated guidance range for 2011. The Company's exit rate guidance currently excludes the 2011 Trinidad exploration program. After well testing, the evaluation of exploration results, and the determination of marketing arrangements, Parex will be better positioned to include a 2011 Trinidad production estimate.

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.

Reserve Advisory

1.  "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. 
2.  "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. 
3.  "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. 

Reserves were evaluated on the basis of GLJ's reference price forecast of WTI Cushing Oklahoma. The five year WTI Cushing Oklahoma price forecast (US$/bbl) is 2011 $102; 2012 $105; 2013 $102; 2014 $100 and 2015 $100.

"Company working interest" means, in relation to the Company interest in production or reserves, its working interest (operating ornon-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.

All evaluations of future revenue contained in the independent reserves report prepared by GLJ are after the deduction of royalties, development costs, production costs and well abandonment costs but before consideration of indirect costs such as administrative, overhead and other miscellaneous expenses. It should not be assumed that the estimates of future net revenues presented in the table under the heading "Reserves Update for Kona Colombia Discovery" herein represent the fair market value of the reserves. There are numerous uncertainties inherent in estimating quantities of crude oil, natural gas liquids and natural gas reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth herein are estimates only. The recovery and reserve estimates of the crude oil gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil reserves may be greater than or less than the estimates provided herein.

The independent reserves report prepared by GLJ is dated April 14, 2011 and was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101").

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' 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; construction of the Kona oil treatment plant; effect of commissioning the Kona oil treatment plant on Parex' future operations; expected production as a result of commissioning the Kona oil treatment plant; financial and business prospects and financial outlook; results of drilling and testing, results of operations; drilling and shut-in plans; plans to complete and test the Mirador Formation; potential causes of initial water production from the C7 Formation; activities to be undertaken in various areas; potential drilling of an exploratory sidetrack well up-dip from Kopi-1; the Company's expectations regarding capital expenditures and exit rate production from Parex' current asset base; 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.

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' operations and financial results are included in reports on file with Canadian securities regulatory authorities, including in the Company's Annual Information Form for the year ended December 31, 2010, 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' 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 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

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