Quetzal Energy Ltd.

Quetzal Energy Ltd.

November 21, 2011 09:00 ET

Quetzal Energy Provides Operational Update on Work-Over of Canaguay-1 Well and Drilling of the Mani-1 Well

TORONTO, ONTARIO--(Marketwire - Nov. 21, 2011) - Quetzal Energy Ltd. (TSX VENTURE:QEI) ("Quetzal" or the "Company") is pleased to provide the following update on operations:

Canaguay-1 Well : Canaguaro Block

A long term production test began on May 4, 2011 with an electrical submersible pump ("ESP") set at approximately 6,000 feet depth, approximately 8,000 feet above the producing Mirador formation. Since that time, the well had averaged approximately 400 barrels of oil per day and had witnessed the water cut go from an average of 18% in May to 33% in August. Initial reservoir pressure was registered at approximately 5,850 psia in May, and management had witnessed some decline in bottom hole flowing pressure since commencement of the long term test.

In late August, the Company and its partners decided to shut in the Canaguay 1 well for 6 days to conduct a pressure build up test. Over that short period, well pressure returned to within 100 psia of the May pressure indicating that reservoir pressure depletion is not significant. Given that the perforations are only 30 feet above the plug back depth, management believed that sand or some other agent was likely causing a restriction in flow, and reduced bottom hole flowing pressure.

On October 20th the Company and its partners shut in the Canaguay 1 well to service the well by conducting a cleanout of the well, replacing the ESP, and placing the new ESP at a deeper depth in the well closer to the producing zone. Management's expectation was that this would lead to increased fluid production and a resultant increase in oil production as well. One of the objectives of this job was to remove sand and any flow restrictions in the wellbore. No solids were found but a considerable amount of high viscosity emulsion was pumped out of the well. This emulsion could have been plugging the well and limiting its productivity. The second objective was to run a new and more appropriate ESP design to ensure more effective drawdown on the well. No major issues were presented in this regard. The third objective was running cased-hole logs to confirm quality of cement bond and to evaluate hydrocarbon saturation in the Mirador sands. The cement bond was confirmed to be good and one sand immediately above the producing horizon was indicated to have high hydrocarbon saturation. This interval had been tested previously but not extensively. The total cost of the work-over was US$915,403 of which Quetzal paid 25%.

On October 29th the well was put back on production and during the first 14 hours produced back kill fluid to Sunday October 30th. Commencing on October 30 the well began producing oil again. On November 15 the well was shut in for two days to complete a repair on the pump. Excluding those two days, the well has performed with the following results:

Sunday October 30 to Saturday, November 19 (since put back on production):
Average Oil Production: 1,052 BOPD
Average Water Production: 490 BWPD
Average Fluid Production: 1,542 BFPD
Average Watercut: 32%

Quetzal has a 25% private participating interest in the Canaguaro Block.

Mani-1 Well : LLA 27 Block

While drilling the 12-1/4" intermediate section at 4,470 feet, a number of mechanical issues were being experienced with the top-drive of the Saxon-owned drilling rig being used to drill the well. As a result of difficult drilling conditions in combination with drilling equipment failure the Company has abandoned the lower portion of the well from 4,470 ft to 2,100 ft, and has elected to re-commence drilling operations immediately below surface casing. Additional costs of $2.9 million have been incurred in several unsuccessful attempts to recover directional drilling equipment and for abandonment of the lower portion of the well bore. The Company's previous gross budget for the well was US$10.0m and has now been adjusted to US$12.9m. The Company is paying 50% of this amount to earn a private participating interest of 45.275% before payout and 34.25% after payout.

Working with Saxon, The Company has re-evaluated all drilling plans, procedures and drilling equipment to minimize drilling risks and to prepare for resumption of drilling operations. The following actions have being taken:

  • changeout of the rig top-drive and preparation of a top drive contingency plan with Saxon to address any future mechanical failures;
  • a mud system review to ensure adequate performance;
  • hole cleanout procedures and tripping practices to be improved and tightly monitored;
  • directional tool assembly "slimmed down" to be more retrievable in the event the well encounters further tight drilling conditions and moving to more conventional directional equipment to be used to further reduce capital cost risks; and
  • additional on-site drilling supervision to be added.

The Company has recommenced drilling operations and as of Sunday, November 20, the new deviated wellbore has progressed to 5,000 ft of depth with no further issues. As stated in the Company's October 24 press release, the target depth of the Mani-1 well is 10,850 feet.

About Quetzal Energy Ltd.

Quetzal is a junior oil and gas company with private participating interests in the Llanos Basin of Colombia; the Company also has oil and gas assets in Guatemala.

Cautionary Statements

This news release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (together, "forward-looking information"). The use of any of the words "expect", "anticipate", "continue", "estimate", "believe", "plans", "intends", "confident", "may", "objective", "ongoing", "will", "should", "project", "should" and similar expressions are intended to identify forward-looking information. In particular, but without limiting the foregoing, this news release contains forward-looking information concerning the use of proceeds of the recently completed offering of units of the Corporation.

The forward-looking information is based on certain key expectations and assumptions made by Quetzal, including expectations and assumptions concerning the operational results in Colombia and Guatemala. Although Quetzal believes that the expectations and assumptions on which the forward-looking information are based are reasonable, undue reliance should not be placed on the forward-looking information because Quetzal can give no assurance that they will prove to be correct.

Since forward-looking information addresses future events and conditions, by its very nature it involves inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the inherent risks involved in the exploration and development of oil and gas properties, the uncertainties involved in interpreting drilling results and other geological data, uncertainties relating to fluctuating oil and gas prices, the possibility of cost overruns or unanticipated costs and expenses and other factors including unforeseen delays. Anticipated exploration and development plans relating to Quetzal's properties are subject to change.

The foregoing list of assumptions, risks and uncertainties is not exhaustive. The forward-looking information contained in this press release is made as of the date hereof and Quetzal undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.


Contact Information