Suroco Energy Inc.

TSX VENTURE : SRN


Suroco Energy Inc.

March 24, 2014 13:44 ET

Suroco Energy Inc. Forecasts A 71% Increase in Production With 2014 Program and Updates Operational Activities in Colombia

CALGARY, ALBERTA--(Marketwired - March 24, 2014) -

NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

Suroco Energy Inc. (TSX VENTURE:SRN) ("Suroco" or the "Corporation") is pleased to announce the following guidance on its planned 2014 drilling activity, capital spending and forecast production in addition to an update on its operational activities in Colombia.

Mr. Alastair Hill, the Corporation's President and Chief Executive Officer commented, "The impact of the Quinde 'N' sand discovery which we made at the very end of 2013 delayed the release of this guidance note, but has allowed us to revise upwards our forecast production numbers with a projected 71% increase over 2013 and has altered our drilling plans with the first half of 2014 drilling now focused on Quinde development. The strong early production from the Quinde-4 well and the intention to drill at least two more Quinde wells underpins this forecast for increased production and our expectation of adding material new volumes of booked reserves during 2014. In Cohembi, the expansion of the waterflood project has allowed increased oil production from the southern half of the field, and with additional water injection and drilling we expect to be able to increase the current oil production plateau. In addition to our development drilling program, we expect to be drilling exploration wells targeting the 'N' sand in both the Alea 1848A Block (where we hold a 50% working interest) and the Suroriente Block."

"During 2014 we expect to produce and average of approximately 2,600 barrels of oil per day net to the Corporation after royalty and to exit 2014 with average production of approximately 3,000 barrels of oil per day net to the Corporation after royalty. Revenue is estimated at $76 million, which would allow us to fund all of our drilling and seismic programs from internally generated cashflow and existing bank lines. The majority of our capital program will be focused on developing the Quinde and Cohembi oilfields where some facilities expansion and six appraisal or step-out wells are planned during 2014."

2014 Production Guidance, Drilling and Capital Spending Program

During 2014, the Corporation expects to produce an average of approximately 2,600 barrels of oil per day net to the Corporation after royalty and exit 2014 with average production for December of approximately 3,000 barrels of oil per day net to the Corporation after royalty. Eight gross wells are expected to be drilled in 2014, with at least two further appraisal and development wells drilled in the first half of the year to develop the Quinde-4 discovery. The plan is for up to four wells to be drilled in Cohembi to complete the development of the western flank of the field and to test the Cohembi North prospect, which is situated adjacent and on-trend with the main Cohembi field. An exploration well is also planned late in the year for the Alea 1848A Block, where the Corporation holds a 50% working interest. Capital expenditure for appraisal and development drilling is expected to total approximately $14 million net to the Corporation with an additional $11 million net to the Corporation for infrastructure development in the Suroriente Block. Exploration and stepout drilling plus seismic capital expenditure is expected to be approximately $6.5 million net to the Corporation.

Further details will be available in the near future on the Corporation's website at www.suroco.com.

Operational Update - Suroriente Block

Production, Suroriente Block

During the fourth quarter of 2013, average production from the Suroriente Block was 12,459 barrels of oil per day (1,810 barrels of oil per day net to the Corporation after royalty), which results in yearly average production for 2013 of 10,433 barrels of oil per day (1,517 barrels of oil per day net to the Corporation after royalty). Average production for the month of January, 2014 was 12,848 barrels of oil per day (1,866 barrels per day net to the Corporation after royalty), followed by record production for the month of February, 2014 of 14,738 barrels of oil per day (2,139 barrels of oil per day net to the Corporation after royalty). Production in March up to the 20th has been 15,702 barrels of oil per day (2,280 barrels of oil per day net after royalty). This record level of production is largely attributed to the newly drilled Quinde-4 well, and positive response to increased water injection in the Cohembi field. The Quinde-4 well has averaged 2,676 barrels of 19 degree API oil per day (390 barrels per day net to the Corporation after royalty) for the first 20 days of March, and has recently been increased to over 2,900 barrels of oil per day (422 barrels of oil per day net to the Corporation after royalty) as the electric submersible pump installed in the well has been increased to a higher operating frequency.

Quinde Field, Suroriente Block

Success at Quinde-4 supports additional drilling locations for appraisal and development of the Quinde-4 discovery (the Quinde West pool) and also de-risks a proposed well that targets the extension of this sand trend across a major fault (the Quinde East prospect). As a result, the drilling rig will remain in the Quinde field to drill at least two additional wells before resuming the development drilling program in Cohembi.

After placing the Quinde-4 well on production with an electric submersible pump in early February, the drilling rig returned to the Quinde-2 well to continue with completion and testing operations of the Villeta N and T intervals (see the Corporation's press release dated January 20, 2014). Attempts to establish inflow from either zone were unsuccessful, and the well is now suspended pending a decision on a future stimulation treatment or workover that would be conducted with a service rig after drilling operations at the Quinde pad are completed. The drilling rig then spudded the Quinde-6 well, which is the first of two appraisal wells planned for the Quinde West pool, on March 13, 2014. The bottomhole target for the Quinde-6 well is approximately 1,200 meters northwest of the Quinde-4 bottomhole location. The Corporation expects that the well will be completed and tested in the first half of April, and the specific location of the next well in the Suroriente program will be determined when results of Quinde-6 are available.

Pursuant to the Suroco Internal Report1, the Corporation evaluated the resource potential of the Quinde Villeta N sand in the Suroriente Block, effective March 1, 2014. Based on 3D seismic amplitude mapping, core analysis, and performance analysis of the Quinde-4 well, the discovered oil initially in place in the Quinde West pool is estimated to be 25.3 million barrels of oil, and the economic contingent P50 resources2 are estimated to be 7.1 million barrels of oil (1.06 million barrels of oil net to the Corporation before royalty). Additionally, Suroco estimates the undiscovered oil initially in place in the Quinde East pool to be 17.7 million barrels of oil and estimates the unrisked prospective P50 resources3 to be 5.7 million barrels of oil (0.85 million barrels of oil net to the Corporation before royalty). These estimates assume the wells drilled in 2014 will encounter continuously-distributed N sand as predicted by the Corporation's 3D seismic amplitude mapping, and that waterflooding can be successfully implemented in each pool. For the case of Quinde East, the estimate also assumes that the fluid encountered will be similar to the oil produced from Quinde-4 and that a water contact will not be encountered, although no well has been drilled into this prospective pool to date.

As stated in the Corporation's press release of March 4, 2014, the contingent resource potential for the Quinde area was only partially recognized in the 2013 year-end reserve evaluation conducted by GLJ Petroleum Consultants (the "GLJ Report"), because production test information from Quinde-4 was not available by December 31, 2013 and because of the very early stage of pool development. In the GLJ Report, the Quinde West pool was assigned 1.02 million barrels of Gross Reserves (0.16 million barrels of oil net to the Corporation before royalty) in the total Proved plus Probable reserves category as of December 31, 2013, prior to the availability of production test information and core analysis results. No reserves were assigned in the Proved category for the Quinde West pool, and no reserves were assigned in any category for the Quinde East pool. In summary, less than 11% of the contingent P50 resources estimated by the Corporation for the Quinde West N sand pool are currently booked as Proved plus Probable reserves, and no Proved reserves are booked. By definition, no reserves are currently assigned to the Quinde East prospective resource area. The comparison of the Suroco Internal Report results and the GLJ Report is shown in the table below:

Suroriente Block, GLJ Year-end 2013 Report Suroco Internal Report(1)
Putumayo Basin, Light and Medium Oil(6) Light and Medium Oil(6)
Colombia Discovered Discovered Undiscovered Unrisked P50
Petroleum Petroleum P50 Economic Petroleum Prospective
Initially-in- Total P+P Reserves(5) Initially-in- Contingent Resources(2) Initially-in- Resources
(3,4)
Pool/
Prospect
Producing Place Gross Lease Co. Gross Place Gross Lease Co. Gross Place Gross Lease Co. Gross
Name Wells MMB MMB MMB MMB MMB MMB MMB MMB MMB
Quinde West Quinde-4 16.9 1.02 0.16 25.3 7.1 1.06
Quinde East no wells no reserves assigned 17.7 5.7 0.85

Notes:

  1. The "Suroco Internal Report" refers to the evaluation conducted by David Monroe, Vice-President, Engineering of Suroco, and Richard Harris, Manager of Geology of Suroco, both qualified reserves evaluators, effective March 1, 2014. A key reason for the difference in the GLJ Report P+P reserve estimate and the Suroco Internal Report P50 contingent resource estimate for the Quinde West pool is the difference in effective date of the evaluations. As a result, the Suroco Internal Report incorporates Quinde-4 production data, pressure data, core analysis data, and technical analysis of the reservoir using the aforementioned items, which were not available to GLJ as of December 31, 2013.

  2. "Contingent Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. There is no certainty that it will be commercially viable to produce any portion of the resources. This resource estimate excludes the P+P reserve volumes for the Quinde West pool included in the GLJ Report.

  3. "Prospective Resources" are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be subclassified based on project maturity. There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

  4. The chance of discovery for the prospective resources in the Quinde East area is estimated to be 72%. Chance of development is considered to be 100% due to the fact that the pool can be developed from the current Quinde-2 multi-well pad, and can be brought on production to the existing facilities at that same location. The first well in this pool is expected to be drilled in the second quarter of 2014.

  5. The GLJ Report reported Suroriente Total Proven plus Probable reserves of 14.8 MMbbls oil for the Suroriente gross lease and 2.1 MMbbls for the Suroco Company Gross share . The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to effects of aggregation.

  6. Similarly to Cohembi, the Corporation and GLJ categorize the 19 API oil produced from the Quinde-4 well as product type "light and medium oil" on the basis of the appropriate Colombian royalty regime category.

See also "Definitions" below.

Cohembi Field, Suroriente Block

Drilling in the Cohembi field in 2014 will focus on development and appraisal of the western edge of the waterflood project area with the plan to drill two wells from the Cohembi-6 location. These wells are expected to encounter thick, high quality sand that is in good communication with the main Cohembi field. It is expected that the position of these wells will allow assessment of the presence of high quality reservoir sand further westward, in an area that is not covered by 3D seismic. It is also proposed that an additional location be drilled from the Cohembi-4 surface pad to evaluate a northwestern extension of the pool identified on 2D seismic. Results of these three wells will be used to assess the potential for further drilling along the western flank in 2015. A fourth well is planned in the Cohembi area to test the Cohembi North exploration prospect, which has been identified with 3D seismic directly on trend with the main Cohembi pool. The well will be drilled from a new pad located at the northernmost extent of the Cohembi environmental license area.

The recent conversion of Cohembi-6 as the second water injection in the field, and the conversion of the Quillacinga-1 well to a dual-purpose water source and water injection well, is expected to allow improved waterflood management in 2014. By April of 2014, the Corporation expects that facilities and source water availability will facilitate full voidage replacement of produced oil volumes, thereby preventing future average reservoir pressure and fluid rate declines.

To date, oil production from Cohembi is on target with previous reservoir simulation forecasts and extent of water breakthrough is lower than predicted, with only two wells in the field producing over 10% watercut after 13 months of water injection.

Operational Update - Alea 1848A Block

Pending approval of an environmental license modification that was submitted to the National Authority of Environmental Licences (ANLA) on October 18, 2013, the Corporation plans to drill the Trampa Mixta exploration well in the fourth quarter of 2014. Preparation of regulatory submissions related to a consulta previa process is underway to conduct a 3D seismic survey over an area in the south-western portion of the block, adjacent to the Nancy-Burdine-Maxine Block, that is prospective for Villeta N sand exploration.

Operational Update - PUT-2 Block

Please refer to the Corporation's press release dated March 14, 2014.

Definitions

For the foregoing discussions in this press release, the following terms have the following respective meanings:

  • "Gross Reserves" are the Corporation's working interest (operating or non-operating) share before deducting of royalties and without including any royalty interests of the Corporation.

  • "P+P" refers to Proved plus Probable reserves.

  • "P50" refers to a "best estimate" case, which is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.

  • "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.

  • "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.

General

The Corporation is a Calgary-based junior oil and gas company, which explores for, develops, produces and sells crude oil, natural gas liquids and natural gas in Colombia. The Corporation's common shares trade on the TSX Venture Exchange under the symbol SRN.

Forward-Looking Statements

Certain statements included in this press release constitute forward-looking statements under applicable securities legislation. These statements relate to future events or future performance of the Corporation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. Forward-looking statements or information in this press release include, but are not limited to, business strategy, priorities and plans, expected production, the evaluation of certain prospects in which the Corporation holds an interest, estimated number of drilling locations, expected capital program (including its allocation), production growth, reserves growth, the receipt of and the timing of receipt of environmental licenses, the ability of the Corporation to sell its crude volume and other statements, expectations, beliefs, goals, objectives assumptions and information about possible future events, conditions, results of operations or performance. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, estimates, forecasts, projections and other forward-looking statements will not occur, which may cause actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. The Corporation's priorities disclosed herein are objectives only and their achievement cannot be guaranteed. Indicative capital estimates for 2014, which are provided herein, are subject to change.

These assumptions, risks and uncertainties include, among other things, assumptions inherent in current guidance; projected capital investment levels; the state of the economy in general and capital markets in particular; fluctuations in oil prices; the results of exploration and development drilling, recompletions and related activities; changes in environmental and other regulations; risks associated with oil and gas operations and future exploration activities; the uncertainty of reserves estimates; the uncertainty of estimates and projections relating to production, costs and expenses; the need to obtain required approvals from regulatory authorities; product supply and demand; market competition; risks in conducting foreign operations (for example, civil, political and fiscal instability and corruption); and other factors, many of which are beyond the control of the Corporation. You can find an additional discussion of those assumptions, risks and uncertainties in Suroco's Canadian securities filings.

Readers should also note that even if the 2014 drilling program as proposed by Suroco is successful, there are many factors that could result in production levels being less than anticipated or targeted, including without limitation, greater than anticipated declines in existing production due to poor reservoir performance, mechanical failures or inability to access production facilities, among other factors. The Corporation's production forecast for 2014 as set out herein is derived using a number of assumptions, including risking the production rate and chance of success of the eight exploration and appraisal/development wells referenced herein; and that the 2014 development activity which contemplates the successful drilling of the two appraisal wells in the Quinde field and the four appraisal wells in the Cohembi oilfield referenced herein and installation of expanded infrastructure including production and water injection facilities in connection therewith, increases oil production (it should be noted that in the continuing appraisal of the Quinde and Cohembi oilfields, in order to manage the natural reservoir pressure decline, that one or more of the wells that are expected to be drilled in 2014 in this oilfield may ultimately be water injection wells).

The forward-looking statements contained in this press release are made as of the date of this press release. Except as required by law, the Corporation disclaims any intention and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, the Corporation undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed above. New factors emerge from time to time, and it is not possible for management of the Corporation to predict all of these factors and to assess in advance the impact of each such factor on the Corporation's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement or information. The forward-looking statements contained herein are expressly qualified by this cautionary statement. Moreover, neither the Corporation nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.

Statements relating to "reserves" are deemed to be forward-looking statements or information, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitable in the future. There are numerous uncertainties inherent in estimating quantities of proved reserves, including many factors beyond the control of the Corporation. The reserve data included herein represents estimates only. In general, estimates of economically recoverable oil and natural gas reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the properties, the assumed effects of regulation by governmental agencies and future operating costs, all of which may vary considerably from actual results. All such estimates are to some degree speculative and classifications of reserves are only attempts to define the degree of speculation involved.

Neither 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

  • Suroco Energy Inc.
    Alastair Hill
    President and Chief Executive Officer
    (403) 232-6784
    (403) 232-6747 (FAX)

    Suroco Energy Inc.
    Travis Doupe
    VP Finance and Chief Financial Officer
    (403) 232-6784
    (403) 232-6747 (FAX)
    www.suroco.com