Madalena announces 374% increase to discovered risked contingent resource estimate for its Vaca Muerta Shale acreage at Coiron Amargo in Argentina
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Canada NewsWire
CALGARY, Nov. 4, 2015
CALGARY, Nov. 4, 2015/CNW/ - Madalena Energy Inc. ("Madalena" or the "Company") (TSXV: MVN and OTC: MDLNF) is pleased to announce the results of its independent resource reports effective as at September 30, 2015.
The Company has been advancing its key resource plays in Argentinawith the goal of converting estimated Prospective Resources to Contingent Resources via a focused delineation program on certain core area _Vaca Muerta Shale_and _Lower Agrio Shale_assets. The Company has also been advancing activities on its strategic conventional oil and gas properties. As Madalena advances further from the delineation to development stages on its key resource plays, the Company anticipates promoting certain Resources to Reserves.
On an annual basis (generally late February) Madalena releases an independent assessment of its estimated year end oil and gas reserves. In addition to this annual assessment of reserves, the Company assesses its Contingent and Prospective Resources given the nature of its unconventional assets. Contingent Resources are estimates of recoverable oil and gas volumes which have been discovered but are not yet reserves and Prospective Resources would be the estimated recoverable volumes of oil and gas from reservoirs that are less certain than those classified as Contingent Resources. For more detailed definitions of these terms please see the reader advisory at the end of this news release.
Based on progress to date from positive drilling results and evaluation work, Madalena commissioned new resource reports which replace certain previous reports dated December 2012. For purposes of this resource update, three of the Company's twelve concessions were evaluated including the Coiron Amargo, Curamhuele and Valle Morado blocks.
Highlights
Company Best Estimate Risked Contingent Resources attributed to the _Vaca Muerta Shale_at Coiron Amargo are 91.5 MMBOE(152.4 MMBOE Unrisked)up 374%from the December 2012estimate of 19.3 MMBOE;
517 (181 net) Horizontal Multi Frac Vaca Muerta Shale locationsat Coiron Amargo associated with the Best Estimate Contingent Resources;
On the Valle Morado block the Company has conventional deep gas Best Estimate Contingent Resources of 75.3 Bcf (Unrisked 117.1 Bcf);
On the Curamhuele block, _Lower Agrio Shale_Best Estimate Risked Prospective Resources 99.4 MMBOE (Unrisked 365.4 MMBOE);
570 (517 net) Horizontal Multi Frac _Lower Agrio Shale_locationsat Curamhuele associated with the Best Estimate Prospective Resources;
In addition to the Lower Agrio Shale at Curamhuele, a _Vaca Muerta Shale_at Curamhuele Best Estimate Risked Prospective Resources 92.6 MMBOE(Unrisked 1,157.1 MMBOE);
Madalena's Total Risked Contingent Resourcesare 105.2 MMBOE (172.7 MMBOE Unrisked); and
Madalena's Total Risked Prospective Resourcesare 192.0 MMBOE (1,522.5 MMBOE Unrisked).
The resource reports were prepared by independent qualified reserves evaluators with an effective date of September 30, 2015and have been prepared in accordance with the National Instrument 51-101 – _Standards of Disclosure for Oil and Gas Activities _("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook"). Ryder Scott Company L.P. updated their December 2012resource report for Curamhuele Vaca Muerta resources ("Ryder Scott Report") while GLJ Petroleum Consultants ("GLJ") prepared new resource reports for Coiron Amargo, Valle Morado and Curamhuele Lower Agrio and Mulichinco ("GLJ Reports"). For the definitions of the various resource categories used herein see the "Reader Advisories" contained at the end of this press release.
Coiron Amargo Block (Neuquén Basin, Argentina)
Madalena has a 35% working interest ("WI") in the 99,860 (34,951 net) acre block directly offsetting the YPF/Chevron Loma Campana block which is currently producing approximately 40,000 BOE/d from the Vaca Muerta. The Coiron Amargo block is divided into two regions called Coiron Amargo Norte (northern portion of the block) and Coiron Amargo Sur (southern portion of the block). Coiron Amargo Norte is currently held by Madalena under a 25 year exploitation (development) concession until 2038 with no further firm commitments required to be undertaken by Madalena on this portion of the block.
On April 16, 2015, the Company received a three year evaluation phase contract from the Province of Neuquén for Coiron Amargo Sur. The Company's share of the work commitment is US$17.5 millionand must be incurred by November 8, 2017. Following this three year evaluation phase contract, Madalena is eligible to enter into an exploitation (development) concession and/or enter into additional evaluation phase periods to further explore and appraise the Coiron Amargo Sur block.
Since December 31, 2012(the date of the earlier resource report), the Company and its partners have drilled eight wells through the Vaca Muerta formation. Three vertical wells were specifically targeting the Vaca Muerta on which the Company gathered key geological and engineering data necessary to further evaluate the block. There are now a total of 24 well penetrations. Based on these results and significant offsetting activity, additional acreage covering most of the block has been promoted from Undiscovered Petroleum Initially In Place ("UPIIP") to Discovered Petroleum Initially In Place ("DPIIP") with the corresponding reclassification of the estimates of Prospective Resources to Contingent Resources.
The Contingent Resources on the Coiron Amargo block relate to the Vaca Muerta and have been sub-classified as Development Unclarified. The Company and its partners are planning to drill 2-3 Vaca Muerta Horizontal Multi-Frac ("Hz MF") wells over the next two years.
The results of the GLJ Report at Coiron Amargo are summarized in the following table.
| | Madalena Company Interest | | | | | Low Est | Best Est | High Est | | | | | | | Discovered Petroleum Initially In Place (DPIIP) (MMBbls) | 1,815.5 | 2,453.2 | 3,213.3 | | Unrisked Contingent Oil (MMBbls) | 91.3 | 142.3 | 230.2 | | Unrisked Contingent Gas (Bcf) | 31.1 | 60.5 | 117.4 | | Unrisked Contingent BOE 6:1 (MMBOE) | 96.5 | 152.4 | 249.8 | | | | | | | Risked Contingent Oil (MMBbls) | 54.8 | 85.4 | 138.1 | | Risked Contingent Gas (Bcf) | 18.6 | 36.3 | 70.5 | | Risked Contingent BOE 6:1 (MMBOE) | 57.9 | 91.5 | 149.9 |
| | | | 1) | There is no certainty that it will be commercially viable to produce any portion of the resources referred to in the table above. | | 2) | As at December 31, 2014, the Proved plus Probable Reserves associated with the Company's interest in Coiron Amargo block were estimated at 105 MBOE. The cumulative production from the Coiron Amargo block up to September 30, 2015 was 4 MBOE.The portion of the estimate of DPIIP that is not represented by Contingent Resources, Reserves or cumulative production is currently classified as Discovered Unrecoverable Petroleum Initially In Place | | 3) | Tables may not add due to rounding. | | 4) | The Contingent Resources have been sub-classified as Development Unclarified. | | 5) | Risks are based on a 60% Chance of Development. |
Contingencies
Contingencies associated with the Contingent Resource volumes associated specifically to this block include only commercial factors such as:
| | (1) | Productivity of reservoir in areas with no tests; | | | (2) | Detailed development plan including infrastructure improvements or expansions; | | | (3) | Access to sufficient services including drilling, frac equipment and supplies; | | | (4) | Granting of Exploitation Concession for Coiron Amargo Sur; | | | (5) | Economic conditions, including commodity price, capital and operating costs; and | | | (6) | Corporate commitment and sanctioning by Madalena and its partners. |
The project is not contingent on discovery or technical factors.
Risks and Significant Positive and Negative Factors
Based on the recent drilling (including offset lease line wells), and 3D seismic, the Chance of Discovery has been set at 100%. Due to the complexity, size and scope of economical resource development, the Chance of Development has been set at 60%. For Contingent Resources, the Chance of Commerciality is based solely on the Chance of Development and therefore, the Contingent Resources have been multiplied by 60% to arrive at a Risked Contingent Resource estimate.
Significant positive factors for these Contingent Resources include:
| | (1) | Good well control along with 3D seismic; | | | (2) | Significant offsetting economic well production and continuing development; | | | (3) | Proximity to infrastructure with current capacity to handle production growth; | | | (4) | Longer Hz MF wells are showing significant increases in productivity; | | | (5) | Corporate commitment to continue to drill and apply North American technology with Hz MF wells; | | | (6) | Long term block contract for Coiron Amargo Norte and potential to extend to a 35 year unconventional license for Coiron Amargo Sur; | | | (7) | Current premium pricing for oil and gas in Argentina as the country deals with a sizable energy imbalance; and | | | (8) | Flat topography and close proximity to the oil service industry hub for Argentina. |
Significant negative factors for these Contingent Resources include:
| | (1) | Impact of significant growth in offsetting production which may fill existing infrastructure; | | | (2) | Necessity for significant amount of capital required to develop the resource at an acceptable cost; | | | (3) | Potential for lower commodity prices; and | | | (4) | Political or country risk associated with a growing industry in Argentina. |
Although a detailed development plan has not been prepared, the GLJ Report has identified 517 (181 net) Hz MF locations assuming 160 acre spacing at 85% efficiency. To confirm the economics of the Contingent Resources, type well economics were run based on drilling Hz MF wells every 160 acres. The type well curves were based on Hz MF wells directly offsetting Coiron Amargo wells drilled by YPF at Loma Campana and Shell at Cruz de Lorena and Sierras Blancas. The assumptions for the low/best/high cases and results are summarized below:
| | Low | Best | High | | Initial 30 day Production/well Bbls/d | 525 | 800 | 1,275 | | Ultimate Recovery/well MBbls | 525 | 800 | 1,275 | | CAPEX $/well US MM | 12.0 | 12.0 | 12.0 | | NPV@10%/well US $MM | 6.6 | 15.1 | 29.1 | | Payout Years | 7.5 | 3.0 | 1.8 |
Valle Morado Block (Noreste Basin, Argentina)
The Company acquired its interest (96.6% WI) in the Valle Morado Block through the acquisition of certain properties in Argentinain June 2014. This block covers 49,099 (47,423 net) acres and Madalena is the operator. The contract for this Exploitation Concession expires in October 2034with an option to continue for subsequent ten year periods. The Valle Morado GTE.St.VMor-2001 well was first drilled in 1989. A previous operator completed a 3-D seismic program over the field and constructed a gas plant and pipeline infrastructure. Production began in 1999 from the GTE.St.VMor-2001 well, but was shut-in in 2001 due to downhole mechanical issues which were suspected to be caused by an earthquake. Despite several attempts, the previous operator was unable to address the mechanical issues in the initial discovery wellbore. Prior to the mechanical issues the well had been producing at 20-25 MMcf/d and had recovered a cumulative 4.8 Bcf plus 40 MBbl of condensate. The Company has no work obligations on this block.
Based on the previous production test, 3D seismic and the existing infrastructure, the GLJ Report has assigned certain DPIIP and Contingent Resources to the Valle Morado Block. The Contingent Resources have been sub-classified as Development Unclarified. The results of the GLJ Report at the Valle Morado Block are summarized in the following table:
| | Madalena Company Interest | | | | | Low Est | Best Est | High Est | | Discovered Petroleum Initially In Place (DPIIP) (Bcf) | 78.2 | 227.9 | 493.6 | | Unrisked Contingent Gas (Bcf) | 31.8 | 117.1 | 305.8 | | | | | | | Unrisked Contingent NGL (MMBbls) | 0.2 | 1.0 | 2.8 | | Unrisked Contingent BOE (MBOE) | 4.7 | 19.7 | 53.0 | | Risked Contingent Gas (Bcf) | 18.2 | 75.3 | 201.8 | | Risked Contingent NGL (MMBbls) | 0.2 | 0.7 | 1.9 | | Risked Contingent BOE (MMBOE) | 3.2 | 13.2 | 35.5 |
| | | | 1) | There is no certainty that it will be commercially viable to produce any portion of the resources referred to in the table above. | | 2) | The portion of the estimate of DPIIP that is not classified as Contingent Resources is currently classified as Discovered Unrecoverable Petroleum Initially In Place. As of September 30, 2015, cumulative production from Valle Morado was 4.8 Bcf and 40 Mbbls of condensate. | | 3) | Tables may not add due to rounding. | | 4) | The Contingent Resources have been sub-classified as Development Unclarified. | | 5) | Risks are based on a 67% Chance of Development. |
Contingencies
Contingencies associated with the Contingent Resource volumes associated specifically to this block include only commercial factors such as:
| | (1) | Detailed development plan including more detailed cost estimates and infrastructure repairs; | | | (2) | Economic conditions, including commodity price, capital and operating costs; and, | | | (3) | Corporate commitment and sanctioning by Madalena. |
The project is not contingent on discovery or technical factors. The economics were based on a conceptual development study which involved drilling three wells and upgrading the existing gas plant.
Risks and Significant Positive and Negative Factors
Based on the initial well and production test, the Chance of Discovery has been set at 100%. Due to the depth (6,000 m) and complexity of the reservoir units, the Chance of Development has been set at 67%. The Chance of Commerciality is based solely on Chance of Development and therefore, the Contingent Resources have been multiplied by 67% to arrive at a Risked Contingent Resource estimate.
Significant positive factors for this Contingent Resource estimate include:
| | (1) | Original well with production history; | | | (2) | Existing infrastructure and close proximity to main gas trunk line; | | | (3) | Long term block contract and opportunity to extend for subsequent ten year periods; | | | (4) | Incentive fixed price gas contracts at US $7.50/mmbtu for incremental supply; and | | | (5) | Multiple horizons/reservoirs with gas tests in three different zones. |
Significant negative factors for this resource include:
| | (1) | Depth and complexity of drilling operations; | | | (2) | Capital investment per well is approximately four times a Hz MF well; | | | (3) | Reservoir quality and continuity could be more variable; and | | | (4) | Surface topography is challenging. |
Curamhuele Block – Lower Agrio Shale Formation (Neuquén Basin, Argentina)
The Company has a 90% WI and is the operator in the 56,216 (50,595 net) acre exploration concession. By way of official Decree received Dec 24, 2014, Madalena had a ten month first exploration period extension to Sept 8, 2015. The commitment is to invest US$ 13,000,000to evaluate the Mulichinco and Lower Agrio formations at Curamhuele. Currently, the Company is drilling and evaluating the Yapai-X.1001 well. The Company has started preliminary discussions with the Province of Neuquén and its partner Gas y Petroleo del Neuquén S.A. (the provincial oil company) for a further extension. After fulfilling the commitment the Company can enter into a Second Exploration Period (four years) or, apply for an Evaluation Period for 5 years. Additional investment commitments would be required for both scenarios. In the case of the Second Exploration Period, there would be a relinquishment of up to 50% of the acreage. In the case of an Evaluation Period no acreage needs to be relinquished but the commitment would likely be higher.
The Lower Agrio has been tested on the block with a conventional well completion and directly offsetting with a multi frac vertical well completion. Based on the limited information and results to date, the Lower Agrio has been classified as Undiscovered with the estimated recoverable portion classified as Prospective Resources. Given the Company is actively testing the prospect through a planned unconventional completion, the Prospective Resources have been sub-classified as a Prospect which has a higher degree of certainty than a Lead or a Play. The GLJ Report is summarized as follows:
| | Madalena Company Interest | | | | | Low Est | Best Est | High Est | | | | | | | Undiscovered Petroleum Initially In Place (UPIIP) (MMBbls) | 2,376.6 | 4,606.3 | 6,796.4 | | Unrisked Prospective Oil (MMBbls) | 144.9 | 328.2 | 568.5 | | Unrisked Prospective Gas (Bcf) | 73.9 | 223.2 | 483.2 | | Unrisked Prospective BOE 6:1 (MMBOE) | 157.2 | 365.4 | 649.1 | | | | | | | Risked Prospective Oil (MMBbls) | 39.4 | 89.3 | 154.6 | | Risked Prospective Gas (Bcf) | 20.1 | 60.7 | 131.4 | | Risked Prospective BOE 6:1 (MMBOE) | 42.8 | 99.4 | 176.5 |
| | | | 1) | 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 referred to in the table above. | | 2) | The portion of the estimate of UPIIP that is not classified as Prospective Resources is currently classified as Undiscovered Unrecoverable Petroleum Initially In Place. | | 3) | Tables may not add due to rounding. | | 4) | The Prospective Resources have been sub-classified as Prospect. | | 5) | Risks are based on Chance of Discovery 68%, Chance of Development 40% for an aggregate risk of 27.2%. |
Risks and Significant Positive and Negative Factors
As discussed, the Lower Agrio has been identified as Prospective Resources. The Chance of Discovery for this unconventional shale play has been defined as the product of the probability of source, maturity, trap or seal, and reservoir properties. The estimated numerical value for the Chance of Discovery is 68%. Based on the interpreted superior reservoir characteristics for the bottom section of the Lower Agrio, the Chance of Development is estimated at 40%. The Chance of Commerciality is the product of the Chance of Discovery and Chance of Development and therefore, the Prospective Resources have been multiplied by 27.2% to arrive at a Risked Prospective Resources estimate.
Significant positive factors for these Prospective Resources estimate include:
| | (1) | Existing wellbore penetrations with oil shows and tests indicating a relatively thick shale with total organic carbon > 3% and porosity of 4-10%; | | | (2) | 3D seismic coverage across half of the block; | | | (3) | Significantly over pressured reservoir based on mud weights and bottom hole pressure tests; and, | | | (4) | Stacked development scenarios with two Hz MF wells per spacing unit improve capital efficiencies. |
Significant negative factors for these Prospective Resources estimate include:
| | (1) | Depth (3,600-3,800 m) and complexity of drilling operations; | | | (2) | Surface topography being in the foothills of the Andes and more remote to the oil and gas service industry; and | | | (3) | No immediately proximate analogs. |
Curamhuele Block – Vaca Muerta Shale Formation (Neuquén Basin, Argentina)
In addition to the Lower Agrio as discussed above, Curamhuele is prospective for the Vaca Muerta. Although there are no Vaca Muerta penetrations on the block there are offsetting wells with indicated hydrocarbons. Based on these logs and geological mapping using 3D seismic along with the basin wide knowledge on the Vaca Muerta reservoir, Ryder Scott Report estimated UPIIP and correspondingly estimated Prospective Resources being the recoverable portion of the UPIIP. Due to the limited information and the early stage exploration efforts the Prospective Resources have been further sub-classified as a Lead.
A summary of the Prospective Resources from the Ryder Scott Report is presented in the following table: