Frontera Resources Corporation (London Stock Exchange, AIM Market – Symbol: FRR), an independent oil and gas exploration and production company, today announces interim results for the six months ended 30 June 2007 and provides a review and update of its operations in Block 12, Georgia.
Highlights For Six Months Ended June 30th
- $67 million raised through a private placement of convertible unsecured notes due May 2012.
- Revenues for the first six months of 2007 up $1.1 million to $1.9 million for the same period last year.
- Net loss of $7.5 million, or $0.11 per share on a fully-diluted basis.
- Strong financial position for forward development program.
Taribani Field Unit
- Completed well designs and procurement for three well program in 2007: Dino #2, Taribani #45 and Taribani South #1.
- Completed design for extensive 20 well, 36-month Zone 9 development program at the Taribani Field Unit.
- Completed drilling contract and mobilized dedicated rig to Taribani Field.
- Commenced construction of T-#45 drillsite location.
Basin Edge Play Unit
- Completed well design and procurement for Lloyd #1 well.
- Completed drilling contract for second dedicated rig.
- Commenced construction of new road and new drill site location for Lloyd #1 well.
- Continued advanced analysis of 3D seismic survey to identify potential reservoir objectives on the basis of seismic attributes.
- Completed interpretation and mapping of “B” Prospect data.
Mirzaani Field Area Production Unit
- Revenues from crude oil sales were $1.9 million, an increase of $1.1 million from $0.8 million during the same period last year.
- Mirzaani Field study concluded with recommendations for conducting new drilling in undeveloped areas of the field.
- Existing well candidates analyzed to high-grade for radial drilling operations during Q4 2007.
- Multiple well locations identified for new drilling in Q4 of 2007.
Mirzaani Field Area Exploration Unit
- Conducted integrated analysis of 105 kilometer 2D seismic data acquired in 2005 at the Mirzaani Deep Prospect with nearby 170 kilometer 2D seismic data acquired in 2006 at the Basin Edge “B” Prospect to reveal important new understanding of common hydrocarbon sourcing hypotheses for both prospects.
- Farmout effort commenced in order to accelerate testing of the Mirzaani Deep Prospect in parallel with ongoing operations in other business units.
Steve C. Nicandros, President and Chief Executive Officer, commented:
“We continue to make steady progress towards our stated objectives throughout all of our operations. In particular, important advancements have been made in pursuit of our drilling programs at the Taribani Field Unit, the Basin Edge Play Unit and the Mirzaani Field Area Production Unit. We remain very encouraged by this progress and we look forward to seeing the results of these drilling programs in the months ahead.
“Underlying our operational advancements since the beginning of 2007, important progress was also achieved in terms of ensuring our ability to pursue planned work programs with a strong financial position. The completion of an important private placement earlier this year has provided us with the ability to continue to design and execute our programs. To this end, our half-year financial results reflect the ongoing investment profile necessary to evaluate and evolve our portfolio of undeveloped fields and exploration opportunities with the goal of generating significant production and revenue in the near future.”
Frontera Resources Corporation
Vice President, Investor Relations and Corporate Communications
Brunswick Group LLP
Patrick Handley / Mark Antelme
+44 207 4045959
Notes to editors:
1. Frontera Resources Corporation is an independent Houston, Texas, U.S.A.-based international oil and gas exploration and production company whose strategy is to identify opportunities and operate in emerging markets around the world. Frontera has operated in Georgia since 1997 where it holds a 100 percent working interest in a production sharing agreement with the government of Georgia. This gives Frontera the exclusive right to explore for, develop and produce oil and gas from a 5,060 square kilometer area in eastern Georgia known as Block 12.
2. The reserve information herein was determined by the independent consulting firm of Netherland, Sewell & Associates in accordance with the petroleum resource definitions adopted by the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC) and the American Association of Petroleum Geologists (AAPG) in 2000.
3. This release contains certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the potential transactions, potential drilling schedule and ventures discussed in this release, as well as reserves, future drilling, development and production. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are future exploration and development results, availability and performance of needed equipment and personnel, seismic data, fluctuations in oil and gas prices, weather conditions, general economic conditions and the political situation in Georgia and neighboring countries. There is no assurance that Frontera’s expectations will be realized, and actual results may differ materially from those expressed in the forward-looking statements.
Taribani Field Unit
The Taribani Field is a large, undeveloped oil field covering an area of approximately 80 square kilometers with productive horizons situated in Miocene and Pliocene age reservoirs. These reservoirs are situated at depths between 2,200 meters and 3,500 meters. The independent consulting firm of Netherland, Sewell & Associates has assigned 118 million barrels of P3 reserves from Zones 9, 14, 15 and 19 within the field. Additionally, Netherland, Sewell & Associates has assigned as much as 36 million barrels of unrisked resource potential associated with five deeper horizons in the field.
Frontera committed to developing Zone 9 as a consequence of drilling operations at the Dino #2 well in 2006, when it began work to determine whether sustainable commercial production could be established from four undeveloped oil bearing horizons in the Taribani Field. As expected, during the drilling of the Dino #2 well, the Pliocene age oil-bearing reservoir interval, Zone 9, was encountered from 2,300 meters to 2,311 meters. In addition, a previously unmapped oil bearing reservoir interval was encountered above Zone 9 from 2,275 meters to 2,285 meters. Historically, twelve wells had evidence of oil when perforated in Zone 9, with the best well, #23, exceeding 700 BOPD during initial production.
During the first half of 2007, Frontera completed design of a thirty-six month, 20-well development program for Zone 9, which represents approximately 17 percent of the identified reserves within the Taribani Field. In addition, well designs, procurement and mobilization of a dedicated rig was completed for a three well program in 2007, beginning with the re-entry and re-completion of the Dino #2 well and followed by two new development wells this year. Eight new wells are contemplated for 2008.
Of the two new wells that are scheduled for drilling in 2007, one (Taribani South #1) will be drilled at a location approximately 900 feet up-dip on the Taribani Field structure from wells that encountered the lowest known oil in the field at this horizon. This location has been identified as a result of processing, interpreting and integrating approximately 40 kilometers of new 2D seismic data, acquired in late 2005, into the existing 3D mapping of the field. The new data revealed the Taribani Field to be a larger structure than previously thought and confirmed important new drilling locations high on the structure.
Frontera has designed solutions to address possible formation sediment flow issues associated with oil production from Zone 9, including the drilling of conventional vertical wells with the addition of frac-pac completions. Sediment control will come from the application of packing technology, where screens are installed and gravel is pumped into the well as a slurry to trap the reservoir formation sediment before it can enter the well and cause obstruction.
During the month of September, initial Zone 9 re-completion operations at the Dino #2 well were successfully completed and the next Zone 9 development well will commence shortly at the Taribani #45 location. This well will take approximately fifty days to reach total depth and complete in Zone 9. When drilling is complete, specialized equipment will be mobilized to apply frac-pac completions to this well and the Dino #2 well. A third well, the Taribani South #1, is also scheduled to commence in the fourth quarter of this year.
Basin Edge Play Unit
Frontera’s Basin Edge Play Unit is located along the northern border of Block 12 and represents one of the newest and potentially most prolific exploration plays in the oil rich geological province of the Upper Kura Basin.
Frontera’s objectives within the Basin Edge Play Unit remain focused on commercially accessing the unrisked resource potential estimated by the independent consulting firm of Netherland, Sewell and Associates to be in excess of one billion barrels of oil within two major prospects (“B” and “C”). Of this total, prior to the acquisition of new seismic data, the “C” Prospect was estimated to contain as much as 500 million barrels of recoverable oil. Frontera’s primary reservoir targets are located in the Cretaceous age carbonate rocks, with secondary reservoir targets in the Miocene and Pliocene age clastic rocks as well as Jurassic carbonates.
“C” Prospect: During the first half of 2007, activities in anticipation of the commencement of drilling operations at the Basin Edge Play Unit “C” Prospect progressed well. Final well design, procurement and contracting of a dedicated rig were completed. In addition, work commenced on the construction of the Lloyd #1 drillsite as well as 6.5 kilometers of new road leading to it. Since the beginning of July, the Lapidoth Ideco Super 7-11/II drilling rig – comprising some 90+ truck loads of equipment – was mobilized to the new location and drilling operations commenced on September 17th.
Designed to evaluate multiple horizons, this well will target completion in primary reservoir objectives at a total depth of approximately 2,700 meters. The Lloyd #1 well is expected to take approximately 50 days to reach total depth.
During the first half of 2007, ongoing analysis of 3D seismic data related to the “C” Prospect continued to confirm that the prospect has a structural height of approximately 1,000 meters and, most significantly, the primary target Cretaceous reservoirs have been identified on the basis of seismic attributes at depths that could occur from 2,000 meters to 3,700 meters. Further analysis utilizing amplitude with offset technology (AVO) in the processing of the 3D seismic data also continues to suggest the possible presence of hydrocarbons within structural closure.
“B” Prospect: During the first half of 2007, Frontera completed interpretation and prospect mapping of approximately 170 kilometers of 2D seismic data over a second large prospect within the Basin Edge Play Unit, known as the “B” Prospect. Further interpretation of this data is ongoing to include the integration of the results of new geologic field work in order to further refine current mapping of the prospect.
Mirzaani Field Area Production Unit
The Mirzaani Field Area Production Unit is comprised of three underdeveloped and undeveloped, shallow Pliocene-age fields with targeted normal pressure reservoirs situated between 400 meters and 1,500 meters deep. One of these fields, the Mirzaani Field, currently produces at nominal production levels sufficient to yield annual revenues of approximately $2 million per year. Frontera is currently pursuing work programs designed to develop untapped portions of this field to increase production and book additional reserves.
During the first half of 2007, production operations continued with revenues of $1.9 million, an increase of $1.1 million from $0.8 million during the same period last year due to timing of crude oil sales. In addition, two new wells were designed to be drilled in 2007 and procurement was completed for these operations. Each well will target existing, undeveloped field reservoir objectives situated at approximately 1,200 meters in depth. Five existing wells were also selected for re-entry/radial drilling operations.
Mirzaani Field Area Exploration Unit
The Mirzaani Field Area Exploration Unit is an area of new prospectivity situated beneath the existing shallow, Pliocene-age fields. Last year, the company completed interpretation of 105 kilometers of 2D seismic data acquired in 2005 to further delineate previously mapped prospects beneath the Mirzaani Field, including a primary focus on the Mirzaani Deep Prospect. This prospect is believed to contain Miocene-age, Sarmatian reservoirs similar to those found in the nearby Taribani Field, situated at depths of approximately 2,500 meters.
During the first half of 2007, in order to accelerate testing of the Mirzaani Deep Prospect in parallel with ongoing operations in other business units, an effort commenced to seek a farmout partner with which to undertake new drilling operations at this important prospect within the next twelve months.
Block 12 Area-Wide Field/Prospect Inventory Development Unit
During the first half of 2007 and through the third quarter, technical work progressed within Frontera’s Block 12 Area-Wide Field/Prospect Inventory Development Unit. This unit is focused on evolving and prioritizing the company’s extensive inventory of prospects within Block 12, including 19 identified prospects and leads and five undeveloped fields.
FIRST HALF 2007 FINANCIAL REVIEW
For the six months ending 30 June 2007, Frontera incurred a net loss of $7.5 million, or $0.11 per share on a fully-diluted basis. This loss compares to a net loss of $5.0 million, or $0.09 per share for the first six months of 2006. The increase in the net loss reported is due primarily to higher operating expenses and lower other income in the first half of 2007. Below is a comparison of the six-month periods ending 30 June for 2006 and 2007.
Revenues from crude oil sales during the first six months of 2007 were $1.9 million, an increase of $1.1 million from $0.8 million during the same period last year. The increase in revenues was related to timing of crude oil sales, as crude oil produced in the last half of 2006 was not sold until January of 2007.
Operating expenses were $9.3 million during the first six months of 2007, an increase of $2.7 million from $6.6 million in 2006. In the first half of 2007, we incurred a $1.2 million non-cash charge related to the expensing of stock options in accordance with provisions of SFAS 123R as compared to $1.6 million last year. Field operating and project costs increased by $1.8 million this year due to additional costs associated with the ramp-up of our work programs in Georgia. General and administrative expenses also increased by $0.9 million in 2007 as a result of personnel added in the second half of 2006 to support the drilling program in Georgia.
Other expenses of $0.1 million were incurred during the first six months of 2007 as compared to other income of $0.8 million in 2006. The decrease in other income was largely attributable to additional interest expense of $0.8 million as a result of completing a $67.0 million convertible note offering in May of this year.
Looking forward, the company has a strong cash position with over $75 million in cash and marketable securities as of 30 June. These cash balances will be sufficient to carry out our work programs in Block 12 through the end of this year and into 2008.