Frontera Resources Corporation (London Stock Exchange, AIM Market – Symbol: FRR; OTCQX Market, U.S.A. – Symbol: FRTE), an independent oil and gas exploration and production company, today announced an update of operations at its Shallow Fields Production Unit, Block 12, Georgia.
Mirzaani Field: Since the beginning of the year, existing production operations have continued to yield production of approximately 80 barrels per day of 28 degree API oil from multiple oil and gas bearing reservoirs situated within the Shiraki formation at depths of 400 meters to 1,200 meters.
In the past two months, five existing wells within the field have been prepared for re-entry radial drilling operations, and a specialized drilling unit is currently scheduled to arrive on location in mid-May to commence work. The radial drilling rig is similar to a coiled tubing unit and is designed to drill multiple short-reach lateral well bores from existing wells into producing formations to enhance well productivity. The application of radial drilling to existing wells is expected to add new production of as much as 10-20 barrels per day per well from reservoirs situated at depths of approximately 1,200 meters. Total cost for the five-well program is estimated to be approximately $600,000. Frontera believes that radial drilling will increase production in a cost-effective manner and establish the basis for additional well re-entries and the drilling of new wells in undeveloped portions of the field.
The reservoir engineering firm of Netherland, Sewell & Associates, Frontera’s independent reserve engineers, has previously estimated the reserves associated with current production to be 282,000 barrels of proved producing reserves, 97,000 barrels of probable reserves and 64,000 barrels of possible reserves. Overall, Frontera estimates the remaining recoverable reserves of all categories in the Mirzaani Field to be approximately 1.5 million barrels, including the 0.443 million barrels covered by Netherland Sewell’s previous estimates, taking into account undeveloped reserves beyond existing well bores.
Mtsare Khevi Field: A multi-well workover program has commenced and is currently underway at the undeveloped Mtsare Khevi Field. The first three workovers have been completed, targeting oil and gas bearing reservoirs within the Akchagil formation situated at depths of approximately 400 meters. Results from two wells have thus far yielded production rates of approximately 20 barrels per day, per well, of 21 degree API oil. A third well has produced approximately 1.2 million cubic feet per day of gas with 5 barrels per day of associated oil. The combined cost of the three workovers was approximately $100,000, and payout of this investment is expected to be less than fifty days based on production from these wells.
The Mtsare Khevi Field is located in the eastern portion of Block 12 with multiple objective reservoirs situated at depths between 200 meters and 1,100 meters. It was discovered and partially delineated with multiple exploration-delineation wells from 1989 to 1994, but never developed and produced. After completing a field study in 2007 that indicated this field potentially contains approximately 5 million barrels of recoverable oil reserves, Frontera designed a plan to bring reservoirs from the Akchagil formation into production.
Plans are to re-enter five additional wells, followed by the commencement of a sixty-well development drilling program. Each well is estimated to cost approximately $100,000 to drill and complete, and new wells are expected to flow at similar rates to those obtained in the recent workovers. New wells are necessary as analysis has concluded that it is not mechanically possible nor cost efficient to reenter the majority of the previously drilled Soviet era wells, which were originally designed only to determine the presence of reservoir and structure.
Nazarlebi Field and Patara Shiraki Field: During 2007, field studies concluded that significant undeveloped reserve potential of as much as 5 million barrels of recoverable reserves exists in oil bearing reservoirs situated at depths from 10 meters to 1,200 meters within the Shiraki formation at the Nazarlebi and Patara Shiraki Fields. These fields are situated adjacent to one another in Block 12.
In March and April 2008, ten wells were drilled to depths of approximately 100 meters in order to specifically target and produce known oil-bearing reservoirs in the Shiraki formation lying updip from the highest known perforations in existing wells. These horizons are the main historical producing zones from the fields and can be accessed at depths as shallow as 10 meters. Previous development during the Soviet era overlooked oil at depths of less than approximately 300 meters. Field studies and the presence of existing natural oil seeps have revealed the presence of extensive undeveloped oil potential at these shallow depths of as much as 1 million barrels of recoverable oil reserves.
One well from this initial drilling program has flowed approximately 6 barrels per day of 23-28 degree API oil, with others flowing smaller volumes. As the cost to drill these shallow wells is on average $20,000, payout is expected to be achieved in approximately one to two months per well. These results have established the basis for an extensive, low-cost development program in these two fields in order to increase near term production and cash flow, and Frontera believes there are potentially hundreds of locations that can be drilled.
Financial Results: The Shallow Fields Production Unit has thus far in 2008 generated revenues from oil sales of approximately $2.6 million dollars.
Steve C. Nicandros, Chairman and Chief Executive Officer, commented:
“Recent workover and drilling operations within the Shallow Fields Production Unit represent the commencement of important near-term production and reserve additions amidst a very strong commodity price environment. The shallow reservoir objectives that are the basis for this business unit provide the opportunity for low-cost operations that yield extremely attractive economics. We, therefore, believe this business unit will continue to grow with low-cost and low-risk opportunities to complement our other business units in Block 12. Based on the results thus far and the per-barrel valuations being attributed to reserves for other public companies, we expect the unit to deliver significant value to Frontera and its shareholders for many years to come.”
Frontera’s Shallow Fields Production Unit, formerly referred to as the Mirzaani Field Area Production Unit and expanded in area as a result of ongoing technical analysis, is located in the central portion of Block 12 and represents what the company believes to be an extensive trend of low-cost, low-risk undeveloped oil and gas reserves. Containing four discovered yet undeveloped or underdeveloped fields, with associated exploration potential, these fields are situated in Pliocene age horizons at depths from 10 meters to 1,500 meters.
Frontera Resources Corporation
Vice President, Investor Relations and Corporate Communications
Brunswick Group LLP
Patrick Handley / Mark Antelme
London: +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. For more information, please see www.fronteraresources.com.
2. The proved, probable and possible reserve information associated with existing production at the Mirzaani Field contained in this announcement 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. Gerard Bono, Frontera’s Vice President and Chief Reservoir Engineer, is the qualified person who reviewed and approved the other reserve information contained in this announcement. These estimates are currently being reviewed by Netherland, Sewell & Associates and will be released as soon as practicable.
3. Proved reserves are those quantities of petroleum, which by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under current economic conditions, operating methods, and government regulations. If deterministic methods are used, the term reasonable certainty is intended to express a high degree of confidence that the quantities will be recovered. If probabilistic methods are used, there should be at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimate. Probable reserves are those unproved reserves which analysis of geological and engineering data suggest are more likely than not to be recoverable. In this context, when probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves. Possible reserves are those unproved reserves which analysis of geological and engineering data suggest are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable plus possible reserves.
4. This release contains certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the potential transactions, potential drilling schedule, well results 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; evaluation of logs and cores from wells drilled; 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.