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Citation Resources sells more oil from Atzam Project, set to drill new well

Last updated: 10:48 28 Oct 2013 AEDT, First published: 11:48 28 Oct 2013 AEDT

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Citation Resources (ASX: CTR) has progressed its Atzam Oil Project in Guatemala with the sale of more oil from the Atzam-4 production well and preparations for further drilling underway.

The new 1,500 barrel sales contract with Perenco Guatemala brings total sales since August to about 13,000 barrels of oil with the company receiving revenue netbacks of about $60 a barrel.

Planning for the Tortugas Salt Dome re-entry operations on 63-4 and 63-5 wells are also advancing with the operator and relevant service providers.

Atzam Oil Project


The company continues to produce oil from the Atzam-4 well at a highly restricted rate of 140 barrels of oil per day on a 12/64 inch choke. This will be increased over time to maintain reservoir integrity during this initial production phase.

It noted that while the producing 6 foot C17 carbonate section could produce more than 1,000 barrels of oil per day on an open choke, this would not be undertaken due to the potential to damage the reservoir.

Independent reservoir engineers Ralph Davis have recommended that the well be produced at an optimal production rate of 466bpd to maintain the resevoir’s structure and integrity.

Notably, there has been no water production to date with production occurring under natural reservoir pressure.

Operator LAR has also completed a new oil sales contract this week with the sale and delivery of a further 1,500 barrels of oil to Perenco Guatemala, on the same terms as the first oil sales.

The Atzam-5 development well is expected to spud in November, with the drilling pad and location construction now nearing completion.

Atzam-5 well will be drilled to target the same oil bearing carbonate structures that were encountered and are currently producing in the Atzam-4 well.

These include the primary target C17 and C18 carbonate sections that generated significant oil shows during drilling but which were unable to be flow tested in Atzam-4.

The 20 million barrel Best Estimate Contingent Resource at Atzam is under review following the success of Atzam-4. There is also material exploration upside at the field with an unexplored salt dome and anticline structures to be evaluated and tested in 2014.

Tortugas Salt Dome Project

LAR has also been advancing operational plans to undertake the 2 well re-entries on the Tortugas Salt Dome structure to the north in early 2014.

The well re-entries on two Tortugas wells, 63-4 and 63-5 are expected to produce between 200-300 bpd each of high quality 34 degrees API oil based on historical flow rates and production.

The two wells had flowed oil at initial rates of over 1,500bpd in the 1970s before they were subsequently suspended.

The Tortugas Salt Dome structure is a suspended oil field, with Monsanto Chemical having drilled 17 wells on the structure exploring for sulphur. One of the wells (T9B) experienced an oil blowout at approximately 1,500 feet, with the majority of the other wells having oil shows in multiple zones.

Citation has a 60% interest in the Atzam and Tortugas projects through its stake in LAR.

Analysis

Citation Resources continues to demonstrate the economics of the Atzam oil field with oil sales continuing to generate attractive revenue netbacks of about $60 per barrel.

Notably, production will increase once the Atzam oil storage facilities are completed, allowing production from Atzam-4 to be ramped up.

In addition, investors will be closely watching the upcoming Atzam-5 well, which could unlock further oil resources in the field given that it targets the C17 and C18 carbonate sections that were not flow tested at Atzam-4.

Further growth is expected from the re-entry of the Tortugas wells in 2014, which could each add between 200 to 300 barrels of high quality 34 degrees API oil according to historical flow rates and production.

Shares in the oil and gas companies are tied to production and Citation Resources is no exception.

Proactive Investors expects the upcoming production increase at Atzam-4 to provide fuel for a share price growth. Further catalysts for share price growth will come from the upcoming spud of the Atzam-5 well in November, producing oil from Atzam-5 and the success of the Tortugas re-entry wells.

 

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