Petrominerales Acquires 75% in Brazilian Entity Alvopetro S.A.

Source: 12/20/2012, Location: South America

Petrominerales is pleased to announce that we have entered into an agreement with Fortress Energy Inc. whereby Petrominerales has acquired a 75 percent interest in Alvopetro S.A. Extraçao de Petroleo e Gas Natural, a qualified Class C Brazilian operating entity that owns the licenses for three marginal fields and seven exploration contracts covering over 40,000 acres in the Recôncavo Basin, onshore Brazil (the "Brazilian assets").

The benefits of the acquisition of the Brazilian assets include:

- 10 blocks covering over 40,000 acres;
- Large, unconventional resource with, undiscovered petroleum initially-in-place ("UPIIP") of over 1 billion barrels;
- Over 100 potential development locations;
- 60 barrels of oil equivalent per day and associated proved plus probable reserves of over 400,000 barrels;
- Attractive fiscal regime;
- Close proximity to existing infrastructure; and
- Complementary to our existing high impact exploration portfolio.

Petrominerales has acquired a 75 percent working interest in the Brazilian assets for total consideration of US$36.9 million.

The Recôncavo Basin

The Recôncavo Basin is a 10,200 square kilometre on and offshore basin, located 85 kilometres north of the city of Salvador in northeast Brazil. Brazil's first oil production came from this basin in 1939. Since then, over 6,000 wells have been drilled in the basin, with cumulative production exceeding 1.5 billion barrels of light oil from 86 fields. Current production is over 60,000 barrels of oil equivalent per day, and the majority of the basin's production comes from the Sergi, Agua Grande, and Candeias reservoirs found at depths of 315m to 1975m in this area. The basin has a well-developed infrastructure network and an active service industry.

Tight Oil Potential

Our primary target is the Gomo member of the Candeias Formation, which is both the mature source rock and contains the prospective reservoir sands. The Gomo contains the main source rock for the Recôncavo Basin as well as the main reservoir units. On our blocks, the Gomo is oil saturated and found at depths between 2,500 and 3,200 metres. There have been 24 wells drilled by other operators that have identified thick, stacked, oil-bearing sands. The Gomo net pay on these blocks ranges between 10 and 200 metres, averaging 44 metres with porosities ranging from 9 to 15 percent and permeability between 0.1 and 4 millidarcies. Oil quality ranges between 34 and 38 degrees API.

Based on existing seismic data and well control, we initially estimate a portion of the lands to contain over 1 billion barrels of UPIIP in the Gomo. Our UPIIP estimate is based on a porosity cut-off of 10 percent, average net pay thickness of 48 metres and a water saturation of 25 percent. On this portion of the acreage and with success, we estimate a vertical well inventory of between 100 and 200 locations with the opportunity to optimize development using horizontal wells.

Our initial focus will be to demonstrate the commercial deliverability of the Gomo sands using multi-stage fracture stimulation technologies. In 2013, we expect to drill at least two wells and be in a position to execute a larger scale development program starting in 2014.

Producing Fields

The acquisition of the Brazilian assets includes three producing oil fields with current production of approximately 60 barrels of light oil per day and 427,106 barrels of proved plus probable reserves as of February 29, 2012 based on an independent reserve report. The reserves are currently only assigned to the Caruacu formation. We have identified up to three additional locations in the Gomo Member and two Caruacu development locations defined by seismic. We also see additional potential in the Sergi and Agua Grande zones.

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Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

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