A Mechanical Problem Encountered with Well GY-678

Source: www.gulfoilandgas.com 10/19/2015, Location: South America

LGO Energy plc provides an update on its recently drilled well GY-678. In the interim statement released on 18 September 2015, the Company reported a mechanical problem had been encountered with well GY-678, the last of its seven planned wells in 2015 to the C-Sand formation. The Company attempted to recover the downhole equipment which was causing an obstruction below the 9 5/8-inch casing, however, without success. Consequently a cement plug has been set in the surface casing of the well and the rig has been released, pending a decision on possible re-entry and sidetracking, or re-drilling, to reach the extensive C-sand net oil pay zone previously drilled and logged in the well.

This mechanical loss has significant cost implications for the Company, as in addition to the cost of the well and the unsuccessful recovery attempts totaling approximately US$1.9 million, the Company is potentially liable for the cost of the lost downhole equipment of approximately US$1.5 million.

As previously reported, the net oil pay observed in GY-678 was exceptionally thick. The loss of anticipated production from this well has had a negative impact on the Group's cash flow forecasts to the extent that the liquidity ratios as specified in the Group's banking arrangements with BNP Paribas ("Bank") have dropped below those originally envisaged in the covenants associated with the loan.

The Company is currently reviewing various options in constructive discussions with the Bank, however, in the meantime the Bank have indicated that no further amounts can be drawn against the facility. Currently, the Company has approximately $12 million drawn down under these banking arrangements, although due to lower oil price forecasts the repayments over the life of the loan are now expected to be less than the funds drawn. Payments under the pre-paid swap arrangements with the Bank continue to be made as initially planned.

Separately, the Group is continuing with the planning work for a program of activity in the Goudron Sandstone (as announced on 24 September 2015) with the benefit of the funds recently raised for that purpose. The production gained from that work, once underway, is expected to improve cash flow.

Neil Ritson, LGO's Chief Executive, commented:

"Stuck pipe incidents are not common and despite taking extensive precautions during the drilling of the 15 new wells, this incident, which occurred at the very end of the program, is a setback for LGO. Whilst there is no long term impact to the Company's assets and indeed the GY-678 well has shown that there is more and better C-sand reservoir than previously known, the short-term financial impact has to be managed. The Company is still planning for additional Goudron Sandstone production and will report further on its plans in the coming months."


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Related Categories: Artificial Lift  Cementing, Stimulation  Directional Drilling  Drilling  Drilling Engineering & Equipment Systems  Enhanced Oil Recovery  General  Logging, Perforating, Testing  Offshore Drilling  Reservoir/Completion Consultants  Workover & Well Services  Workover Rigs/Services 

Related Articles: Artificial Lift  Cementing, Stimulation  Directional Drilling  Drilling  Drilling Engineering & Equipment Systems  Enhanced Oil Recovery  General  Logging, Perforating, Testing  Offshore Drilling  Reservoir/Completion Consultants  Workover & Well Services  Workover Rigs/Services 


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