President Energy (PPC), the upstream oil and gas company with a diverse portfolio of production and exploration assets focused primarily in Argentina, provides a further update on recent activities in Argentina.
The Government of Argentina has recently issued a time limited decree in an attempt to temporarily control prices at the fuel pumps for end consumers (the Decree). The Decree, which is effective for 90 days, on its wording, fixed, solely for oil producers, the base values for the peso/dollar exchange rate and the reference price of Brent used in the calculation of the oil price receivable. The peso/dollar exchange rate as per the Decree is fixed at 45.19/1 when payment for oil is made by offtakers and the reference price of Brent is fixed at $59 per barrel.
The Decree has met significant resistance from oil producers and key Provincial Authorities with the important Province of Neuquen amongst others issuing court applications to have the Decree declared illegal. President does not rule out a compromise being reached in due course but not necessarily in early course. Negotiations with key stakeholders continue with the Government.
Notwithstanding this President will continue to be a profitable Company in its Argentine operations irrespective of whether or not the temporary Decree continues in effect. This is thanks to the Group's focus on opex and cash management as well as its ability to adapt quickly to the prevailing circumstances, pivoting where appropriate. The Company is focussed on high-margin production rather than production for its own sake. Whilst the current volatility prevails, President has therefore deferred this year's drilling campaign in favour of greater near term emphasis on progressing and expanding its existing gas project. The prices for gas are not directly affected by the Decree. It is now anticipated well drilling will commence in Q1 2020 with an initial emphasis on new gas wells.
In relation to the gas project:
(i) First limited volume gas sales from the Estancia Vieja and Las Bases fields will commence by end September from four wells. This is estimated at 400boepd (2.5 MMScft/d).
(ii) The 16km new gas pipeline providing additional capacity is now projected to be completed by end December, with estimated initial gas sales from a total of eight wells by the end of January of 1,250 boepd (7.5 MMscft/d).
(iii) By end of March gas sales, then from a total of some 12 wells are estimated at 1,850 boepd (11 MMscft/d).
The projected gas volumes referred to above will be generated from existing wells without any need for drilling. Stages (i) and (ii) are from wells already tested to the level of the contributory volumes expected above. All such wells were drilled for, and produced, oil in deeper intervals with the gas left in place. Stage (iii) volumes will be from oil wells drilled with gas shown in the logs at higher intervals but which intervals were never tested nor produced as gas was not the focus of the work undertaken at the time by the previous operator. Stages (ii) and (iii) will require workovers and production testing which are already planned and this work will commence at the beginning of September, running through the end of year and into spring 2020. President is currently receiving US$3.9 MMbtu from its limited sales of associated gas from its Puesto Flores operations though this winter rate is currently expected to reduce to approximately US$2.4 MMbtu during the summer months.
Present oil production remains stable and is showing step by step increases as the extended workover continues. As stated previously the average volumes for H2 are expected to show an increase on Q2 2019 with at the present time three of our Rio Negro fields now producing oil to various extents, Puesto Flores, Estancia Vieja and Puesto Prada. Las Bases will come on line producing gas at or around end September. The frac operation conducted on the well PF0-16 has to date proved successful with a sustained doubling of original production in that well to approximately 120 bopd with minimal water. Monitoring continues and the results so far suggest tailored frac operations can be utilised in forthcoming sub-surface operations where appropriate.
A further announcement regarding H2 projected averages will be made at the time of the announcement of H1 results in late September.
Every challenge also brings opportunities. President's executive team has built a strong network of contacts across Latin America and is actively exploring the art of the possible where it can leverage the cash flow and strategic geographic position of its core business.
Peter Levine, Chairman, commented,
"From zero contribution in 2017, to some 5% of sales in 2018 and on average similar so far this year, gas sales will increase materially from Q1 2020 with a major contribution in both average production and revenue to our Group expected to continue into the future providing a much more balanced portfolio as well as moving away from dependency on a limited number of hydrocarbon producing wells.
"Although the management decisions we take reflect the macro circumstances currently affecting our oil business, in doing so we are in no way neglecting our core oil production. Our opportunities in our oil assets and from our reserves remain, like assets in a safe deposit, which can and should be unlocked at the optimum time commercially.
"In the meantime we adapt, mobilise and concentrate the resources at our disposal to expand our business in the most expedient and profitable way possible."
