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PetroTal Completes 3rd Horizontal Well at the Bretana Oil Field

Source: www.gulfoilandgas.com 4/21/2020, Location: South America

PetroTal Corp. is pleased to provide an update on its operations and production at the Bretana oil field in Block 95 in Peru (100% working interest), together with a wider Company financing update. All monetary amounts in this release are in United States dollars.

HIGHLIGHTS
- The BN 95-6H horizontal well (“6H”) came online on April 10, 2020 and is currently producing approximately 5,750 barrels of oil per day (“bopd”), in line with management’s expectations. During these ten days the well has achieved average production of approximately 4,500 bopd.
- The 6H well was completed on time and under the original $12.6 million budget.
- The 6H well reached a lateral length of 1,178 meters and has been completed using autonomous inflow control device (“AICD”) valves that restrict water inflow, to help maximize oil production.
- The Bretana oil field reached new record quarterly production of approximately 9,688 bopd and sales of 9,937 bopd during the first quarter of 2020.
- Completed commissioning of the enhanced central production facilities (“CPF-1”), bring overall oil production capacity to between 16,000 bopd and 18,000 bopd.
- In order to preserve liquidity, the Company will postpone drilling the water disposal well that was scheduled to spud after 6H and, based on the enhanced CPF-1 production capacity, also delay completion of the CPF-2 facilities, reducing the Company’s overall 2020 capital expenditure budget by 33% to $66 million.
- In light of global market uncertainty, and to further conserve cash, the Company will postpone drilling the BN 95-7H horizontal well until at least July 2020, instead of the previously announced mid-May spud date.
- As of March 31, 2020, the Company has $7.3 million of cash on hand, which is prior to receipt of approximately $7.5 million, from net proceeds of March oil sales.

Further Information
PetroTal has successfully completed the 6H well, the Company’s third horizontal well in the Bretana oil field, which is currently producing 5,750 bopd, in line with management’s expectations. The well reached the target Vivian formation at a vertical depth of 2,698 meters. The 1,178-meter horizontal section inside the main productive oil reservoir makes the 6H well the longest horizontal well drilled to date in Peru. Based on the success in the BN 95-4H (“4H”) and BN 95-5H (“5H”) wells, the 6H well completion utilizes additional AICD valves to maximize oil production. The 6H well was drilled to the west of 5H, slightly downdip of the crest of the structure, at a similar depth to the 4H. The well cost was approximately $12.5 million, under budget by approximately $0.15 million.

The Company has postponed drilling the second water disposal well, and now expects to spud the next oil well in July 2020, at the earliest, with the drill rig now on standby status at negotiated reduced rates. Decisions on additional 2020 capital activity, including drilling additional oil wells, will be made in due course. PetroTal will look to preserve capital by deferring certain projects, such as drilling the previously mentioned water disposal well and finalizing the CPF-2, as required. The Company has discretion over when to undertake all major capital projects.

Bretana Oilfield Operations and Operational Netbacks
The safety of the Company’s workforce in Peru is of the utmost importance, consequently, PetroTal has proactively implemented measures to prevent the occurrence of COVID-19 at the Bretana oil field, in conjunction with employees and the nearby community. These measures include: the restricted movement of people and goods; increased hygiene and cleanliness; social distancing and remote working; deferring some projects to reduce the workforce on site; working with the surrounding communities and developing contingency plans for potential disruptions.

As announced on March 10, 2020, the Company expected to achieve operational netbacks of $11 per barrel with its benchmark Brent priced at $30 per barrel. To date, the Company has achieved netbacks of $12 per barrel and continues to engage with all its contractors to further optimize its cost structure. PetroTal will now look to achieve netbacks of $13 per barrel, equivalent to 43% at $30 Brent.

Because of the strict safety and health measures and relatively high netbacks under the current Brent pricing environment, the Bretana oilfield is the only oil field still producing in the Maranon basin of Peru.

Financial Update
The Company continues to prudently manage its cash resources. In order to increase its financial flexibility, PetroTal is in discussions to establish a credit facility either based on the increased year-end 2019 reserve valuation, or from the recently completed production facilities investment. Having access to such a credit facility will strengthen PetroTal’s liquidity and allow it to continue to progress the majority of its development plans. The Company has additional flexibility to further reduce its cost structure as needed. Such measures include further deferrals of non-essential capital expenditures, seeking cost reductions from suppliers and extension of payment terms. Taking these steps will help to ensure the sustenance of resource operations in Peru, for all parties.

Dividend Suspension
Due to the financial impact of the global oil price disruption, the Company has decided to suspend declaration and payment of all dividends in order to manage cash for business operations. The Board of Directors will evaluate this decision on a semi-annual basis going forward and expects to reinstate its dividend policy when appropriate.

Manolo Zuniga, President and Chief Executive Officer, commented:
“PetroTal is pleased to announce another strong drilling result, with 6H being our third horizontal well drilled on time and under budget. The 6H well complements the performance of the 4H and 5H wells, and over the next few months, PetroTal will focus on optimizing production from our seven producing oil wells and preserving the Company’s capital position. PetroTal is fortunate to have loyal and understanding partners amongst its many contractors and related Peruvian government ministries and agencies and we are pleased to have already achieved an increase in netbacks to $12 a barrel.

In closing, I want to sincerely commend the entire PetroTal team for their ongoing determination to deal with the COVID-19 pandemic and I look forward to keeping all of our stakeholders apprised of developments over the coming months.”

Qualified Person’s Statement
Estuardo Alvarez-Calderon, the Company’s Vice President, Exploration and Development, who has over 35 years of relevant experience in the oil industry, has approved the technical information contained in this announcement. Mr. Alvarez-Calderon received a Bachelor of Science degree in Geology from the University of Texas at Austin and is registered on the Texas Board of Professional Geoscientists.

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