Quarterly Activities Report

Transcription

1 1 Quarterly Activities Report For the March quarter and to the date of this report Monday 3 May 2010 MARCH QUARTER 2010 COMPANY OVERVIEW Po Valley Energy Limited (PVE) is an emerging gas and oil exploration and development Company with an expanding portfolio of hydrocarbon assets in northern Italy. ASX: PVE Capital Details 31 March 30 April Share Price $1.22 $0.375 Shares on Issue 110.1m 110.1m Unlisted Options 3.2m 3.2m Market Capitalisation $134.3m $41.3m SUMMARY POINTS Castello produces 190 million cubic feet - production steady but unexpected pressure decline Castello produced 5.4 million cubic meters (190 million cubic feet) in the March quarter 2010 Average quarterly production was 59,884 cubic metres per day (2.11 million cubic feet per day) Revenue of 1.36 million (A$2.0m) and positive operating cashflow for the quarter Bank of Scotland 90 day completion test satisfied and confirmed Wellhead pressure decline more rapid than expected - a downhole pressure test will be taken in late May to investigate well behaviour Continued trend pressure decline would lead to lower production rates and substantially reduced reserves A new reserves estimate will be released after analysis of the new pressure data Sillaro commences commissioning Plant reached mechanically completion on 2 April 2010 and pre-commissioning commenced 12 April 2010 Ministry (UNMIG) and Fire Brigade Site Inspections and Document Review complete and authorization commence commercial production received Well operations set to commence on Monday 3 May 2010 First commercial gas flows expected through May 2010 Deeper Miocene target to be tested with the Fantuzza-1 appraisal well planned for second half 2010 Bezzecca contingent resources substantially lower development planned on smaller scale Following extensive review Bezzecca s complex geology the field s contingent resources were downgraded from 44 bcf 2C to 3.1 bcf 2C The current leading development option is for production at a peak rate of 50-60,000 cubic metres per day ( million cubic feet per day) to be prcessed through the Castello plant First stage of this option is to link Bezzecca to Castello with 8km line and associated plant modifications at an estimated cost of 3.4 million (A$5.0m) Second stage is to drill a second well after Bezzecca-1 production start-up and well assessment, at currently estimated cost of 4.7 million (A$6.9m)

2 2 SUMMARY POINTS Sant Alberto/San Vincenzo and Cembalina seismic acquisition to commence in May 30 km Seismic acquisition program to commence in May to provide the basis for an updated geological model Depending on seismic results an updated development plan will be formulated and submitted for approval in the third quarter 15 km Seismic acquisition for the Cembalina prospect to follow on from the Sant Alberto program Geological definition work progresses on larger Correggio and Azzurra projects G&G work on Correggio is progressing to assess reservoir development potential in both the Quaternary and Pliocene levels Administrative tribunal hearing on the companies contested Azzura licence confirmed is set down for June 2010 Market Conditions 11.1% percent rises in diesel price and 9.8% rises in crude oil price drive gas contract reference formula higher Calendar 2010 gas prices based on forward prices rising to 30 cents per cubic meter* Corporate Revenue from gas sales was 1.36 million (A$2.0m) in March quarter Cash at bank at end of quarter was 5.1 million (A$7.5m) Vat receivable 4.0 million (A$5.9m) at the end of quarter Net Debt at 31 March million (A$15.4m) INTRODUCTION In March Po Valley has delivered its first full quarter of gas production from its Castello field and completed construction of Sillaro ready for production start in May This is a major milestone for the Company. Unfortunately these revenue and production milestones achieved during the March quarter have been overshadowed by two subsequent negative events; the down grading of the Bezzecca field contingent resource estimates and a yet not fully understood pressure decline in the Castello field, both of which were the subject of separate announcements and are discussed in detail in the next pages. Market reaction to these announcements has been severe with the Company s share price dropping to its lowest level since the December 2004 IPO (A$0.375/share on 30 April) and unusually large volumes of shares traded. SILLARO PRODUCTION PLANT DEVELOPMENT - WINTER / SPRING 2010 * Source Alba Soluzioni

3 3 CASTELLO (EAST OF MILAN) GAS FIELD Plant production operations commenced on 17 th December 2009 after receiving final approval from the Ministry of Economic Development on safety documentation. During the quarter Castello produced 5.38 million cubic metres (190 million cubic feet) of gas at an average daily production rate of 59,884 cubic metres per day. With Castello in production Po Valley banked its first production revenue; 1.3 million (A$2.0m) for the March quarter. The field is operating at low cost with a 90% operating margin. Gas off-take into the national pipeline grid and delivery to our customers Italtrading and Elettrogas is operating smoothly. The completion test for Castello required under our Bank of Scotland (BOS) loan facility was successfully completed with BOS confirming formal test sign-off during April The Castello production plant commissioned well and has performed smoothly during the early months of operation. Production rates had been set at 60-65,000 cubic metres per day during the first quarter buildup and evaluation of reservoir performance. This is slightly below the target level of 70,000 cubic metres per day permitted by pipeline capacity agreement. Pressure measured at the Vitalba-1 wellhead at Castello has however declined during initial production at a faster rate than expected. The original ENI Agnadello well in the field produced 13 bcf over a 5 year period with good pressure maintenance due to a strong aquifer support. We have not seen the effect of this aquifer pressure support in Castello production to date. The reason for this rate of pressure decline is not clear and during May field production will be halted for a 3-4 day period to conduct downhole pressure profile measurements. The purpose of the tests is to record static and dynamic pressure profiles in the well to assist in determining remaining gas volumes in place. Based on this data and the other data collected during production a revised reserve will be estimated and the optimal production rate determined. As previously advised in the 29 April ASX release, based on technical analysis conducted following the March quarter of production. If the pressure reduction continues at current rates this would lead to lower production rates than previously projected, and substantially reduced reserves. A full reserve report and explanation of any variances will be provided following analysis of the downhole pressure measurements and associated reservoir performance. 1P reserves at Castello were previousy estimated to be 4.6 bcf. The option of installation of gas compressors to extend field life and recoverable reserves is also being investigated. CASTELLO PRODUCTION MARCH QUARTER 2010

4 4 SILLARO (east of Bologna) Sillaro is Po Valley s second and largest production field. Targeted initial production is 110,000 cubic meters per day and 2P reserves estimated to be 14bcf. The field is now ready to commence production. On the technical front the plant is mechanically complete: the TEG (glycol) regeneration system, dehydration column, separator equipment, generator, control room and office had all been installed and completed during the December quarter Installation of electrical instrumentation was delayed due to unusually prolonged snow and sub-zero temperatures between December to mid-march and now complete. Plant installation reached mechanical completion on 2 April and pre-commissioning activities commenced on 12 April. Site visits and documentary review have been completed by UNMIG and the Bologna Fire Brigade and formal authority to proceed to start up plant was received on 30 April. Operations commenced on 3 May. Sillaro has two wells comprising three production strings. Initial production is planned to commence from three levels in the Pliocene formation, the C1/C2 level in Sillaro-1 and levels A and E in Sillaro-2. BEZZECCA (east of Milan, south of Castello) Bezzecca has proved to be a difficult and complex project for the Company to assess. Previously known as Pandino, the field was originally brought into production in the 1950s by ENI with 5.2 bcf of gas being produced from 8 wells. Initial geological work by the Company s consultants indicated a large reservoir over 5 gas bearing levels and a total original gas in place of 76 bcf proven+probable (consistent with ENI historical estimates) and remaining gas in place of 71.7 bcf proven+probable. In 2005, external consultants Ecopetrol completed a comprehensive field re-evaluation and estimated proven reserves of 15 bcf and probable reserves of 29 bcf. These results were reported to the ASX on 11 March In April 2009 Bezzecca-1 was drilled to target depth of 1,900 meters. Gas shows while drilling and logs indicated 5 possible levels to test, and the three most prospective levels identified in the logs were tested. Each of the three levels achieved positive flow test results. Analysis of logging results, flow tests, and associated correlations with other wells over several months indicated a more complex geological and reservoir structure than the pre-drill Ecopetrol analysis concluded. In the Bezzecca-1 logs gas bearing reservoirs were more difficult to identify, there appeared to be more variability in reservoir parameters and correlation of reservoirs with surrounding older ENI wells was poor; calling into question the geological model that formed the basis of the prior work. Because of these emerging complexities, four consultancies were invited to tender for the provision of a full reservoir study and resources evaluation. The successful contractor commenced this work in late August In August 2009 the Board undertook a review of the Company s reserve and reporting policy, leading to the adoption of a revised Hydrocarbon Reserves Policy, based on the principles recommended by the Society of Petroleum Engineers/World Petroleum Congress guidelines. The revised policy was released to the ASX on 14 September In line with this new policy, the Beccecca field was reclassified to as Contingent Resources Development Unclarified. It was also reported that development planning work was underway on Bezzecca which indicated that its contingent resources would be lower than pre-drilling target levels.

5 5 BEZZECCA (east of Milan, south of Castello) - continued The consultant undertaking the Bezzecca study suffered protracted delays and as of March 2009 had failed to provide a sound development plan and resource reassessment. Consequently the Company commissioned a parallel review from a second certified reservoir engineering consultancy, working with the internal team, which was initiated in March The new consultant was charged with completing the required work expeditiously. The completed study defined a higher confidence geological model that accounted for the new well data, defined the optimum development plan for the Bezzecca field and produced a new estimate of the contingent resources to be recovered by this development plan. Simulation and financial modeling were completed in the first two weeks of April and the new resources estimate and a leading development plan option were adopted by the board and announced on 16 April The key parameters for the planned Bezzecca development are: A staged 2 Well Development Existing Bezzecca-1 well plus Bezzecca-2 with a dual completion Production rates of 50,000-60,000 cubic meters per day ( million cubic feet per day) Contingent Resources 1C 0.7 bcf, 2C 3.1 bcf Use of the Castello surface plant facilities and the connection to the SNAM pipeline 8 km pipeline from Bezzecca to Castello to cost an estimated 2.1million (A$3.0m) Surface plant modifications to cost an estimated 1.3 million (A$1.9m) Drilling and dual completion of Bezzecca-2 at an estimated 4.7 million (A$6.9m) 1C contingent resources have been reduced from 15bcf to 0.7bcf and 2C contingent resources from 44 bcf to 3.1bcf. The large reduction in estimated recoverable gas resource results from a series of cumulative changes to geological, reservoir and development parameters including: Revised geological model; including greater reservoir discontinuity and fragmentation More complex porosity and permeability distribution Lower estimated recovery per well Reduced number of commercially viable development wells As a result of this ununticipated and large revision in the Bezzecca field size estimates, the Board has initiated a full, independent, review of all reserve and resources. A revised reserve and resource statement will be released when this review is complete; currently targeted to be by the end of July 2010.

6 6 DEVELOPMENT PROJECTS SANT ALBERTO (north of Bologna) Work is progressing on Sant Alberto following formal appointment of Po Valley as operator and Ministry approval of the revised work program. An initial reservoir study has been completed on the first planned development block (Block 5) and this work will be supplemented by a seismic acquisition program before a final assessment is made on field reservoir parameters. 30 km of new 2D Seismic will be acquired with vibrators during the second quarter covering all key reservoir blocks. Following interpretation and reassessment of the reservoir model, an updated development plan and associated reserve estimates will be developed for submission to the Ministry as part of the production concession application.this work is expected to be completed the third quarter FANTUZZA (east of Bologna and 200m below Sillaro) Plans are also advanced to drill an appraisal well (Fantuzza 1) into the Fantuzza Miocene structure which sits immediately below the Sillaro Pliocene gas field. Although gas was encountered in previous ENI wells drilled into the Miocene on the structure and was produced from one level, uncertainties about overall reservoir quality and commercial producibility can only be resolved by an appraisal well. As was reported in the 14 September Revised Hydrocarbon Reserves Policy announcement, Fantuzza reserves were reclassified as Contingent Resources Development Unclarified. The Fantuzza-1 appraisal well is awaiting final drilling program approval from the Ministry and is expected to be spudded in late The estimated cost of this well is 5.5 million. The Company is investigating farm out of the well. EXPLORATION AND NEW PROJECTS Gradizza and Cembalina exploration well locations have been defined and the Gradizza geological and drilling program has been submitted to the Ministry. Local approvals work is underway to drill these two promising targets in Environmental impact assessment document has been lodged for Grattasasso. G&G evaluation for Cadelbosco di Sopra is proceeding; the main goal is the location of two to three wells targeting the ex-correggio gas field by-passed reserves as well as two previously ENI drilled and tested oil fields Ravizza and Bagnolo in Piano. The EIA (environmental approval) decree is expected shortly, followed by the Intesa which is the last step ahead of and by the final granting of the exploration license. PO VALLEY ENERGY LICENSING IN ITALY APRIL 2010

7 7 ITALIAN ENI GAS RELEASE PRICE: MARCH UPDATE The ENI gas release price was 27.4 cents per cubic meter for the month of March Using market based forwards gasoil, fuel oil and crude, ENI gas release prices are expected to be cents per cubic meter in April and 29.5 cents for May 2010.

8 8 CORPORATE Po Valley concluded the March quarter with positive operating cash flow, cash at bank of 5.1 million (A$7.6m) and conservative debt levels of 10.3 million (A$15.4m). Under the BOS reservoir based facility, BOS sets a borrowing limit on a semi annual basis. The borrowing base limit is determined according to the facility agreement and has a maximum limit of 20 million (A$29.5m). The BOS borrowing limit calculations are based on a combination of factors including gas and oil prices, production projections based on proven reserves and operating costs. During the quarter BOS increased the borrowing base limit from 10.3 million (A$15.1m) to 13.8 million (A$20.3m). The BOS loan was paid down by 1.3 million (A$1.9m), from 10.3 to 9.0m (A$15.1m to 13.2m), on 1 April as part of normal treasury operations. Substantial Shareholders Shares ( m) % as at March 2010 Michael Masterman % Hunter Hall % Beronia Investments % Other % Share Price Chart - Twelve months to 31 March 2010 TOTAL SHARES CONTACTS REGISTERED OFFICE Level 28, 140 St George's Terrace Perth WA 6000 TEL FAX ADMINISTRATIVE OFFICE Via Boncompagni, 47 Rome Italy TEL FAX For further information please contact: Michael Masterman President & CEO Kevin Skinner Field Public Relations Australia / Or visit: