Chaco Resources CHP (Moderated thread)

FULL ARTICLE


21.12.2006

Chaco Announces Approval For The Second Phase Of Its Puerto Lopez Oeste Project In Colombia
Time was, back in the 1980s, that Colombia in South America established itself as a hydrocarbon province. But the oil price was low, markets for gas found in remote places were not then established, the country's fiscal regime was punishing and the security situation was a concern. Not a lot was done to develop many of the discoveries made way back then.

Times have changed, of course, oil prices though off the top are still high, the Colombian government, anxious to attract foreign investment, has instituted one of the most attractive tax and incentives regimes in the world and the security situation has vastly improved. Little wonder then that E&P companies are setting up there. One of the more high profile smaller companies to set out its stall is London AIM-listed Chaco Resources. It has obtained three concessions and is keen to move them all along as quickly as possible to get into production asap.

The latest announcement says the company will be entering the second phase of the exploration programme of its Puerto Lopez Oeste block. This lies in the south west of the prolific Llanos Basin, due north and on trend with the Valdivia oilfield. Chaco is earning a 54 per cent interest over the block. On October 3 2006, the company announced that it had secured a change in the eastern boundary of the block resulting in the inclusion of the majority of the large Metica Sur (South) lead.

Metica Sur is one of two interesting leads identified as a result of the reprocessing and interpretation of existing seismic in the Puerto Lopez Oeste Block which was completed in September. The other, perceived as the more interesting of the two, is the Metica, which has been renamed the Santaya lead. Both are plays in the prospective Mirador Formation.

To mature these leads into prospects required further seismic and therefore a 100 km new seismic programme has now been contracted. This will enable the company to identify the location of the planned well, which must be drilled before the end of the second permit year, which is on January 18 2008. The Metica-1 Well controls the geology of the Santaya lead, drilled in 1985 by Elf Aquitaine immediately to the northwest of the lead and which recovered crude oil in a drill stem test of the Mirador Formation. There are hopes that this could hold 30 million barrels of oil.

Puerto Lopez Oeste Block was the second of Chaco's Colombia projects. The first was the Alea oilfield in the Platanillo Block, in which Chaco is earning a 25 per cent interest by spending up to US$7.4 million. A new well could have been drilled there by now but for the shortage of rigs which is bedevilling small explorers globally. State oil firm Ecopetrel operates the field with Spanish oil giant Repsol holding 35 per cent. The Alea field was tested by previous operator Repsol back in 1988, when Alea-1 flowed at 533 barrels per day.

The Alea field is thought to hold P90 resources of 7.4 million barrels of crude in the Lower U sands with mean contingent and prospective resources of 20.6 million barrels. There is additional potential for a further 16.7 million barrels in the higher risk and untested Upper U sands. The field partners want to re-enter Alea-1 to re-test the Lower U sands before testing the untried Upper U sands. They also plan to drill a step-out well closer to the down dip limit of the field closure to define the possible extent of the accumulation. They hoped they would have started drilling by now but have been thwarted by the lack of a rig. So it is a watch-this-space-for-news-of-rig-availability situation.

The third concession is the Primavera block, in which Chaco is earning a 55 per cent stake by spending US$3.5 million. This lies in the north-eastern part of the Llanos Basin. This is an area that has been widely overlooked because of the security situation, which has now improved. The company is earning a 55 per cent stake by spending US$3.5 million. The 1,400 sq km block was unsuccessfully explored during the 1980s but there were oil shows, including one El Miedo-4, which recovered 97 barrels of 19 degree crude API in eight hours. This is heavy oil, but today's prices make it worthwhile pursuing heavy oil.

Chaco is also active in Paraquay. Unlike Colombia, this is real frontier exploration territory. Chaco has rights to vast tracts of virgin exploration acreage. It is, however, seeking partners to help share the costs and risks.