Frontera Resources Regulatory News (FRR)

7 May 2008 07:01

Frontera Resources Corporation07 May 2008 FRONTERA RESOURCES CORPORATION Houston, Texas U.S.A. - May 7, 2008 OPERATIONS UPDATE, SHALLOW FIELDS PRODUCTION UNIT Frontera Resources Corporation (London Stock Exchange, AIM Market - Symbol: FRR;OTCQX Market, U.S.A. - Symbol: FRTE), an independent oil and gas exploration andproduction company, today announced an update of operations at its ShallowFields Production Unit, Block 12, Georgia. Mirzaani Field: Since the beginning of the year, existing production operationshave continued to yield production of approximately 80 barrels per day of 28degree API oil from multiple oil and gas bearing reservoirs situated within theShiraki formation at depths of 400 meters to 1,200 meters. In the past two months, five existing wells within the field have been preparedfor re-entry radial drilling operations, and a specialized drilling unit iscurrently scheduled to arrive on location in mid-May to commence work. Theradial drilling rig is similar to a coiled tubing unit and is designed to drillmultiple short-reach lateral well bores from existing wells into producingformations to enhance well productivity. The application of radial drilling toexisting wells is expected to add new production of as much as 10-20 barrels perday per well from reservoirs situated at depths of approximately 1,200 meters.Total cost for the five-well program is estimated to be approximately $600,000.Frontera believes that radial drilling will increase production in acost-effective manner and establish the basis for additional well re-entries andthe drilling of new wells in undeveloped portions of the field. The reservoir engineering firm of Netherland, Sewell & Associates, Frontera'sindependent reserve engineers, has previously estimated the reserves associatedwith current production to be 282,000 barrels of proved producing reserves,97,000 barrels of probable reserves and 64,000 barrels of possible reserves.Overall, Frontera estimates the remaining recoverable reserves of all categoriesin the Mirzaani Field to be approximately 1.5 million barrels, including the0.443 million barrels covered by Netherland Sewell's previous estimates, takinginto account undeveloped reserves beyond existing well bores. Mtsare Khevi Field: A multi-well workover program has commenced and is currentlyunderway at the undeveloped Mtsare Khevi Field. The first three workovers havebeen completed, targeting oil and gas bearing reservoirs within the Akchagilformation situated at depths of approximately 400 meters. Results from twowells have thus far yielded production rates of approximately 20 barrels perday, per well, of 21 degree API oil. A third well has produced approximately1.2 million cubic feet per day of gas with 5 barrels per day of associated oil.The combined cost of the three workovers was approximately $100,000, and payoutof this investment is expected to be less than fifty days based on productionfrom these wells. The Mtsare Khevi Field is located in the eastern portion of Block 12 withmultiple objective reservoirs situated at depths between 200 meters and 1,100meters. It was discovered and partially delineated with multipleexploration-delineation wells from 1989 to 1994, but never developed andproduced. After completing a field study in 2007 that indicated this fieldpotentially contains approximately 5 million barrels of recoverable oilreserves, Frontera designed a plan to bring reservoirs from the Akchagilformation into production. Plans are to re-enter five additional wells, followed by the commencement of asixty-well development drilling program. Each well is estimated to costapproximately $100,000 to drill and complete, and new wells are expected to flowat similar rates to those obtained in the recent workovers. New wells arenecessary as analysis has concluded that it is not mechanically possible norcost efficient to reenter the majority of the previously drilled Soviet erawells, which were originally designed only to determine the presence ofreservoir and structure. Nazarlebi Field and Patara Shiraki Field: During 2007, field studies concludedthat significant undeveloped reserve potential of as much as 5 million barrelsof recoverable reserves exists in oil bearing reservoirs situated at depths from10 meters to 1,200 meters within the Shiraki formation at the Nazarlebi andPatara Shiraki Fields. These fields are situated adjacent to one another inBlock 12. In March and April 2008, ten wells were drilled to depths of approximately 100meters in order to specifically target and produce known oil-bearing reservoirsin the Shiraki formation lying updip from the highest known perforations inexisting wells. These horizons are the main historical producing zones from thefields and can be accessed at depths as shallow as 10 meters. Previousdevelopment during the Soviet era overlooked oil at depths of less thanapproximately 300 meters. Field studies and the presence of existing naturaloil seeps have revealed the presence of extensive undeveloped oil potential atthese shallow depths of as much as 1 million barrels of recoverable oilreserves. One well from this initial drilling program has flowed approximately 6 barrelsper day of 23-28 degree API oil, with others flowing smaller volumes. As thecost to drill these shallow wells is on average $20,000, payout is expected tobe achieved in approximately one to two months per well. These results haveestablished the basis for an extensive, low-cost development program in thesetwo fields in order to increase near term production and cash flow, and Fronterabelieves there are potentially hundreds of locations that can be drilled. Financial Results: The Shallow Fields Production Unit has thus far in 2008generated revenues from oil sales of approximately $2.6 million dollars. Steve C. Nicandros, Chairman and Chief Executive Officer, commented: "Recent workover and drilling operations within the Shallow Fields ProductionUnit represent the commencement of important near-term production and reserveadditions amidst a very strong commodity price environment. The shallowreservoir objectives that are the basis for this business unit provide theopportunity for low-cost operations that yield extremely attractive economics.We, therefore, believe this business unit will continue to grow with low-costand low-risk opportunities to complement our other business units in Block 12.Based on the results thus far and the per-barrel valuations being attributed toreserves for other public companies, we expect the unit to deliver significantvalue to Frontera and its shareholders for many years to come." Frontera's Shallow Fields Production Unit, formerly referred to as the MirzaaniField Area Production Unit and expanded in area as a result of ongoing technicalanalysis, is located in the central portion of Block 12 and represents what thecompany believes to be an extensive trend of low-cost, low-risk undeveloped oiland gas reserves. Containing four discovered yet undeveloped or underdevelopedfields, with associated exploration potential, these fields are situated inPliocene age horizons at depths from 10 meters to 1,500 meters. Enquiries: Frontera Resources CorporationLiz WilliamsonVice President, Investor Relations and Corporate Communications(713) 585-3216 lwilliamson@fronteraresources.com Brunswick Group LLPPatrick Handley / Mark AntelmeLondon: +44 207 4045959 Notes to Editors: 1. Frontera Resources Corporation is an independent Houston, Texas, U.S.A.-based international oil and gas exploration and production company whosestrategy is to identify opportunities and operate in emerging markets around theworld. Frontera has operated in Georgia since 1997 where it holds a 100 percentworking interest in a production sharing agreement with the government ofGeorgia. This gives Frontera the exclusive right to explore for, develop andproduce oil and gas from a 5,060 square kilometer area in eastern Georgia knownas Block 12. For more information, please see www.fronteraresources.com. 2. The proved, probable and possible reserve information associated withexisting production at the Mirzaani Field contained in this announcement wasdetermined by the independent consulting firm of Netherland, Sewell & Associatesin accordance with the petroleum resource definitions adopted by the Society ofPetroleum Engineers (SPE), World Petroleum Council (WPC) and the AmericanAssociation of Petroleum Geologists (AAPG) in 2000. Gerard Bono, Frontera's VicePresident and Chief Reservoir Engineer, is the qualified person who reviewed andapproved the other reserve information contained in this announcement. Theseestimates are currently being reviewed by Netherland, Sewell & Associates andwill be released as soon as practicable. 3. Proved reserves are those quantities of petroleum, which by analysis ofgeological and engineering data, can be estimated with reasonable certainty tobe commercially recoverable, from a given date forward, from known reservoirsand under current economic conditions, operating methods, and governmentregulations. If deterministic methods are used, the term reasonable certainty isintended to express a high degree of confidence that the quantities will berecovered. If probabilistic methods are used, there should be at least a 90percent probability that the quantities actually recovered will equal or exceedthe estimate. Probable reserves are those unproved reserves which analysis ofgeological and engineering data suggest are more likely than not to berecoverable. In this context, when probabilistic methods are used, there shouldbe at least a 50 percent probability that the quantities actually recovered willequal or exceed the sum of estimated proved plus probable reserves. Possiblereserves are those unproved reserves which analysis of geological andengineering data suggest are less likely to be recoverable than probablereserves. In this context, when probabilistic methods are used, there should beat least a 10 percent probability that the quantities actually recovered willequal or exceed the sum of estimated proved plus probable plus possiblereserves. 4. This release contains certain forward-looking statements, including, withoutlimitation, expectations, beliefs, plans and objectives regarding the potentialtransactions, potential drilling schedule, well results and ventures discussedin this release, as well as reserves, future drilling, development andproduction. Among the important factors that could cause actual results todiffer materially from those indicated by such forward-looking statements are:future exploration and development results; availability and performance ofneeded equipment and personnel; seismic data; evaluation of logs and cores fromwells drilled; fluctuations in oil and gas prices; weather conditions; generaleconomic conditions; and the political situation in Georgia and neighboringcountries. There is no assurance that Frontera's expectations will be realized,and actual results may differ materially from those expressed in theforward-looking statements. This information is provided by RNS The company news service from the London Stock Exchange