PetroTal Corp. has achieved first oil production from the Bretana Norte discovery well at the Bretana field in Block 95 in Peru. The Company also provides further operations updates for both Bretana and Block 107.

OPERATIONS HIGHLIGHTS

• First oil production achieved in five months, significantly ahead of schedule
• Discovery well flowed oil without stimulation
• Well produced 100 percent oil with minimal natural gas and no formation water to date
• Commissioning of facilities is progressing as expected and on schedule
• Water handling facilities on schedule for commissioning in October, 2018
• 7,000 barrels of oil produced to date through the ongoing long-term testing phase
• Signed oil sales contract allows for strong operating netbacks to PetroTal
• First oil sales and shipment expected in early July, 2018
• Osheki prospect in Block 107 remapped, independent resource audit being prepared

OPERATIONS UPDATE

The Company initially provided guidance that the Discovery Well, which had been tested but not produced, could commence production in 10 to 12 months from PetroTal taking over operational control of the field in late December 2017. The Company announced that on June 1, 2018 the well was placed on production through long-term testing, allowing for the start of the commissioning of the newly installed oil production facilities, five months earlier than anticipated. Field personnel have controlled the choke sizes of the well over the initial four weeks to carefully manage the commissioning of the facilities and to properly commission the facilities. The Discovery Well is testing oil from the Vivian formation, producing 100 percent oil with minimal natural gas and no formation water. As previously announced, the Company is restricting the well flow rates to avoid water production until the required water injection facilities are installed and commissioned in October of this year.

In addition to putting the Discovery Well on production, the Company is installing initial water handling facilities at Bretana. The project is on schedule to begin commissioning water treatment and reinjection facilities by late October 2018.  At that time, oil production rates from the Discovery Well are anticipated to increase to between 2,000 and 2,300 barrels per day (“Bbls/d”). The Company has also completed refurbishment and construction on the existing drilling pad and is now able to drill additional wells without causing material interruptions to production.

Manolo Zuniga, President and Chief Executive Officer of PetroTal, stated: 
“We are extremely pleased for having been able to achieve first production in just five months. The well and the newly installed equipment have met expectations of field personnel and there have been no issues with achieving oil flow at sufficient rates to commission equipment. As mentioned above, the well is being produced under a restricted choke to avoid producing water until the full facilities are installed to handle produced water in October of this year. In the meantime, the well is expected to produce without stimulation at rates of up to 1,000 Bbls/d, depending on the planned activities and objectives of field personnel, gather well and reservoir data, and meet the requirements of the initial oil sales contract which calls for PetroTal to sell up to 1,000 Bbls/d to the Iquitos refinery.”

OIL SALES CONTRACT

The Company is pleased to announce the execution of an initial oil sales contract with PetroPeru, Peru’s state oil company and owner of the Iquitos refinery, pursuant to which the Company is entitled to sell up to 1,000 Bbls/d to the refinery during the initial long-term testing phase. The Company successfully negotiated a discount equivalent to 14 percent from Brent; however the Company does not pay pipeline tariffs during the contract term as all oil is barged to the refinery. Additionally, the crude oil will be picked up at the Bretana field and transported to the refinery by PetroPeru at a cost equivalent to our internal cost projections.  As a result, the Company expects to achieve strong operating netbacks.  The Company expects to deliver most of the initial oil recovered to date to the refinery in early July. 

The higher per unit lifting costs are driven by the initial lower production rates during the initial commissioning and testing phase.  The Company expects future lifting costs to approximate $11.00 per barrel (“Bbl”) once production reaches 5,000 Bbls/d.

Mr. Zuniga continued “As demonstrated, the avoidance of paying the pipeline tariff effectively reduces our cost structure, thus the negotiated 14 percent discount is beneficial for both PetroTal and PetroPeru, the owner of the Iquitos refinery. We use a lifting cost of $21.95 per Bbl on this initial production as the early restriction on production rates affect the unit costs. Additionally, we have yet to finalize the commissioning process, so this initial estimate could vary.  In any event, you can see that this is a robust project.”

BLOCK 107 OSHEKI PROSPECT

The Company has completed the remapping of the Osheki prospect based on all available data. The revised maps suggest there is closure on the structure and up to three producing horizons may hold hydrocarbons.

In addition, the Company has retained Netherland, Sewell & Associates, Inc., qualified independent reserves evaluators, to prepare an initial hydrocarbons volumes assessment of the Osheki prospect. Once this assessment is complete, the Company expects to open the Block 107 data room for prospective partners to review.