Petrolifera Petroleum spuds La Pinta well on Sierra Nevada Concession in Colombia; provides Operational Update

    CALGARY, Jan. 26 /CNW/ - Petrolifera Petroleum Limited (PDP - TSX)
announced today that on Friday, January 23, 2009 the company spudded its La
Pinta 1 well on its 100 percent-owned Sierra Nevada Concession in the Lower
Magdalena Basin onshore Colombia. The well is now drilling ahead and is
expected to require approximately 45 days to reach the projected total depth
of approximately 13,000 feet.
    The La Pinta 1 well is located approximately 600 meters from the
Guamito-1 well, which was drilled by a major oil company in 1975; this well
tested very light gravity 46.7 degree crude oil but was not extensively
production tested at the time due to lack of facilities and infrastructure and
was later suspended. A subsequent testing effort in 1983 by another operator
was unsuccessful due to casing problems and Guamito-1 was abandoned.
    The primary objective of the La Pinta-1 well is to reevaluate the
originally tested intervals of the nearby Guamito-1 well and to evaluate
additional zones not tested in the original wellbore. The well is situated on
the Sierra Nevada License, which comprises approximately 200,000 acres or
about nine townships. It also offsets and is contiguous with the approximate
800,000 acre (approximately 35 townships) Magdalena License, which is
anticipated to be awarded to Petrolifera in February, 2009.
    If warranted by drilling results and log analysis, testing is anticipated
to require a further 45 days once the well has reached total depth.

    Operational Update


    Despite difficult economic and commodity pricing conditions which have
emerged in recent months, Petrolifera has maintained a steady level of
activity consistent with its production, revenue and cash flow base. On a
preliminary unaudited basis, crude oil and natural gas liquids sales during
the fourth quarter of 2008 are estimated to have averaged 6,877 bbl/d
primarily from the Puesto Morales Norte, with additional modest contributions
from producing crude oil wells at Rinconada and Puesto Morales Este Fields.
The company's unaudited December 2008 sales of crude oil and natural gas
liquids averaged 7,231 bbl/d, a level positively impacted by incremental
inventory sales, which are anticipated to develop and occur from time to time
during 2009 as market conditions evolve in response to changing economic
circumstances in Argentina.
    Unaudited fourth quarter 2008 crude oil and natural gas liquids sales
volumes were consistent with third quarter 2008 sales volumes and five percent
above the same period in 2007, buoyed in part by the waterflood at Puesto
Morales Norte. Our unaudited average 2008 crude oil and natural gas liquids
sales volumes of 6,891 bbl/d decreased 13 percent from 2007 average daily
sales volumes, when flush production was still being experienced in certain
wells in the Puesto Morales Norte field immediately following their
    On an equivalent basis, sales volumes for the fourth quarter of 2008 are
estimated, on a preliminary unaudited basis, to have averaged 7,786 boe/d, an
increase of 11 percent over the same period in 2007. Unaudited total
equivalent daily sales volumes for 2008 of 7,881 boe/d are down a modest five
percent compared to 2007 total sales volumes. All references to barrels of oil
equivalent (boe) are calculated on the basis of 6 mcf : 1bbl. Boes may be
misleading, particularly if used in isolation. This conversion is based on an
energy equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.
    The relatively flat sales volume levels reflect the continuing impact of
the company's waterflood at Puesto Morales Norte and contributions from new
discoveries during the year, primarily at the 1082 well directionally drilled
under the Embalse and from the new pool discovery in the LM2 zone at Puesto
Morales Este. In the company's opinion, the full impact of the waterflood
remains to be realized with resolution of certain related challenges,
including evidence of rising water cuts. These recovery techniques and new
production offset the ongoing impact of normal declines in well productivity.
    Nevertheless, production levels have remained stable and associated
revenue, net revenue and cash flow from operations before changes in working
capital ("cash flow" or "cash flow from operations") enabled the company to
conduct an active capital program throughout 2008 while maintaining its
financial integrity.
    The company recently executed a new domestic crude oil sales agreement
with a multinational purchaser in Argentina. This agreement is anticipated to
result in competitive and satisfactory crude oil selling prices for the first
quarter of 2009 and is designed to reflect both current market conditions in
Argentina and the movement of crude oil prices in international markets.
Industrial natural gas markets remain stable with some prospect of
considerable higher prices in this unregulated market possible in 2009.
    Petrolifera anticipates the commencement of a four-well drilling program
on its wholly-owned Gobernador Ayala II concession in La Pampa Province,
Argentina during the first quarter 2009 to evaluate a like number of
seismically-defined prospects on the block. The acreage is situated east of
and on trend with recent discoveries and development activity by another
Canadian operator in the region. Further drilling on the Vaca Mahuida and
Puesto Guevara lands will await completion of interpretation of 3D seismic
shot late in 2008, with drilling more likely in late 2009 or early 2010.
    The company's facilities at Puesto Morales have operated effectively
throughout 2008 and operating costs have remained at acceptable levels, even
with additional fluid handling associated with the waterflood program. One or
more additional infill wells may be drilled at Puesto Morales during 2009,
although the field is substantially developed for crude oil, with some added
drilling probable if crude oil prices improve during the next year or so.
    With a fully-developed field, an operative waterflood and either
self-financed or partner financed exploration programs at Gobernador Ayala II,
Vaca Mahuida and Puesto Guevara, Petrolifera anticipates a prudent and
cautious approach to its 2009 activity in Argentina.


    In addition to its previously-described drilling activity at La Pinta,
Petrolifera is in the late stages of completing a combination of 2D and 3D
seismic over its Turpial License in the Middle Magdalena Basin onshore
Colombia. This block offsets large oil fields which have produced significant
volumes of heavy and medium gravity crude oil for many years. Little, if any,
modern activity has occurred on this well positioned Block and early seismic
results are considered encouraging. This is the type of project Petrolifera
favors - near known production, evidence of good reservoir, little modern
activity and accessible to nearby infrastructure.


    Petrolifera has conducted extensive 2D seismic over its Ucayali Block 107
onshore Peru and interpretation of this seismic has resulted in a variety of
prospects and leads with potential for both crude oil and natural gas
accumulations. While there is no assurance these prospects will yield
commercial hydrocarbons, the company is enthusiastic about its findings and
anticipates conducting a series of data room reviews in upcoming months with a
number of qualified and interested third parties, with a view to farming out
an interest in this concession prior to drilling later in 2009.
    Seismic acquisition is currently underway on Block 106 in the oil-prone
Maranon Basin of northern Peru. A number of approaches have been made to
Petrolifera by third parties also interested in farming-in to this significant
acreage block.
    Petrolifera also anticipates being awarded Block 133 offsetting Bock 107
to the west. This License will provide Petrolifera with important protection
acreage in relation to prospects, leads and planned drilling activity on Block


    Petrolifera was pleased to see a long-overdue final resolution of the
Asset Backed Commercial Paper ("ABCP") controversy in Canada. The company
recently received over $1 million of accrued interest, calculated after
deducting legal costs associated with the resolution agreed and approved under
the Canada Business Corporations Act and the Company Creditors' Arrangement
Act. This is the first interest payment we have received since the market for
ABCP froze in 2007. We also anticipate being issued and receiving new notes to
replace those acquired in the open market prior to August 2007 and also
completion of a revised credit facility with a Canadian chartered bank, which
will allow us to categorize related borrowings as long-term. This will result
in an improvement in Petrolifera's working capital. Also, we anticipate an
expansion of the credit facility to approximately 75 percent of the face value
of the notes. This will further increase our liquidity by approximately $10
million. The estimated fair value of the ABCP replacement notes will be
assessed in the context of our year end 2008 financial and operating results
and audit thereof.
    As previously announced, Petrolifera anticipates involvement in over $80
million of gross capital programs during 2009, although net cash outlays by
the company are anticipated to approximate $30 million if planned farmouts and
recovery of sunk costs can be achieved in this difficult market environment.
At current production levels and prices, this would result in a considerable
increase in cash balances during 2009, with a view to accomplishing a debt
reduction program, in keeping with deleveraging objectives. Major farmouts and
cash recovery of sunk costs are anticipated to be associated with the
company's large Peruvian acreage blocks. This approach is consistent with the
company's announced strategy of favorably leveraging off its significant
ground floor ownership by enhancing the value of acreage blocks through
technical work and bringing in industry partners for the high cost drilling
and development programs. Discussions with industry partners are now being
scheduled, having completed key technical work. The availability of a
heli-transportable rig currently drilling for the company in Colombia is a key
element contributing to the appeal of being able to conduct work on a timely
basis, as such rigs are in short supply in Peru at this time. Base camp
preparations in Peru are already underway and drilling is more likely to occur
in the second half of 2009 once environmental approvals are in hand.
    The combination of cash flow from operations, working capital, unused
credit capacity and anticipated proceeds from the cost recovery components of
farmouts is anticipated to result in continuing improvements in Petrolifera's
financial condition throughout 2009, in the absence of any unusual events or
the further deterioration of conditions in the oil industry, worldwide and in
the jurisdictions in which Petrolifera operates in South America. We continue
to examine business combination opportunities to better enable the company to
prosper and expand in coming years as exploration potential is evaluated and
realized. We anticipate that capital markets will be difficult for a
considerable period of time, thus dictating a prudent and self-sufficient
approach to capital programs until there is clear evidence of improvement with
associated sustainability and visibility.
    Petrolifera Petroleum is a Calgary-based crude oil and natural gas
company active in Argentina, Colombia and Peru. The company's reserves and
related production base is primarily located at Puesto Morales Norte in the
Neuquén Basin, Argentina. The company is currently drilling its first
exploratory well in Colombia. Drilling is also anticipated for Argentina and,
depending upon farmout negotiations and regulatory approval, possibly in Peru
in the latter half of 2009.

    Forward-Looking Information

    This press release contains forward-looking information including, but
not limited to, future exploration and development opportunities in Argentina,
Colombia and Peru, current drilling, testing and completion plans in Colombia,
future drilling plans in Argentina, Colombia and Peru, anticipated timing of
the full impact of the company's waterflood program, anticipated pricing
relative to world pricing and historical pricing for the company's crude oil
and natural gas, planned 2009 capital expenditures, planned farmout
arrangements, anticipated award of Block 133 in Peru and the Magdalena License
in Colombia, resolution of the ABCP controversy, receipt of the replacement
notes and securing of a revised credit facility with a Canadian chartered bank
and anticipated improvements in the company's financial condition throughout
2009. Forward looking information is not based on historical facts but rather
on Management's expectations regarding the company's future growth, results of
operations, production, future capital and other expenditures (including the
amount, nature and sources of finding thereof), competitive advantages, plans
for and results of drilling activity, environmental matters, business
prospects and opportunities and expectations with respect to general economic
conditions. Such forward looking information reflects Management's current
beliefs and assumptions and is based on information currently available to
Management. Forward looking information involves significant known and unknown
risks and uncertainties. A number of factors could cause actual results to
differ materially from the results discussed in the forward looking
information, including but not limited to, risks associated with the oil and
gas industry (e.g. operational risks in development, exploration and
production, delays or changes to plans with respect to exploration or
development projects or capital expenditures; the uncertainty of reserve
estimates; the uncertainty of estimates and projections in relation to
production, costs and expenses and health, safety and environment risks), the
risk of commodity price and foreign exchange rate fluctuations, the
uncertainty associated with negotiating with foreign governments and third
parties located in foreign jurisdictions and the risk associated with
international activity. Additional risks and uncertainties are described in
the company's Annual Information Form which is filed on SEDAR at The company's ability to complete its capital program is
dependant upon completion of planned farmout arrangements, access to required
capital and access to services, drilling rigs and equipment. In addition, the
current financial crisis has resulted in severe economic uncertainty and
resulting illiquidity in capital markets which increases the risk that actual
results will vary from forward looking expectations in this press release and
these variations may be material. Although the forward looking information
contained herein is based upon assumptions which Management believes to be
reasonable, the company cannot assure investors that actual results will be
consistent with this forward looking information. This forward looking
information is made as of the date hereof and the company assumes no
obligation to update or revise this information to reflect new events or
circumstances, except as required by law. Because of the risks, uncertainties
and assumptions inherent in forward looking information, prospective investors
in the company's securities should not place undue reliance on this forward
looking information.

    Financial information contained herein is preliminary and has not been
audited. Actual audited results may vary from those preliminary unaudited
results contained in this press release and such variations could be material.
Additionally, readers are reminded that cash flow from operations does not
have a standardized meaning prescribed by Canadian generally accepted
accounting principles ("GAAP") and therefore may not be comparable to similar
measures used by other companies. Cash flow from operations is reconciled to
net earnings when provided by the company.

For further information:

For further information: R. A. Gusella, Executive Chairman, (403)
538-6202; or Gary D. Wine, President and Chief Operating Officer, (403)
538-6205; or Kristen Bibby, Vice President, Finance and Chief Financial
Officer, (403) 536-4733;,

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