Investors have been waiting for some months for an update from Black Rock Oil & Gas on its operations in Colombia. There had been something of a hiatus in newsflow just as the AIM-quoted company seemed to be really motoring in the South American country, having drilled two appraisal wells on the Arce heavy oilfield and talked of near-term production opportunities in 2006.
Now it seems the company, which in December exited its Australian business in order to focus on its operations in Colombia and the North Sea, has reached agreement with its 50/50 joint venture partner Kappa Resources to complete the Arce-2 well ahead of a steam flood production test. While the project is never going to be a company-maker, it does hold the promise for maiden production later this year.
Black Rock took 50 per cent of the Arce oilfield, which lies in the Las Quinchas Block in Colombia's Middle Magdalena Basin, in April 2005. There followed a series of appraisal wells: Arce-3 came in pretty much in line with expectations, flowing between 25 and 36 barrels per day of sticky 13.5 degree API oil, while Arce-2 flowed at rates of between 10 and 60 bpd.
The partners plan to steam flood the field, a process which should make the heavy oil more mobile and so increase flow rates. Steam flooding is a common technique on heavy oilfields in Colombia and has been proven to increase production rates by a factor of five or ten. The steam test will begin once the necessary hardware has been manufactured and shipped to the oilfield. Should this technique prove a success at Arce-2, then further production wells will be drilled into the field to increase the daily production rate.
Black Rock and Kappa have also agreed to re-enter the once producing Baul well, which was shut-in in 1961 due to low oil prices. If the wellbore is found to be in good condition, then it will be production tested to check the reservoir's commercial viability.
Las Quinchas is also home to the Bukhara prospect. Bukhara has the potential to hold 70 million barrels of heavy waxy crude although results from the Bukhara-1 well proved inconclusive. Further testing and work will be needed on this deposit. The company also holds 50 per cent of the adjacent Kappa-operated Alhucema licence. New 2D seismic and drilling work is planned on Alhucema this year.
It adds up to an interesting cluster of projects, which seems to justify Black Rock's decision to switch attention from Australia to Colombia. The fiscal and licensing regime is favourable to start-ups and the Colombians, anxious to attract inward investment to shore up production levels, have announced their intention to further reduce corporation tax, from 38.5 per cent to 28.5 per cent.
There is also plenty of scope for smaller companies to revisit existing but undeveloped oil finds, such as Arce and Baul. This is not wildcat territory, which derisks some of the drilling, and even the Middle Magdalena Basin's modest deposits of heavy waxy crude can be made to work when oil prices are this high. Heavy oil isn't the high margin end of the business but there are advantages to being in the Middle Magdalena: this is a prolific oil province, having produced over 2.2 billion barrels of oil, and a major oil pipeline runs through the acreage, linking to a refinery capable of handling heavier crudes.