Canacol Announces 2010 work programme for Capella

Canacol announced recently that it is to spend $4.1m in 2010 to appraise and develop Capella.

Sinochem's share therefore ~$37m. It seems unlikely that Emerald would have needed a placing to fund this. Especially as the pace of work in Syria has slowed down, and GPX seem to be generating lots of cash there.

Speculation that Sinochem has made a bid for Gulfsands (GPX)

The article below speculates that Sinochem is in takeover talks with Gulfsands (GPX) with a takeover price of c. £400m, or c. 325p per share.

http://www.thisismoney.co.uk/markets/article.html?in_article_id=490168&in_page_id=3&position=moretopstories

And now Reuters is running the same story:

http://uk.reuters.com/article/idUKTRE57T1B220090830

As is Arabian Business News and the New York Times:

http://www.arabianbusiness.com/566310-gulfsands-in-takeover-talks-with-sinochem--report
http://www.nytimes.com/reuters/2009/08/30/business/business-uk-gulfsands-sinochem.html

Of course Sinochem has already agreed a 750p or £532m bid for Emerald Energy (EEN). The common asset between the two companies is Block 26 in Syria.

The sad thing for Emerald shareholders is that the Gulfsands deal at the rumoured price would effectively put only a ~£130m price tag on Emerald's Colombian assets. These include the very significant Capella field which has estimates as high as 1.1bn barrels in place, Gigante (where we still do not know the full results of testing the Caballos or the Tetuan) and the recently drilled Mirto prospect, where drilling results are now well overdue.

Canacol Commissions Reserve Report for Capella

Canacol Energy (10% holder of Emerald's Ombu block) has commissioned a reserves report for the Capella field to be carried out to the standards appropriate for its Canadian Listing.

The results are expected during September 2009.

http://www.theenergynews.com/news/article.php?storyid=33493&ftptype=1

If these results are better than expected, one may speculate that a counter bid for Emerald may become more likely.

Has Emerald Got Consent to Explore the NE part of Ombu/Capella?

According to page 6 of this link, (http://www.minambiente.gov.co/documentos/Hidrocarburos_100709.pdf), it appears as though Emerald Energy received consent on 9 July 2009 to explore the northern part of the Ombu block.

Previously, Emerald had received environmental consent to drill an 8,000 acre area in the mid-part of the Capella discovery. This is where wells C1 to C6 have been drilled.

They had applied for a further Environmental Permit Area towards the NE of the structure (as explained here: http://www.emeraldenergy.com/documents/EENInvestorPresentationMay2009.pdf Slide 16).

Of course, we have to wait for confirmation of this from the company. However, if confirmed, this permit paves the way for the planned further drilling campaign this year, which ought to prove up a significantly greater portion of the acreage and pave the way for a material reserves upgrade.

Investors must hope that if any takeover offer comes in before the extra drilling takes place, they receive fair value for the whole asset.

Main Assets - Capella Ombu and Durillo

Capella was discovered in the Ombu block in September 2008 with the following announcement from the company: http://www.emeraldenergy.com/PR20080916.htm

Interestingly, at around the time the C-1 results were announced, the Colombian Energy minster was quoted as saying the Capella structure may contain up to 100mmbo of recoverable reserves (http://afp.google.com/article/ALeqM5jW8IE1fEPb-21R8maWnJHOVR1Myw).

Since then 5 more wells have been drilled in the SW part of the structure, all with better than expected results. A horizontal well is due to be drilled later this year from near to the C-6 surface location. More appraisal wells are due to be drilled to the NE of the structure later in the year once permitting is completed.

So far the company has booked ~15mmbo of 2P reserves on the structure. However according to the company's 2008 results presentation (http://www.emeraldenergy.com/documents/EEN2008Results.pdf P22 onwards) these reserves were restricted to the area immediately around the first 4 wells to be drilled. The same presentation gave a P10 oil in place estimate of ~1.1bn barrels for the whole structure. The results of C-5 and C-6 were also encouraging. C-6 noted 37% porosity in the Upper formation which was some 80' thick at that location, nearly four times thicker than in the other wells (http://www.emeraldenergy.com/pr20090424.htm). This bodes well for further reserve and oil-in-place increases as the structure is proved up.

I believe, but have not had confirmed, that the recovery factor of 10-11% given in this report relates only to cold flow. The recovery factor may well increase if thermal methods are applied. There are links available that demonstrate some heavy oil fields can achieve recovery factors in the range of 30-50% and even up to 70-80% in some cases with the application of a varity of mehods such as Cold Heavy Oil Production with Sand (CHOPS), Cyclic Steam Injection (CSS), Steam Assisted Gravity Drainage (SAGD) and Steam Flood. A number of these techniques are descrbied in these links: (http://www.slb.com/media/services/resources/articles/heavyoil/200801_ao_heavy_oil_recovery.pdf
http://www.slb.com/media/services/resources/oilfieldreview/ors02/aut02/p30_51.pdf
http://www.heavyoilinfo.com/blog-posts/comparing-css-and-sagd-to-thai/view
http://www.energy.gov.ab.ca/OilSands/pdfs/RPT_Chops_app2.pdf
http://www.slb.com/media/services/resources/articles/heavyoil/200801_ao_heavy_oil_recovery.pdf)

Canacol Energy (formerly known as Brazalta), the 10% part owner of the Ombu Block has said that a cyclic steam injection pilot in one of the vertical wells is planned this year (http://www.brazalta.com/files/news/April%206%20Press%20Release.pdf).

Canacol have also recently announced that they have been awarded a Technical Evaluation Agreement (TEA) in acreage adjacent to the south of the Ombu block (http://www.brazalta.com/files/news/July%202%20Press%20Release.pdf). Moreover, Canacol have recently given an audio presentation which mentions the joint plans for Capella a link to which can be found here: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2701160 and here: http://podcast.newswire.ca/media/canacol.mp3

More recently, the company has acquired the adjacent Durillo block where it believes the block "may have potential in the same exploration play".

Production so far has been limited to ~700bopd test production from three of the initial wells. Production has been limited by transport and marketing constraints which the company is confident it can overcome.

All in all this is a very important asset for Emerald, and could be worth many £'s/share (try doing the sums on 1.1bn barrels in place with 30, 50 & 70% recovery factors and say $5/bbl for heavy oil) in its own right as it develops.