Chairman of Po Valley Energy (ASx: PVE) Graham Bradley has provided an operational update to investors in the light of recent share price falls.
After a comprehensive new field study of the company's fifth well, Bezzecca-1, the company reported that contingent resources at Bezzecca field are now estimated at 3.1 Bcf, "very substantially lower than our previous estimate of contingent resources of 44 Bcf."
The possibility of the size of the field being reduced was advised to the market last September when the field was reclassified under the Company’s Hydrocarbon Reserve Categorisation Policy as being a “Contingent Resource — Development Unclarified” and the carrying value of the field was written down to €1.5million in the 2009 full year financial statements.
Bradley said none of the technical or management team or board expected the substantial reduction in the estimated field size that has resulted from new reservoir modelling and analysis by external technical advisors since that time.
In April, the company announced that the well head pressure at "our first production field — Castello — was declining at a rate not predicted by our initial well tests or by our geological model."
Accordingly, "we announced this on 29 April and reported that we planned to shut the well down for 3-4 days in late May to conduct downhole pressure tests to investigate the reasons for the pressure drop and to help us revise our reserve estimates and production plans for the well to optimise gas recovery."
As a result there will be a substantial reduction in the Castello field recoverable reserves (previous proven reserves were estimated to be 4.6 Bcf) and a reduced production rate.
These two announcements, coming as they did in close proximity, together with a declining EURO and negative media coverage of a number of Eurozone countries, were the main factors affecting the market sentiment towards the company’s shares and have led to some institutional selling and high share turnover over the past two weeks, the company said.
The oil and gas exploration and development business is inherently risky and outcomes can have a wide range of uncertainty. Resources and reserves estimates are based on various assumptions made by competent experts and there are a number of methodologies applied in the industry.
Reserves are normally re-estimated following acquisition of critical data following the drilling of wells (for example Bezzecca-1) and after a period of time of production (for example 3 months of Castello production).
The Company has undertaken an asset by asset review of its resources in accordance with its Hydrocarbon Reserves Policy announced last September.
The review of Bezzecca is now complete. Castello will be reviewed following downhole pressure measurements in late May, and Sillaro/Fantuzza will be reviewed during June/July to incorporate the drilling results of Sillaro-2 and its initial months of production. Sant Alberto/San Vincenzo will be reviewed in August/September following completion of upcoming seismic work.
The adverse events have overshadowed the commissioning of the company's Sillaro production facility.
This is only the second new gas production facility in Northern Italy since 1998.
Bradley said there are inherent uncertainties and risks involved in gas exploration and development, and that the Board and management are doing "all they can to manage and mitigate those uncertainties to the extent possible."
He said the company was moving forward to identify which of the new targets among the expanded portfolio of new licence areas, offer the best risk/return potential, and the best prospects of building value for shareholders.