Atzam & Tortugas Oil Projects - Guatemala
Through funding of the Atzam #4 appraisal well which is now on production, and the decision to drill the Atzam #5 development well, the Company acquired a 60% interest in Latin American Resources which owns and operates the licence covering the Atzam and Tortugas Oil Projects in Guatemala. The Atzam #5 well is due to commence drilling in December 2013
During 2012 and 2013 the Company has funded, together with financing assistance from its major shareholder Range Resources Ltd (Range), the operations of LAR. The financing provided to LAR was used for the drilling, testing and operating activities of the Atzam #4 well and related operations. Following the production success of the Atzam #4 well and satisfying the LAR funding obligations under the earn-in agreement, the Company now holds a direct 60% equity interest in LAR.
The Project consists of Block 1-2005 in the South Peten Basin in Guatemala (Guatemalan Block). The Guatemalan Block has TSX certified 51-101 certified reserves identifying proved plus probable (P1 and P2) reserve estimates of 2.3 MMBBL, with significant exploration upside potential. In addition the Guatemala Block has had significant previous exploration. The Project and operational infrastructure are owned by LAR, which includes a 100 man camp, drilling rigs and an airstrip.
The Projects have had significant previous exploration and development with 2D seismic and prior wells. Previous operators prioritised their focus on other oil and gas opportunities in Latin America, leaving LAR to acquire the blocks and execute the previously developed production and exploration programs.
Underpinning development in Guatemala are excellent fiscal terms with net backs per barrel of approximately US$45 (assuming US$80 oil price) after all costs (including taxes and royalties).
Guatemala is a politically stable country with a developing economy. Guatemala has enjoyed political stability since 1983 when the first free election for National Assembly (Congress) took place and a new constitution, currently in force was approved. In 1985 the first civil president was elected. Since that date, there have been six civilian presidents elected in free and democratic elections. Guatemala has enjoyed more than 30 years of stability, in the social, economic, and political sectors
Guatemala has a favourable business climate for oil companies. There is a base royalty of 20% on 30°API oil; royalty increases/decreases by 1% for each increase/decrease in API degree. In addition the corporate tax rate is 31% and there is cost recovery of 100% of capital expenditures.
Current production in Guatemala is approximately 14,000 bopd with similar hydrocarbon geology to Mexico. The trends of major Mexican discoveries (such as the Nazareth Field) have been found to extend into Guatemala. The major producing basins, North Peten and South Peten, account for 90% of domestic production.