Overview:
After assessment of 3D seismic surveys and a reactivation plan for the Tazerka field, Madalena Ventures has terminated its option to drill an exploratory earning well in the offshore Hammamet prospect in anticipation of focusing its capital in the Remada Sud region.
In Argentina, Madalena Ventures focused its efforts on seismic surveys, testing, and preparations to drill its first exploration well. The company concluded 3D seismic exploration programs on the Curamhuele and Cortadera blocks in the fourth quarter of 2008 and acquired a further 20% working interest in Cortadera, giving the company a 90% interest and operatorship of the block. The seismic data is at present being processed and the exploration potential of these blocks will be assessed in the first half of 2009.
In the fourth quarter of 2008, Madalena Ventures was also able to obtain a drilling rig to begin drilling the initial well on the Coiron Amargo block. Drilling of the CAN X-2 well was concluded in February 2009 and two hydrocarbon zones were identified. Testing concluded on the deeper zone has demonstrated initial flow rates of 400 bbls/d (280 bbls/d net) of light crude oil. The zone is at present being tied in and production is anticipated to start in second quarter of 2009. The second zone is not currently capable of commercial flow rates and the company may consider fracture stimulation of the formation at a later date. Madalena Ventures is at present moving a pump to the CAN X-2 wellsite for the continuous production of the well.
The drilling of the CAN X-2 well will satisfy 100% of the work commitments for the Coiron Amargo block by the end of the second quarter. Madalena Ventures has until November 2010 to satisfy the remaining work commitments on the Curamhuele and Cortadera blocks and may apply for a one year extension at the expiry date in the event work commitments are not concluded by November 2010. The company’s share of the remaining work commitments at December 31, 2008 amount to CAD1.1 million on the Cortadera block CAD3.4 million the Coiron Amargo block, and CAD1.13 million on the Curamhuele block for a total of CAD5.6 million.
Results Of Operations
For the year-end 2008, Madalena Ventures averaged production of 30 boe/d compared to 47 boe/d in the previous year. Total production decreased in 2008 due to natural declines in new wells brought on production in the first half of 2007 additionally to shutting-in production in 2008 for repairs and maintenance. Revenue decreased in 2008 due to the production declines noted above, partly counterbalance by increased realized commodity prices consistent with market trends for oil and natural gas. For the year-end 2008, The company received an average of CAD101.70/bbl for oil, CAD8.88/Mcf for natural gas and CAD86.37/bbl for natural gas liquids, compared with the CAD74.38/bbl for oil, CAD7.16/Mcf for natural gas and CAD60.19/bbl for natural gas liquids in 2007. Madalena Ventures Canadian oil and gas properties continued to show natural decline in the fourth quarter of 2008 as fourth 2008 production totaled 25 boe/d compared to 47 boe/d in the year-ago quarter and 30 boe/d for all of 2008. Although the company realized strong commodity prices for much of 2008 as compared with the previous year, commodity prices decreased considerably in the fourth quarter of 2008. Madalena Ventures averaged CAD64.09/bbl for oil, CAD7.52/Mcf for natural gas and CAD55.90/bbl for natural gas liquids in the fourth quarter of 2008, compared to CAD101.70/bbl for oil, CAD8.88/Mcf for natural gas and CAD86.37/bble for natural gas liquids for all of 2008. The reserve declines and lower commodity prices negatively impacted the recoverable amounts of the Canadian properties leading to a ceiling test write-down of CAD0.79 million for the fourth quarter of 2008.
The net loss in 2007 was largely due to the write-down of Madalena Ventures Canadian oil and gas properties and higher stock-based compensation expense. Increased commodity prices and the foreign exchange gain recorded by the company for the year-end 2008 also decreased the net loss by partly offsetting production declines and increased royalty and G&A expense. The net loss for the fourth quarter of 2008 was CAD0.86 million compared with the net loss in the year-ago quarter of CAD3.6 million.
Madalena Ventures realized an operating netback of CAD35.15/boe for the year ended December 31, 2008 compared to CAD32.28/boe in 2007. Netbacks raised on a per boe basis in 2008 as a result of increased commodity prices which were only partly counterbalance by increased crown and GORR royalty rates and operating expenses on a per boe basis.
For the year-end 2008 Madalena Ventures incurred capital expenditures on petroleum and natural gas properties and office furniture and fixtures totaling CAD8.4 million, compared with the CAD5.36 million in the previous year. Capital expenditures increased in 2008 due to the ongoing seismic and exploration activity in Argentina and drilling activity in Tunisia. In 2008, approximately CAD865,000 of value added taxes (VAT) incurred on Argentina capital expenditures was included in property and equipment (2007 – CAD18,860). The VAT is not recoverable from the Argentina government, however the company can retain VAT it collects on revenue produced to the extent that it has VAT paid that it has previously paid. In the fourth quarter of 2008, the company incurred about CAD650,000 in Tunisia capital expenditures largely in connection with the completion and testing of the TT-2 well on the Remada Sud concession.
The natural decline of the Canadian oil and gas reserves for the year-end 2008 combined with considerably lower commodity prices in the fourth quarter has negatively impacted funds from operations provided by these properties. Additionally, lower cash balances and lower interest rates in 2008 resulted in decreased interest income in 2008 compared to 2007. Accordingly, Madalena Ventures funds from operations for the year-end 2008 increased to an outflow of CAD1.31 million compared to an outflow of CAD0.16 million in the previous year. The company expects bringing the Coiron Amargo CAN X-2 well on production in 2009 which should raise funds from operations; however, any delay in this production may increase the requirement of Madalena Ventures to seek other sources of financing.
As a result of funding on-going exploration and development activities, primarily in Argentina and Tunisia, Madalena Ventures’ working capital (including its cash and cash equivalents) decreased from CAD13.2 million at December 31, 2007 to CAD7.2 million at December 31, 2008. Historically, the company raised funds from equity financings to fund exploration and development activities and overhead expenses, including completing a non-brokered private placement on April 4, 2008 for the issuance 4.4 million common shares at CAD0.56 per share for total proceeds of CAD2.45 million. However, current global economic conditions have negatively impacted the availability of debt and equity financing sources.
Reserves:
Madalena Ventures increased for the year-end 2008 proved reserves to 216 Mboe (a 127% increase) from 95 Mboe in the previous year. Proved plus probable reserves increased to 442 Mboe at December 31, 2008 from 134 Mboe at December 31, 2007, and proved plus probable plus possible reserves increased to 682 Mboe at December 31, 2008 from 134 Mboe the year before. Declines in Canadian reserves were offset by increases in reserves associated with the TT-2 discovery on the Remada Sud property in Tunisia. No reserves were added for Argentina in 2008 as the well was not concluded until 2009.
