Guatemala Project

Acquisition of Guatemalan Oil and Gas Assets

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.

Well-Defined, Staged Growth Plan

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.

Atzam Oil Project

At the start of June 2013, Latin American Resources (Operator) commenced flow testing operations on the Atzam #4 well on the C17 carbonate section. On 3 June 2013 the Company announced significant initial production from a perforated 6 foot section in the Upper C17 carbonates (2,846-2,852ft) unassisted over a 24 hour period, producing a 610 bopd average rate over this initial production period without acid washing or assistance through well swabbing. The well continued to produce strongly and tested at a rate equivalent to an excess of 1,000 bopd through the initial 48 hours of testing, until the well was shut in to run a series of pressure tests over this producing zone.

Over the past few months and following completion of a detailed reservoir pressure testing program, the Atzam #4 well has continued to produce good quality 38°API oil on a highly restricted choke (between 8-12/64 inch), with the production rate planned to be significantly increased once the well stabilises, and current onsite tank storage capacity and transport logistics are resolved through offtake contracts. Latin American Resources is in advanced negotiations with a number of oil companies on short term and long term offtake contracts for the Atzam #4 oil production, and for future production from Atzam #5.

Importantly this C17 production continues from natural reservoir pressures and without assistance from a submersible pump, which is normally used for producing these carbonate sections, and without any water production to date.

The Operator estimates the producing 6 foot C17 carbonate section (2846-2852ft) would produce in excess of 1,000 bopd on an open choke based on the flow rates recorded to date on various choke sizes up to 32/64ths, together with the downhole and well head pressures data from this zone. Importantly the ongoing production from the C17 carbonate section has continued from natural reservoir pressures and without assistance from a submersible pump, which is normally used for producing these carbonate sections.

The Atzam #5 development well is being advanced by the Operator and is currently on schedule to be spudded in October 2013. The Atzam #5 will be drilled to target the same oil bearing carbonate structures that were encountered and are currently producing in the Atzam #4 well.

Project Location and Exploration Potential

Updated Atzam #4 Reserve Report- First 1P Reserves for Atzam Project

Independent Reservoir Engineers, Ralph E Davis (RED) from Houston, have completed an updated Atzam #4 well independent reserve report, producing an initial proven reserve (1P) of 362,515 barrels for the producing 6 foot section of the C17 carbonate section alone. The total 1P and 2P reserves for the well are in excess of 2.3m barrels.

There is an untested 7 foot section in the C17 carbonates that sits above the producing zone and is still to be bought onto production, and this would be converted into 1P reserves once this occurs, taking the 1P reserve estimate in excess of 500,000 bbls for the C17 section. The highly prospective C13 and C14 carbonates in the Atzam 4 well are still to be flow tested and would also be converted from 2P to 1P reserves following a successful program.

The initial Atzam #4 independent reserve report from February 2013 stated a 2.3m barrel 2P reserve based on the drilling and logging data from the well. The updated reserve report with the conversion of an initial 1P reserve for the producing 6 foot section in the C17 carbonates is set out below:

 

1P: Proved Gross Oil Volumes, Bbls

Formation: Zone

RF 20%

 

 

C-17

362,515

 

 

Total Proved

362,515

-

-

 

 

Proved + Probable Gross Oil Volumes, Bbls

Formation: Zone

RF 20%

RF 25%

RF 30%

C-13 A

336,939

421,174

505,409

C-13 B

161,758

202,198

242,637

C-14 A

63,990

79,988

95,985

C-14 B

222,972

278,715

334,458

C-16

126,340

157,925

189,509

C-17

362,515

453,143

543,772

C-18 A

161,121

201,401

241,681

C-18 B

106,205

132,757

159,308

Total Proved + Probable

1,541,840

1,927,301

2,312,759

Individual reserve estimates are based upon analyses of those specific intervals with indications of hydrocarbons utilizing reservoir parameters based upon an evaluation of the well logs. An assignment of a 160 acre drainage area was utilized for each reservoir and a recovery factor was varied from 20% to 30% as indicated in the table above.

The reserve estimates included in this report conform to the appropriate definitions of reserves and resources as approved by the SPE/WPC/AAPG/SPEE Petroleum Resources Management System (SPE- PRMS) document as co-sponsored by the Society of Petroleum Engineers, the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers.

Tortugas Salt Dome Project

The Company is currently advanced with operational planning with LAR, Operator of Block 1-2005, to complete 2 well re-entries on the Tortugas Salt Dome structure in 2014. The well re-entries on two Tortugas wells, 63-4 and 63-5 are expected to produce between 200-300 bopd each of high quality 34°API oil based on historical flow rates and production. In the mid 80’s, two wells flowed oil at initial rates over 1,500 bopd, however were subsequently suspended.

The Tortugas Salt Dome structure is a suspended oil field, with Monsanto having drilled 17 wells on the structure including wells for both sulphur and oil. One of the wells (T9B) experienced an oil blowout at approx. 1,500 ft., with the majority of the other wells having oil shows in multiple zones.

 

  

 Guatemala Overview

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.

The first oil discovered in Guatemala was in 1971 at Tortugas in LAR’s Block 1-2005.