LGO unit starts to suspend Ayoluengo ops

LGO Energy unit Compania Petrolifera de Sedano has started to temporarily suspend operations at Ayoluengo with a view to suspension being complete by the end of January.

The oil production concession at La Lora was granted in late 1966 covering the known extent of the Ayoluengo field and is due to expire on 31 January after 50 years of continuous operations.

CPS has operated the field for over 9 years since November 2007 and has maintained production averaging 115 barrel of oil per day over that period.

In August 2015, after several years of preparation, CPS submitted a comprehensive technical and legal analysis of future investment options and applied to the Spanish authorities for an extension of the concession for a further two 10-year periods in which to implement those investments.

The Spanish Ministry of Industry and Tourism responsible for hydrocarbon concessions submitted CPS’s application to the Spanish Council of State for consideration of the legal position.

LGO says the legal status of the concession is complicated by several fundamental changes in the hydrocarbon and concession laws in Spain over the last 50 years.

Ot says: “The Council of State has now provided their guidance to the Ministry and we understand the Ministry is in the process of preparing a final decision for submission to, and ratification by, the Spanish Cabinet of Ministers.

“Should an extension be granted the next phase of field development is envisaged, subject to Group financing considerations, to involve the drilling of between five to ten new side-track wells from existing wellbores to reach additional reservoir zones from which primary oil production can be extracted. Original oil in place has been estimated in a number of independent studies to be approximately 105 million barrels of which only 17.5 mmbbls have been produced to date.

“If an extension of the current Concession is not forthcoming then CPS plans to submit an application for a new 30-year concession on the same technical basis as the planned 10-year extensions and will potentially do so in collaboration with a partner.”

LGO understands that the Ministry will inform CPS of its final decision by the end of January 2017.

LGO says that in order to satisfactorily manage the Ayoluengo operations in the event that an immediate decision is not taken, or that an extension is not granted by 31 January, CPS has now started to temporarily suspend operations at Ayoluengo with a view to suspension being complete by the end of January.

The temporary suspension of producing wells, oil handling facilities and staff employment contracts will reduce CPS’s outlay by some 90% during any period of continued uncertainty.

LGO executive chairman Neil Ritson commented: “LGO has been actively seeking a continuation of the La Lora Concession for several years and regrets that a final decision has yet to be reached by the Spanish administration. Whilst a temporary suspension is unfortunate it has very limited impact on the Company’s operating finances and we remain positive about the longer term potential of the field and we look forward to being in a position to continue work as soon as possible. We have indicated to the Ministry that we will be keen to apply for a new concession should an extension not be granted.”

“LGO’s focus remains on its oil operations in Trinidad which represent over 90% of the Company’s oil in place and booked reserves, and over 80% of current production. Preparations for the resumption of drilling at the Goudron Field are progressing as envisaged with further news expected shortly.”

At 4:28pm: (LON:LGO) LGO Energy PLC share price was -0.01p at 0.12p

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