Resource World Magazine

64 www.resourceworld.com A P R I L / M A Y 2 0 1 8 Oil Patch Report by Bruce Lantz W ith the hardest work behind it, International Frontier Resources Corp. [IFR-TSXV; IFRTF-OTCQB] is looking forward to spud- ding its first oil well in Mexico around mid-April, with first oil set to come a cou- ple of weeks after that. After receiving its first permits last August, the 50-50 Tonalli Energia joint venture between IFR and Mexico's Grupo Idesa – one of the largest Petrochemical groups in Mexico for more than 55 years – received its safety certification for its onshore TEC-10 well in the Tecolutla field and expects to spud its first well, a verti- cal directional project, in mid-April. Initial production is scheduled to begin in late April or early May. "This opportunity doesn't exist in many places in the world," said IFR President and CEO Steve Hanson, who was brought in to take the company, which has existed in North America since 1995, in a new direction. "We decided this was where we'd focus our resources – all our energy and assets. There is a huge need for refined product in Mexico." IFR, which has projects in the Northwest Territories, southeast Alberta and the Southern Alberta Basin, north- west Montana and now Mexico, was one of the first foreign firms to explore this opportunity as Mexico denationalized the industry in 2014, after 80 years, in a his- toric energy reform designed to rejuvenate declining production and produce new fields, with promises of industry reform, transparency and the utilization of world- class best practices. A total of 914 oil and gas blocks have been opened in the first of four rounds of bidding from 2015-19. The license agreement applicable to the Tecolutla Block requires Tonalli to exe- cute a minimum work program expressed in work units during a one to two-year appraisal period. The work units rep- resent the performance of exploration studies, seismic, work-over, recompletion and drilling activities. The term of the licence agreement will be 35 years, subject to certain extensions. Estimates suggest the nation's as-yet- undiscovered oil and gas reserves could total 115 billion barrels of oil equivalent, three times as much as current proven, probable and possible reserves. According to some estimates, investment needs will range between US $35 billion and US $100 billion over the next decade. IFR felt it was vital to have local boots on the ground, bringing knowledge of local business strategies and downstream expe- rience. Enter Grupo Idesa, with a 60-year history of success and experience with other foreign joint ventures. They joined as 50-50 joint venture partners in August 2015 to form Tonalli Energia, and Grupo has been a "strong and capable" partner in its Mexico operations, said Hanson. "It's an honour to work with them," said Hanson. "We're truly aligned." Tecolutla is a 7.2 km 2 block in the Tampico-Misantla Basin in the state of Veracruz. The producing carbonate oil res- ervoir in the Tecolutla Block is the El Abra formation at a depth of 2,340 metres. 3D seismic has been acquired over the entire block and seven wells have been drilled into the producing reservoir in previous years. Peak production of more than 900 barrels a day occurred in 1972 from three wells, with one producing well remaining as of December 2014. "Based on our interpretation of 3D seis- mic data, we believe the Tecolutla field has been significantly underdeveloped and the TEC-10 well is an important step in developing the asset to achieve commercial production." Hanson said Tecolutla is a mature field that was last in production in 2014. The region has a history of oil and gas develop- ment and has the requisite infrastructure nearby, and its flat topography makes for easy, low-cost drilling that can be con- ducted year-round. Tonalli's experienced operating team intends to deploy advanced carbonate drilling, completion and recom- pletion techniques. "We knew there was a pool of oil there. It was just a question of how much," he said. IFR believes Tecolutla has the poten- tial for multiples zones, and they want to determine where the best sites are for production. If the vertical well at TEC-10 is a success, then they expect to drill four to five horizontal wells in the near future. They're banking on the block's history of four wells producing 1,000 barrels per day and Hanson believes they can exceed that production. Backing its commitment with money and an emphasis on a lean approach, the company is spending about CDN $6 million in capital as it moves toward first oil. This commitment has led to the joint venture building a world-class leadership team in Mexico and Canada, attracting a prominent board of directors' from both countries to guide Tonalli Energia, the decision to pursue multiple oil and gas opportunities in Mexico and navigating the regulatory environment to become one of the first independent operators in Mexico. Tonalli will be hiring locally as directed by local content rules, with currently a small crew of four and contractors that can be added to later, plus a tech team working on the project from Calgary. "The avail- ability of smart and talented people is very good in Mexico," said Hanson, "and as we expand we will hire more." International Frontier spudding first Mexican well

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