The Daily Oil Bulletin

Essential Energy Services Ltd. says it plans to operate in Colombia through a joint venture arrangement with a private Colombian group under the name of Essential Energy Services S.A. (Sucursal) Colombia. Under the terms of the joint venture agreement, Essential owns 85% and the partner owns 15% of Essential Colombia. The partner has the option to purchase an additional five per cent at a later date.

The initial equity will be funded through varied contributions of equipment, cash and other commitments. It is anticipated that future capital spending, if any, will be financed through operating cash flow and a future local credit facility in Colombia.

Essential believes the joint venture relationship provides access to and an understanding of Colombian labour, business regulations and customer relationships. The partner operates under the leadership of Jose Fernando Aramburo who has over 30 years of international oil and gas experience having participated in major exploration and drilling programs in over 20 countries for ExxonMobil. He is the chief operating officer of Winchester Oil and Gas, a Colombian operator with interests in nine blocks.

Aramburo was also one of the founders of SAR Energy S.A., an oil and gas service company that has been operating for over three years, offering well testing, early production facilities and gas processing services to oil and gas producers and operators in Colombia.

This month Essential plans to commence the transfer of certain equipment from its Canadian fleet to Essential Colombia. This equipment is expected to be commissioned in Colombia in January.

Essential Colombia plans to open a corporate office in Bogota and offer well servicing and wireline services from a field office and operating base in Villavicencio in the first quarter of 2011. Villavicencio is located in the heart of the Llanos region which is one of the fastest growing oil and gas exploration regions in Colombia.

The company said it believes that customer workover and completion needs, well pressures and depths in this region are relatively similar to those in western Canada, with the advantage of having minimal periods when operations are disrupted by weather. Essential Colombia believes there is a strong demand for its services in Colombia as both the Canadian equipment design and proven Canadian services practices will offer operators in Colombia a competitive advantage in terms of efficiencies and cost savings.

Initial services will be offered using temporary Canadian expatriate labour and local Colombian labour, with expectations that there is sufficient skilled local labour to crew most of the services once training has been completed.

Essential's Colombian operations are being managed by Timothy Beals, director of business development, Latin America. Beals joined Essential in January 2010 and has been instrumental in the successful progress of the Colombian strategy to date.

Having lived in Colombia for over 35 years, Beals has extensive Colombian business relationships and cultural knowledge. He has over 28 years of business experience and was most recently the Trade and Investment Director, U.S. and Americas Branch for the government of Alberta.

Essential's initial equipment contribution is expected to include two double service rigs, three double rod rigs, an intermediate depth coil tubing rig, one nitrogen pumper, two electric wireline trucks and various spare parts and support equipment. The current appraised value of this equipment, including costs incurred to ready the equipment for use in Colombia and acquire certain ancillary equipment, is approximately $6.9 million.

In addition, Essential said it has committed to the construction of a deep coil tubing rig and picker and two rod rig accelerator units for Colombia. These items, valued at approximately $3 million, are being fabricated in Canada and are expected to be shipped to Colombia early in the Second quarter 2011 along with a Second nitrogen pumper from Essential's Canadian fleet, which has an appraised value of $0.8 million.

The company is also entering into purchase and fabrication commitments in Colombia for additional parts and support equipment valued at approximately $1.3 million. Depending on customer demand, additional Canadian equipment may be transferred to Essential Colombia in the Second half of 2011.

In Colombia, there are currently more than 70 exploration and production companies with active operations, including approximately 20 Canadian operators.

Essential said its 2010 capital spending budget has increased to $19 million including $8 million for growth capital, $5 million for acquisitions and $6 million for net maintenance expenditures. The $3 million overall increase will be incurred in the fourth quarter and includes $2 million for Colombia, and $1 million for Canadian operations.

Year-to-date net equipment expenditures at Sept. 30, 2010 were $10 million. Previously budgeted fourth quarter spending includes a deep coil tubing rig for Canada and maintenance capital. This deep coil tubing rig for Canada is expected to be in service in December.

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