CALGARY - A pair of updates by two Calgary-based junior oil and gas companies on Monday underscores the risks and rewards of operating in South America.

Petrominerales, 66 per cent owned by Petrobank Resources, said its South American proved reserves increased 43 per cent to 36 million barrels, while proved plus probable reserves increased 44 per cent to 53.1 million barrels.

Proved reserve additions replaced production by 232 per cent and proved plus probable reserve additions replaced 299 per cent of production, the company said in a news release. In an interview, Petrominerales CEO John Wright said the report includes results from its Candelillia discovery, which now accounts for about 20 per cent of the company's Latin American reserve base.

The news sent Petrominerales shares sharply higher in early trading on the Toronto Stock Exchange where they came within a whisker of a 52-week high before settling at $28.83, up 26 cents on the day.

The same couldn't be said for Petrolifera, which saw its shares tumble almost 20 per cent after it reported mechanical problems with the testing of an exploration well in Colombia. The company's shares fell 22 cents on the TSX to close at 95 cents, while its warrants shed 10 cents to close at 38 cents.

The company, which is a subsidiary of Connacher Oil and Gas, said the La Pinta 1X experienced problems with sand buildup while testing an oil-bearing zone and ceased to flow after three hours of production. Due to financial and technical considerations, the company decided against a sidetrack or a retest of the Cienaga de Oro formation. Instead, a cement plug will be installed to allow testing of an uphole zone.

Petrolifera spudded the wildcat well last January and the news was the latest in a series of troubles and miscues that has prevented the company from evaluating its oil discovery, which initially flowed 700 barrels a day.

Petrolifera chairman Dick Gusella estimated the well has cost more than $20 million to date. A sidetrack would've added another $7 million to the well's price.

Despite the setback, he said he's still bullish on prospects in South America.

"We had to make a tough decision to drop more money or go uphole. It's better to live another day," he said. "We've got an oil discovery. The $64 question is can we get it out of the ground?"

In a research note, Raymond James analyst Rafi Khouri said investors have a "strong appetite for growth" as offered by international juniors. The brokerage's universe of 13 names, which includes Petrominerales and Petrolifera, gained 216 per cent in 2009 and 18 per cent in the fourth quarter alone. Many international-focused companies will start reporting fourth-quarter financial results next week.

"While momentum-based trading activity might drive valuations on some of these companies higher, fundamental based analysis has us leaning toward continuing to recommend investing in well-managed, relatively reasonably priced . . . companies."

spolczer@theherald.canwest.com