This interest is being acquired from Georgian Oil Samgori Limited ("GOSL"), a company wholly owned by the Joint Stock National Oil Company Georgian Oil ("Georgian Oil"). Under the terms of the agreement, up to 10 horizontal wells will be drilled on the Samgori Field, which is the largest oilfield discovered to date in Georgia and lies adjacent to CanArgo's Ninotsminda Field. Samgori has produced over 180 million barrels (MMbbl) of oil to date at rates up to 70,000 barrels of oil per day (bopd).
The Samgori Field complex was discovered in 1974 and produces from the same Middle Eocene sequence as the Ninotsminda Field. Recent studies by Georgian Oil (which have not been independently assessed), based on new seismic data acquired in 2001, indicate that up to 55 MMbbl of oil could be recovered from the Samgori complex utilizing horizontal drilling techniques. Current production from the field is approximately 700 bopd. CanArgo will be entitled to an immediate share of this production upon completion. In addition, Block XIB, which covers an area of some 634 km2 (169,514 acres) contains several identified prospects and discoveries in other horizons, notably the Upper Eocene and Cretaceous.
On the Ninotsminda Field itself, following completion of a dynamic reservoir model incorporating the results of the horizontal development program carried out over the last year, it is likely that the recoverable reserves on the field will increase significantly. However, recovery of these reserves is dependent on application of optimal production levels for the Ninotsminda wells and further application of horizontal drilling techniques. On the advice of independent petroleum engineering specialists, a testing program has been undertaken on the three most recent horizontal wells. Although this program is not fully completed, it is likely to result in a recommendation that the optimal long term production rate for these wells would be of the order of 500 bopd. The recent detailed technical evaluation of the field has also resulted in the recommendation that future horizontal wells should be drilled under-balanced (i.e. producing whilst drilling), utilizing coiled tubing. It is expected that such techniques will result in more efficient production, longer horizontal sections, and less chance of causing damage to the reservoir. CanArgo believes the same under-balanced coiled tubing drilling technology would be ideally suited to the planned horizontal development program on the Samgori Field. The drilling unit which is to be mobilized from the western Europe or North America, could be contracted to undertake an integrated development of the two fields. In the meantime, work will commence on extending the Ninotsminda dynamic reservoir model to include the Samgori complex.
In connection with the acquisition CanArgo will issue four million shares following completion, with a further twelve million shares issuable upon certain production targets being achieved and fund one hundred per cent of the costs of drilling the first horizontal well section. Subsequent wells will be funded 50:50 with GOSL.
Commenting on the acquisition CEO Dr. David Robson said, "We are delighted to have obtained regulatory approval to participate in the Samgori PSC. This is a major step forward for CanArgo, as we believe that there are potentially significant remaining oil reserves in the Samgori complex. The field, which lies adjacent to our Ninotsminda Field and existing infrastructure, has a much larger, and generally better quality, Middle Eocene reservoir section capable of higher production rates. CanArgo through its knowledge of the Ninotsminda Field and its recent successful horizontal development program is best positioned to exploit these potentially large amounts of recoverable oil. Any development of the Samgori Field would be undertaken as part of an integrated development program with our Ninotsminda Field. Such approach would allow for a much more cost efficient development. The Samgori PSC area also contains exciting exploration potential, some on trend with our recent Manavi oil discovery, and I believe that we will find additional oil and gas in this block through an extension of our current exploration program"
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