COSL Signs Contract to Drill 2 Wells in Block 33/07 in East China Sea

China-focused Primeline Energy Holdings Inc. (Primeline or the Company) disclosed Monday that it has entered into a turnkey drilling contract with China Oilfield Service Ltd. (COSL) for its 2015 exploration program of two wells in Block 33/07 in the East China Sea.

Primeline signed a letter of intent with COSL July 22 with regards to the drilling work, and has since negotiated the formal drilling contract with COSL which was entered into Aug. 14 and under which the drilling operations will now proceed.

Under the terms of the drilling contract, COSL has agreed to drill two wells for Primeline on a turnkey basis to the depth and target zone specified by Primeline. If hydrocarbons are discovered, COSL will also conduct tests for Primeline either on a turnkey basis or as a day rate operation as selected by Primeline. Primeline has decided to drill LS23-1-1 as the first well and, depending on the results, will then drill either location LS23-2-1 or LS30-3-1 as the second well. Primeline has the option to suspend operations after the first well if it is necessary to spend additional time carrying out any studies necessary before drilling the second well in order to ensure it is drilled in the optimal location.

This two well drilling campaign is part of the rolling development program Primeline and CNOOC are implementing in the southern part of East China Sea following the completion of development of LS36-1 gas field. Now that LS36-1 gas field is in production, thereby establishing a production hub and access to market, Primeline intends to speed up the exploration program in order to discover more resources in the nearby area to capitalize the infrastructure and access to market. Any additional resources that are discovered in the area nearby LS36-1 in Block 33/07 can share the infrastructure so any future incremental development will be quick and cost effective.

Primeline has selected three possible drilling locations along the western margin of the Lishui basin with multiple target zones. In 2010, Primeline discovered gas in well LS35-3-1 which proved the migration of hydrocarbon into prospects in the western margin area. Primeline has, through the interpretation of the 3D seismic acquired in 2014 and the previous 3D seismic, identified a group of prospects in the western margin with significant hydrocarbon potential and these two wells are part of the exciting program to explore this area.

The site survey of the three drilling locations commenced Aug. 4 and is in progress. According to COSL’s current planning, LS23-1-1 is scheduled to be spud around the middle of September using drilling rig HYSY941 or COSL 941 (400' ILC) . An update will be announced when the drilling operations commence.

In the meantime, to allow Primeline to conduct the two well program with the possible suspension of operations between wells, CNOOC has agreed to grant a 6 month extension to Block 33/07’s first exploration period (which is due to expire Oct. 30) so that it will expire March 30, 2016. A formal amendment amending the petroleum contract for Block 33/07 to confirm this arrangement is expected to be signed shortly. At the end of phase one of the exploration period, Primeline has the option to enter into phase two or terminate the contract.


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