Block M1a (Wintershall 50% and operator, Energie Beheer Nederland B.V. ("EBN") 50%) covers 212 km2 with water depths around 40m. The M1-2 well, drilled in 1992, discovered gas in overpressured, low permeability Triassic- aged sandstones at depths around 3900m and was appraised by well M1-3, drilled in 1998. Unstimulated, M1-3 tested 3.9 mmscf/d of light, dry gas from a 28m gross interval. The discovery has been named the M1-A Field. Cirrus estimates the M1-A Field to contain most likely gross gas-in-place volume in excess of 150 bcf. Due to the low permeability of this reservoir, however, the ultimate percentage recovery of this gas will be lower than for higher quality reservoirs and will depend on individual well performance following stimulation and the number of development wells drilled. Cirrus has commissioned GLJ Consultants Ltd. to complete a resource assessment in accordance with NI 51-101 with a report due in August, 2006.
The most likely initial development scenario includes re-entry and hydraulic fracture stimulation of the suspended M1-3 well with subsea completion and tie-back to nearby gas processing and export infrastructure. This low cost development scenario leads to expected timing for production commencement around mid 2008 subject to rig availability and successful negotiations with third parties for infrastructure access. Further development drilling on the field may subsequently be undertaken to increase and accelerate recovery of the large gas-in-place volumes.
Note that the state company, EBN, if it exercises its right to participate in the development of the M1-A Field by taking a 50% working interest, would be required to reimburse Cirrus for historic exploration costs related to the field. If EBN does not elect to participate, however, Cirrus' interest will increase to 100%.
Block M7 (Wintershall 13.75% and operator, NAM 31.25%, DSM 5%, EBN 50%) covers 410 km2 with water depths around 30 m. The M7-5ST well, drilled in 1996, discovered gas in overpressured, high quality Triassic-aged sandstones at true vertical depths around 2800m and was tested at a maximum rate of 30.1 mmscf/d of light, dry gas from a 22m gross interval. The discovery has been named the M7-A Field. Cirrus estimates the M7-A Field to contain most likely gross gas-in-place volume in excess of 50 bcf with high expected recoveries. Cirrus has commissioned GLJ Consultants Ltd. to complete a resource assessment with a report due in August, 2006. Well M7-5ST also discovered and tested gas in overlying Jurassic-aged sandstones although at low rates which will be the subject of further study and evaluation.
The M7-A field will most likely be developed by re-entry and subsea completion of the suspended M7-5ST well, tied back to nearby gas processing and export infrastructure. This low cost development scenario leads to expected timing for production commencement around mid 2008 subject to rig availability and successful negotiations with third parties for infrastructure access.
As noted above, Cirrus has commissioned but does not yet have an independent resource assessment of its interests in the M1a and M7 fields. In addition to general oil and gas industry risks, the successful development of these fields is subject to numerous technical and other risks including, without limitation, whether the original gas in place and recovery factors will be sufficient to make development economic. Technical and other risks that may affect the feasibility of the development of the M1a and M7 fields include unknown gas/water contacts, cost of the development programs, access to third party facilities and timing uncertainty related to access to services and receipt of regulatory approvals.
The interests to be acquired could be reduced by 5% (to 47.5% for Block M1a and 13.06% for Block M7) if an option granted to a company affiliated with a Cirrus director is exercised.
Cirrus' President, David Taylor, comments; "The acquisition of these two gas fields marks a tremendously exciting and highly material step towards Cirrus achieving its goal of becoming a full cycle upstream operating company in the Southern North Sea and fully complements our rapidly expanding asset portfolio in the Netherlands and our development operations in Trinidad. We see the opportunity for a smaller, focused niche operator such as Cirrus to build a substantial portfolio of development opportunities from the large population of currently undeveloped discoveries on the Netherlands continental shelf.
The simultaneous development of the M1-A and M7-A fields is expected to result in considerable savings in costs and efficiencies of scale. In addition, the projects' technical risks are complementary combining the high productivity although lower volume M7-A reservoir with the lower productivity but potentially much larger volume M1-A reservoir. We consider both fields to have considerable upside potential plus both blocks contain a substantial inventory of undrilled exploration prospects".
The transaction has an effective date of April 1, 2006 and is expected to close by September 1, 2006 subject to pre-emption rights with respect to the M7 license and approvals by the M1 and M7 partners and the relevant government and regulatory authorities.
Cirrus Energy Corporation is an international oil and gas company headquartered in Calgary.
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