Qian112 2006 drilling program:
The 2006 drilling program provides for the drilling of 20 wells in the Qian112 oilfield to a depth of approximately 2020 meters. If all 20 wells are drilled during the program period, the drilling program could be extended for up to 20 additional wells. The anticipated duration of the 2006 drilling program is 8 months, but it may be extended if necessary. It is currently expected that the 2006 drilling operations will commence during May 2006. The 2006 drilling program is the first stage of a planned multi-well drilling and seismic testing program to be conducted in the Qian112 oilfield. By the end of 2007, China North East Petroleum Holdings, Limited plans to drill up to 82 additional wells, which, if completed, would bring the number of wells operated by the company to 102.
Rising Sun Exploration and Production Limited Rising Sun was awarded the Drilling Contract through a competitive tendering process initiated by the Company during February 2006. Rising Sun has shown the technical competence necessary with its recent Songyuan experience (Qian 112 is located in Songyuan, Jilin Province, PRC) and its comprehensive project management proposal.
Another key factor in awarding the contract to Rising Sun was the near immediate availability of a drilling rig in a fiercely competitive rig market. The rig will be available to the Company immediately after the completion of another drilling program currently being conducted by Rising Sun. Rising Sun anticipates completing its current project during May 2006. Rising Sun will start preparatory work immediately on the Company's drilling site to facilitate a prompt mobilization.
Hongjun Wang, President of CNE Petroleum, commented:
"We are delighted that Rising Sun will be drilling 20 wells in our 5115-acre oilfield. They offered the best technical package and their recent success in Songyuan will bring huge benefits to CNE Petroleum."
Qian112 has middle and lower oil containing combination, with industrial oil found in Fuyu oil layer and Gaotaizi oil layer. The main layer is Gaotaizi oil layer for the production wells. Qian112 is located southeast of Qian'an. Its nose-shaped construction is inclined from north to southwest. The top elevation of Gaotaizi oil layer is -1350 to -1450 meters and faults have not developed in the area. The Gaotaizi oil layer is a target-exploiting layer in this area distributed in No.3 black segment stratum of Cretaceous system. The thickness of stratum is 350-410 meters, and oil reserve depth is 1600-2075 meters. Average oil-containing well segment is 120 meters and average effective thickness is 4.9 meters.
The proven geological reserve is 1,252,000 barrels (based on current 20 producing wells in compliance with the SEC Oil and Gas Proven Reserve Regulations).
China North East Petroleum Holdings, Limited is engaged in the ownership, acquisition and management of mineral properties and the exploration for and development of oil drilling projects and the production of crude oil in Northern China. The Company boasts a production and supply agreement with Jilin Refinery of PetroChina to sell its produced crude oil for use in the Chinese marketplace. The Company currently operates 20 producing wells in Northern China and generates approximately 380 barrels of high quality crude oil per day. By the end of year 2007, the Company plans to drill up to 82 additional wells, including the wells to be drilled by Rising Sun.
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