Following HQ-1, the Company completed a vertical appraisal well in the north-east sector of the Hiswah field (the "HNE" well). This well was drilled to extend the eastern boundary of the known reserves in the Hiswah field. The HNE well encountered greater than 100 gross meters of hydrocarbons and extended the Hiswah field beyond the original assessed boundaries. The lower part of the well was cemented to convert it to a horizontal producing well. Drilling of the horizontal segment should be completed within a week.
Upon completion of the HNE well the Company intends to drill an exploratory vertical well into a structure south of the Hiswah field. A fault divides the two structures. All other exploration and development wells have been drilled into the north side of this fault.
Calvalley had previously announced (June 26, 2006) that it had entered into a crude oil sales agreement with Occidental Crude Sales Inc. (International), a wholly owned subsidiary of Occidental Petroleum Corporation. Under the terms of the agreement Calvalley and its joint venture partners will sell 500,000 barrels of Marib light oil during the month of August 2006 from the Ras Isa terminal on the Red Sea, Yemen.
The Company has commenced negotiations for a long term crude oil sales agreement from various major crude buyers and will be executing a short-term agreement for the September and October shortly.
The 2D seismic program reported on June 15, 2006 has commenced with mobilization of the equipment and crew. Set-up, preparation, surveying and technical audit of the equipment are expected to commence on July 27, 2006 and recording operations should begin by August 22, 2006. The total program is approximately 750 kilometers and will be completed within 6 months.
Central Processing Facility
The construction of the Central Processing Facility continues and is anticipated to be operational by the end of 2006. All major equipment have arrived Yemen and installation is underway.
Pipeline Transmission System
During June the Company reached a tentative agreement with the Government of Yemen for the construction of a pipeline from the Block 9 production facilities to the Safer Facility. Calvalley's legal counsel is working with the legal counsel for the Yemen Minister of Minerals in the preparation of a Tariff and Facilities Usage Agreement in respect of the Safer facility and pipeline transmission system to the Ras Isa terminal on the Red Sea.
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