Drilling Status and Results
Tawke # 2:
Tawke # 2 was drilled as an appraisal well of the Tawke oil discovery. The well is located some 2 km to the west of Tawke # 1 discovery well. Tawke # 2 has to date penetrated and tested the same reservoir interval which tested 5,000 bopd in Tawke # 1 and 1A. The Tawke # 2 well flowed 3,840 bopd, confirming good reservoir quality also at this location. The test production results achieved from Tawke # 1, 1A and Tawke # 2 are undertaken under different well completion environments. The Company believes that there is potential for improvements in the individual well production capacity by optimizing the completion and well stimulation techniques.
The discovery well, Tawke # 1 is located closer to the crest of the structure, and preliminary evaluation indicated 330 million barrels of oil in place (ref Stock Exchange Notice of June 12, 2006). Applying a recovery factor of 30 % the P50 gross recoverable oil reserves were estimated at 100 million barrels (40 million barrels net to DNO, pre-tax).
The Tawke # 2 results confirm the western extension of the Tawke structure, and the preliminary evaluations completed to date of the zone tested by Tawke # 1 / 1A and Tawke # 2, indicate that the reserves related to this reservoir zone alone, may be higher than the above original estimates. However, further work is required to revise the reserve figures, including interpretation of the new 3-D seismic and a remapping of the Tawke structure. Tawke # 2 has also yet to penetrate and test additional shallow reservoir levels.
Khanke # 1:
A second drilling rig was mobilized into the PSA area during July. The rig is currently drilling at the Khanke prospect (Khanke # 1). The well has now reached approximately 3,000 meters, and based on the results to date the plan is to undertake two production tests. Before the testing will be undertaken the well will be further deepened to a total depth of approximately 3,500 meters.
Tawke Early Production Plan
The reservoir interval which tested 5,000 BOPD in Tawke # 1 and 1A, and 3,840 bopd in Tawke # 2 forms the basis for the Early Production Plan for the Tawke oil discovery. The development plan has now been approved by Kurdistan Regional. Government. First oil production is planned during first quarter of 2007.
Pipeline and Central Processing Facilities (CPF) have been secured for the Tawke early production development. Following modifications of the CPF, feasibility studies based on the Tawke crude quality confirm that the pipeline and CPF have the capacity to deliver approximately 50,000 bopd.
As a result of this positive news, DNO plans to accelerate development drilling within the Tawke area, and a third smaller rig will be mobilized into the Tawke area at the beginning of 2007. The second larger drilling rig currently drilling at the Khanke # 1 location may also be mobilized into the Tawke area after completion of Khanke # 1 and one further exploration well. The impact of re-scheduling the drilling plans means that a total of three drilling rigs could be in operation within the Tawke area during a substantial part of 2007.
Agreement for Increasing the Working Interest in the PSA's:
DNO currently holds a 40 % working interest in two PSA's: The Dihok PSA including the Tawke oil discovery in the northern part of Iraqi Kurdistan, and the Erbil PSA further to the south.
Subject to an agreement which is in the process of being finalized with the KRG, DNO will be responsible for 100 % of the funding obligations of the PSA's in return for receiving additional 15 % Working Interest. The exploration and development expenditures to date are primarily related to the Dihok PSA, and these costs are expected to be fully recovered in 2007, if first oil is achieved in accordance with the current Tawke early production plan.
Commenting on the results Managing Director Helge Eide says:
"The results from Tawke # 2 are very encouraging and confirm the robustness of the Tawke development. We have made significant progress with this project during the last few months and we are on schedule to achieve our important near term target to produce the first oil from Tawke during first quarter of next year. This will mark another important milestone to KRG and DNO."
Commenting on the results the KRG Natural Resources Minister, Dr. Ashti A. Hawrami says:
"We are delighted by the Tawke # 2 well results, confirming the production potential of the western extension of the structure and the possibility of higher oil reserves in the field. We are pleased with DNO's dedicated and professional work in the Kurdistan Region and we are committed to provide them with all the assistance needed to facilitate early oil exports from this first post-war oil discovery to generate a new source of income for all the people of Iraq."
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