The company's third well in Zhana Makat A, the ZMA-4X, was completed in late October 2006. This delineation well tested the field limits and confirmed the expected oil-water contact. Separate drill stem tests were performed over three zones in the well to gain more information on possible additional productive zones in Zhana Makat and to comply with local requirements. The upper two zones produced marginal quantities of crude oil. The third zone was perforated close to the oil-water contact for data acquisition purposes. It initially produced oil at a commercial rate before experiencing an increase in water production. The well was temporarily shut-in and has now been brought back online producing marginal quantities of oil. The company is considering whether to add perforations to enhance the production from the well or to convert it into a water injection well. Regardless, the results of the well have improved the company's technical understanding of the reservoir and will enable it to optimize future drilling locations in Zhana Makat A. The company completed its fourth well, the ZMA-3X, on 10 November 2006, perforating a total of 15.7 meters in the Jurassic formation at depths ranging from 797 to 830 meters. The well was drilled close to the crest of the structure, and the log results are encouraging. The well began producing at an equivalent daily rate in excess of 400 barrels of oil per day (bopd) and is currently being evaluated to determine its optimal productive capacity. The company has moved the drilling rig to the ZMA-5X location to test the northeastern portion of Zhana Makat A and has commenced drilling. Subsequently, it is anticipated that the rig will move to Zhana Makat E to drill the ZME-1X exploration well, the first of up to four wells the company intends to drill on that location.
Daily production from the Zhana Makat A discovery is now in excess of 600 bopd and is expected to increase as the ZMA-3X is brought onto full production. As a result of the extensive well testing carried out to acquire reservoir performance data and satisfy government requirements, the company now expects to drill a total of seven shallow wells by the end of December 2006. While this is fewer than originally anticipated, the company still expects to drill a total of 30 shallow wells by the end of 2007. Consequently, while the expected aggregate exit production rate for year-end 2006 is lower than previously anticipated, the company's work program should enable it to achieve a per well exit rate of 250 bopd, in line with the company's original expectation for each productive shallow well.
The original Competent Persons Report ("CPR") was completed in October 2005, using a limited database of Soviet geophysical and well data. Since then the company has recorded and processed approximately 2,170 km of new 2D seismic lines and 380 km2 of 3D seismic, reprocessed a significant portion of old seismic data, and acquired and reinterpreted several existing well logs. As a result, the company has commissioned a comprehensive review of its entire asset base from McDaniel & Associates to update the original CPR, as well as to provide an independent reserve valuation of the Zhana Makat structure. The company expects the results of the updated CPR will be released in early January 2007.
Jim Jeffs, Executive Chairman, commented:
"As Max Petroleum continues to execute on its shallow drilling program, we are gathering information that is helping us to optimize the future drilling and development of Zhana Makat. The preliminary results of ZMA-3X are promising, representing the highest start up production rate of the wells drilled to date and strengthening our belief that Zhana Makat is a very good development prospect in its own right. As we continue our thorough review of the technical data, firming up shallow, intermediate and deep prospects, we continue to be encouraged by the growth potential of our assets. The planned drilling program through the end of 2007 will provide many opportunities to prove up a significant portion of this prospectivity, and is simultaneously designed to provide the operating cashflow necessary to sustain Max Petroleum in the long term."
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