Rig Contract Executed -- Khurbet East Exploration Well
Gulfsands, the operator and 50% working interest owner in Block 26, Syria, has executed a formal contract with Crosco, a drilling company based in Croatia, for the Crosco 602 rig, a 2,000-horsepower drilling rig to be used for drilling one exploration well scheduled to commence by mid-February of this year. The Crosco 602 rig will be utilized to drill the Khurbet East exploration prospect ("KHE 1") and has now been mobilized to the drill site.
KHE 1 is a fault-bound structural culmination, with closure mapped at multiple potential reservoir levels. These include reservoirs of Cretaceous, Triassic and Palaeozoic age. The well is located approximately 12 kilometers southwest of the Souedieh Oil Field and 12 kilometers south of the Rumailan Oil Field, in the northeastern portion of Block 26. The total drilling depth of the KHE 1 well is expected to be approximately 3,700 meters and require approximately 90 -- 100 days to drill and evaluate.
The Tigris-1 exploration well is currently drilling ahead at a depth of 4,391 meters to a planned total depth as previously announced of approximately 4,500 meters.
Following the drilling of the KHE 1 well the Company is planning to drill its fourth commitment well on Block 26 once the rig currently drilling the Tigris-1 well is returned to Gulfsands around July 2007.
Gulfsands' CEO, John Dorrier, said:
"We are very pleased to have reached agreement with Crosco for the use of the 602 rig in a market which is increasingly tight for equipment of this size and capability. With the anticipated return of the current rig later in the first half of the year, we can now look forward to being able to undertake a nearly continuous drill program on Block 26 during 2007."
Gulf of Mexico, USA
The Company owns interests in 64 offshore blocks comprising approximately 216,000 gross acres which includes numerous producing oil and gas fields offshore Texas and Louisiana with proved and probable recoverable reserves of 32.4 BCFGE, consisting of 19.8 BCFG and 2.1 MMBO. As of 1st January 2006 these were estimated to have a net present value of $183 million. In addition, the Company's 2.8 BCFGE of possible recoverable reserves were estimated to have a net present value of $15.8 million.
Gulfsands owns a 50% working interest and is operator of Block 26 in North East Syria. Block 26 covers 11,000 square kilometers and encompasses existing fields which currently produce over 100,000 barrels of oil per day. These fields are operated by third parties including the Syria Petroleum Company.
In January 2006 the Company completed the acquisition of 1,155 kilometers of 2D seismic over Block 26 and following evaluation of this data, commenced drilling of the Tigris-1 prospect on 10 September, 2006. The Tigris structure is estimated to have the potential to contain in excess of 500 MMBOE. Gulfsands has identified numerous exploration prospects and leads within Block 26 with mean resources potential exceeding 1 billion barrels of recoverable oil.
Ryder Scott recently completed a reserves study on the Tigris structure (the report is available on the Gulfsands' website at www.gulfsands.net) and pending the Company's drilling and testing of the Tigris structure, classified these reserves as either oil or gas bearing. Ryder Scott assessed Gulfsands' net Probable Reserves were 102 BCFG and had a net present value of $233 million. Assuming a primarily natural gas accumulation, Ryder Scott estimated Gulfsands had an additional net 75 BCFG of possible reserves with a net present value of $261 million. All reserve estimations for Syria were calculated using a discount rate of 10% and after applying the terms of the Production Sharing Contract after Syrian taxes.
The Company has completed its own economic evaluation on the Prospective Gas Resource and has estimated the Company to have a net Prospective Gas Resource of 577 BCFG with a net present value of approximately $1.06 billion.
In summary, Gulfsands' total net gas reserves potential among Probable and Possible Reserves for the natural gas case is estimated at 177 BCFG (30 MMBOE) with a net present value of $494 million. When combined with the Prospective Gas Resource for an aggregate 754 BCFG (126 MMBOE), the net present value of Gulfsands' interest are estimated to be valued at approximately $1.55 billion.
Ryder Scott estimated that for a primarily oil accumulation, the Possible Reserves net to Gulfsands are 19.4 million barrels of oil with a net present value of $452 million. Gulfsands has completed its own economic evaluation on the Prospective Oil Resource and has estimated its net Prospective Oil Resource at 50.9 MMBO with a net present value of approximately $1.51 billion.
In summary Gulfsands total net oil reserves potential among Possible and Prospective Oil Resource for the oil case is estimated at 70.3 MMBO with a net present value of approximately $1.96 billion.
Gulfsands signed a Memorandum of Understanding in January 2005 with the Ministry of Oil in Iraq for the Misan Gas Project in Southern Iraq and following completion of a feasibility study on the project, is currently negotiating details of definitive contracts for this regionally important development. The project will gather, process and transmit natural gas that is currently a waste by-product of oil production and as a result of the present practice of gas flaring, contributes to significant environmental damage in the region.
Gulfsands operates onshore in the US through its 100% owned subsidiary company Darcy Energy LLC, which owns interests in two oil and gas fields onshore Texas, (34.375% working interest in Emily Hawes and 37.5% working interest in Barb Mag) with proved and probable recoverable reserves net to Gulfsands at 1 January 2006 of 1.6 BCFGE, consisting of 1.2 BCFG and 58,000 barrels of oil with an estimated net present value of $9.5 million. Additionally, these fields contain a further 2.2 BCFGE of possible recoverable reserves net to Gulfsands with an estimated net present value of $7.9 million.
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