A1-47/02 Oil Discovery Preliminary Appraisal Report Submitted to the NOC
The Company has submitted a preliminary appraisal report to the Libyan National Oil Corporation on its first light sweet crude oil discovery A1-47/02 as required under the Exploration and Production Sharing Agreement for Area 47. The report incorporates results from the drilling, formation evaluation and flow testing programs and makes recommendations on additional seismic reprocessing and interpretation, reservoir analysis and additional appraisal drilling in areas adjacent to the A1-47/02 structure to determine the size of the discovery and potential recoverable resources.
As announced on April 25, 2007, the A1-47/02 well was flow tested at a maximum combined rate of 12,500 barrels of oil per day (gross) at choke sizes up to 128/64ths inch and 6,586 barrels of oil per day at a restricted choke size of 32/64ths inch, from 174 feet of perforations in three test intervals in the Lower Acacus Formation. These flow tests confirmed the excellent quality and deliverability of the sandstone reservoirs discovered in the Lower Acacus in this well and provided information to calibrate wireline log and other formation evaluation results.
This combined flow test rate is not necessarily indicative of ultimate production rate in any commercial development, which will be determined from reservoir management studies that constitute part of the proposed appraisal program.
B1-47/02 Well Successfully Flow Tested From Five Reservoir Intervals
The Company has successfully completed flow tests from 312 feet of perforations in five reservoir intervals in the Lower Acacus and Middle Acacus Formations in its second exploration well B1-47/02. The combined measured flow rate of light sweet crude oil exceeds the rate achieved in the Company's first exploration well A1-47/02 due primarily to the greater perforated pay in the B1-47/02 well.
The Company plans to release details of the flow test results on the B1-47/02 well subject to the approval of the NOC, which is currently reviewing the well test results. The KCA DEUTAG Service Rig 32 was released from the B1-47/02 well on June 5, 2007 and mobilized to the C1-47/02 well to carry out similar flow testing.
C1-47/02 Well Currently Flow Testing
The Company has completed flow tests on three intervals in the Lower Acacus Formation at its third exploration well C1-47/02. The results are encouraging, yielding light sweet crude oil at rates that are comparable to the first two wells when normalized to perforated pay thickness.
The Company plans to test up to five reservoir intervals from approximately 188 feet of perforations, including four intervals in the Lower Acacus and one interval in the shallower Aouinet Ouenine Formation. This program could extend to mid-July 2007.
At the conclusion of the program, flow test results will be released subject to NOC review and approval.
D1-47/02 Well at Total Depth and Currently Logging
The Company's fourth exploration well D1-47/02 commenced drilling on May 25, 2007 and reached total depth of 9,720 feet on June 27.
Based on positive mud log results and hydrocarbon shows during drilling, an extensive logging and formation evaluation program is underway similar to the program carried out on the Company's first three exploration wells. This evaluation program could extend to mid-July 2007.
New 3D Seismic Acquisition Program Underway
Survey work has commenced for the Company's planned 2007/2008 3D seismic program along the eastern side of Area 47. The program covers an area of approximately 1,225 square kilometers and encompasses more than 20 prospects and leads identified from the Company's 2D seismic acquisition program completed in 2006.
The final 3D seismic program design indicates that the acquisition phase could be completed by late December 2007, which is about two to three months sooner than originally anticipated. Completion of processing and interpretation is targeted for the end of the first quarter of 2008 although the Company anticipates that the initial northern part of the program could be interpreted in the third quarter of 2007 to guide potential drilling in this area in late 2007.
Libya Budget Outlook
As a result of the accelerated 3D seismic program, faster than expected drilling times, successful drilling results and associated extensive formation evaluation and testing work, the 2007 budget for Area 47 is expected to increase from the original budget of US$91 million (gross) up to approximately US $114 to 118 million (gross) (Cdn $62 to 65 million net Verenex). The Area 47 Management Committee has endorsed this higher budget outlook.
This increase in the 2007 budget includes the acquisition of 1,225 square kilometers of 3D seismic, 6.5 completed wells (seven spudded), six multi-zone flow tests, a workover and flow test on the suspended oil and gas discovery well A1-NC3A and additional casing and tubing inventory for the drilling program.
The ultimate extent of operations and expenditures in 2007 will depend on several factors, including seismic and well results, availability of the second drilling rig, which is targeted for September 2007, regulatory approvals and partner funding.
France Asset Sale Completed
In France, the Company has closed the sale of its 95% participating interest in the Marvilliers Permit, including the St. Lazare 2H well, and two drilling spacing units in the Parentis Concession, including the Parentis 222H well which are held by the Company's French subsidiary Vermilion Exploration SAS. These assets were sold to Vermilion Rep SAS, a subsidiary of Vermilion Energy Trust, effective July 1, 2006 for a consideration of Cdn $3.5 million.
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