The KHE-3 well will further appraise the Cretaceous Massive reservoirs encountered in both the Khurbet East 1 ("KHE-1") discovery well and the Khurbet East 2 ("KHE-2") appraisal well and is scheduled to commence drilling in November.
The drilling of this well will assist in the planning for early development and production of the Massive reservoir in Khurbet East. The total drilling depth of the KHE-3 well is expected to be approximately 2,150 meters and will require approximately 45 days to drill and evaluate at a gross cost, including rig mobilization and demobilization costs, of approximately $2.4 million, or $1.2 million net to Gulfsands. Utilizing its shared drilling contract with Petro-Canada in Syria, the Company plans to drill this well with the MB3 drilling rig owned by MB Drilling Overseas Limited.
Recent additional analysis of both the KHE-1 and KHE-2 wells suggests that the net oil pay within both wells is larger than previously indicated, with potentially additional pay deeper in the Massive reservoirs. Independent wireline log analysis and production test data from KHE-2 now indicate a total of approximately 29 meters of net oil pay in both the KHE-2 and KHE-1 wells, thereby increasing the reserve potential of the Khurbet East discovery.
To date, there has been no clear oil-water contact seen in either well and no formation water was recovered during the recent KHE-2 production test. The reserve potential of the Massive reservoir in Khurbet East now exceeds the Company’s original estimates of the reserve potential of both the Cretaceous Massive and Tertiary Chilou combined.
Early Development Plans
The Company is currently developing plans for an early production program and full field commercial development of the Khurbet East discovery, with initial production targeted for the second half of 2008. The Company expects to present these plans, along with the initial development plan, to the Syrian Government and the Syrian Petroleum Company in the fourth quarter of 2007 for consideration and approval.
As part of the Contract for the Exploration, Development and Production of Petroleum for Block 26 with the Syrian Government and the Syrian Petroleum Company, the Company has been granted rights to utilize the local pipelines and other infrastructure, which includes an export oil pipeline located within the presently mapped boundaries of the Khurbet East structure. The Company may locate the Khurbet East Field oil processing facility adjacent to this export pipeline, thus minimizing the tie-in distance, costs and time.
The Company is also preparing its 2008 work program for Block 26 with plans to drill an appraisal well of both the Triassic Butmah and Kurrachine Dolomite Formations in Khurbet East following the earlier successful production test of the Triassic formation carried out in the KHE 1 well. The 3D seismic survey over the Khurbet East Field area, which will commence in October, will assist in the selection of the location for this well.
The Company is scheduled to commence a 3D seismic acquisition program in Block 26 late next month. The seismic survey is designed to acquire approximately 150 square kilometers of seismic data over the Khurbet East structure and a further 240 square kilometers over an area south of Khurbet East.
The 150 square kilometers of 3D seismic data to be acquired over the Khurbet East structure will assist in locating development and near-field offset wells and provide support for reserves reporting. Work on the first reserves report for Khurbet East has commenced with the engagement of an independent engineering firm, RPS Group plc based in London, and this should be completed before the end of 2007.
The additional 240 square kilometers of 3D seismic data to the south of Khurbet East will be used to evaluate exploration leads and to develop "drill ready" targets for the Massive and Kurrachine Dolomite formations south of Khurbet East and within the Khurbet East "play fairway".
The seismic acquisition program should be completed in January with processing and interpretation completed in the first quarter of 2008.
In anticipation of this significant increase in activity on Block 26, the Company has signed an amended contract with Crosco, Integrated Drilling & Well Services, Company Ltd. for the drilling of two wells by May 2008. Additionally, the Company has agreed in principle with Crosco for another drilling rig to commence work in mid 2008 for a period of one year plus an option for an additional one-year. With these rigs the Company can fully appraise and develop the Khurbet East Field expeditiously for the benefit of both the Company and the Syrian Government.
Gulfsands’ CEO, John Dorrier, said:
"Following the success of KHE-2, the Company is moving forward aggressively to appraise the Khurbet East Field further, secure an approved Field Development Plan and initiate early production as quickly as possible. Having secured a drilling rig for use in 2008, we will sustain considerable momentum in the drilling campaign for both development and exploration within Block 26. With access rights to the nearby export pipeline granted in the PSC, we are optimistic about the prospects for bringing the Khurbet East discovery into production during the second half of 2008."
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