The joint venture covers a 35 square kilometer area which includes all of the Petisovsci and Dolina field areas, discovered in 1942 and 1943 respectively. In the Petisovsci field a total of 122 wells were drilled to a target depth of approximately 1,600 meters between 1943 and 1966. Oil production peaked at approximately 1,800 barrels of oil per day in 1951. Current production level is about 20 bopd. Cumulative production is reported to be 5.6 million barrels of oil and 9.6 Bcf of gas. There are more than 60 wells still technically active in the Petisovsci field area. In the Dolina field, immediately to the east of Petisovsci along the border with Hungary, thirteen wells were drilled during the period from 1942 to 1954 to develop four shallow gas reservoirs. Cumulative production was 16 Bcf. One of the Dolina wells was later completed as an oil well in the same primary reservoir as at Petisovsci and produced 124,000 barrels of oil. All of the Dolina wells are currently suspended.
In addition, 9 deeper wells were drilled in the Petisovsci field area between 1962 and 1989. These wells, drilled to test gas targets at depths of approximately 3,000 metres, discovered multiple tight sand reservoirs. Only a few of the reservoirs have been completed and fracture stimulated. These sands have produced 8.7 Bcf of gas to date and continue to intermittently produce at minor rates.
The Petisovsci and Dolina fields lie on an anticlinal structure which continues east into Hungary. Approximately 1/3 of the structure is in Slovenia with the balance in Hungary. The oil field on the Hungarian side of the border is called the Lovaszi field. Lovaszi has, to date, produced 50 million barrels and 230 Bcf of gas, approximately 10 times more than that produced from Petisovsci-Dolina (5.6 million barrels of oil and 34.3 Bcf of gas). The Company believes that significantly more oil and gas can be produced from the Slovenian part of the structure which has been acquired as a part of the joint venture.
Slovenia is located in south-central Europe and is bounded by Croatia (south), Hungary (east), Austria (north) and Italy (west). The project area is located in eastern Slovenia near to the borders with Hungary and Croatia approximately 210 kilometers south of Vienna, Austria and 180 kilometers northeast of Ljubljana, the capital of Slovenia.
Under the agreements, Loon, on behalf of itself (35%) and a third party at arm's length to Loon (5%), will first join with Lamprell Energy Ltd., of Dubai, United Arab Emiratesin acquiring, on a 40/60 basis, all of the issued and outstanding common shares of Nemmoco Petroleum Limited at nominal cost. Loon et al and Lamprell have agreed to pay to the current shareholders of Nemmoco a minimum royalty of 3% and a maximum royalty of 5% on any oil or gas production subsequently developed by Nemmoco from the Petisovsci-Dolina field areas together with a 2.5% royalty on any oil and gas subsequently developed in the Pannonian Basin area by the joint venture partners. Prior to the transaction Loon owned 6.67% of the issued and outstanding share capital of Nemmoco. Accordingly, 6.67% of the royalty paid by the joint venture partners will be payable to Loon.
Under a subsequent agreement, Loon has agreed to assign all of its Nemmoco shares to Lamprell, at nominal cost, in exchange for a 35% interest in the Petisovsci-Dolina joint venture. Under the terms of the joint venture, Loon and partners will receive 95% of all oil and gas produced prior to payout and 75% thereafter. Accordingly, Loon will receive 33.25% of all oil and gas produced from the field until payout at which time Loon's entitlement to oil and gas will reduce to 25.25%. In addition, Loon will have the right to take up a 35% interest in any project developed by Nemmoco in the Pannonian Basin which underlies parts of Slovenia, Austria, Slovakia, Hungary, Romania, Serbia and Croatia. As a joint venture partner of Nemmoco, Loon will be responsible for its share of the royalty payable to the former shareholders of Nemmoco and will become the operator of all field operations.
During 2002, Nemmoco re-entered 3 wells in the Petisovsci field. The primary objective, obtaining production from the Petisovci zone at a depth of about 1,600 meters, was not achieved due to extensive reservoir damage caused by drilling and completion practices used in the area during the middle part of the 20th century. The Company believes that these problems can be overcome either with a new well or a more selective approach to working over old wells. Despite the failure to produce oil from the deeper objective oil production was obtained from shallower zones in the same wellbores at non-commercial rates. Subsequent engineering, geological and geophysical work has identified the principle reasons for the results of the initial program and identified specific targets which are believed to be more suitable for the development of commercial rates of production.
While Loon has made no specific spending commitment as a part of any of the agreements entered into, Loon and Nemmoco do plan to re-enter a number of wells which formerly produced oil to evaluate their potential for additional production. It is expected that activity in the field will commence late in the first quarter of 2003.
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