Primeline, CNOOC Take Steps Toward Dvlpt. of Lishui 36-1

Lishui 36-1
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Primeline Energy Holdings Inc. reported that the Company has commenced the environmental survey necessary in order to proceed with the potential development of the Lishui 36-1 gas discovery in China.

As part of the preparation of an Overall Development Plan (ODP), it is necessary to carry out various surveys, including environmental impact surveys. Two environmental surveys are required, one in the Spring and the other in the Autumn. The spring survey must be commenced and completed in April/May with the autumn one in September/October. If that window is missed, the survey must be delayed until the following year.

As previously announced, Primeline and China National Offshore Oil Corp. (CNOOC) have completed the detailed engineering and costing element of the feasibility study for the stand-alone development of the existing Lishui 36-1 gas discovery but are still continuing their discussions with the Wenzhou Municipality Authority and the Zhejiang Provincial Government with regard to a gas sales contract. These negotiations commenced formally in September 2007 but were interrupted by the changes in both the Provincial and Municipality government during the period from November 2007 until March 2008. The negotiations have recently been re-opened and are initially aimed at arriving at an Agreement In Principle for a gas sales contract on terms that would justify the commercial development of the existing discovery on a stand-alone basis.

It was the intention of Primeline to delay commencement of the ODP work, including the surveys, until after the signing of at least an Agreement In Principle on the terms of the gas sale contract. However, in view of recent progress in the gas sale negotiations, Primeline has decided to carry out the spring environmental survey whilst negotiations with the Zhejiang and Wenzhou Government continue. Other survey work can wait until Primeline and CNOOC reach agreement with the Wenzhou Government on the gas sales contract.

The environmental survey commenced on May 15 and is being carried out by Primeline's contractor, China Second Oceanographic Research Institute, assisted and monitored by Primeline's feasibility study contractors, CNOOC Research Centre and CNOOC Ltd. Shanghai. The field work is anticipated to be completed by the end of May followed by analysis and the preparation of the report. The final report is expected in October 2008. The cost of this survey is approximately US $250,000.

Exploration Update As previously announced, Primeline has completed the site survey of the proposed exploration well locations near the Lishui 36-1 gas discovery in the Lishui gas play and all other preparatory work required before drilling the identified prospects. Primeline is ready to drill immediately once a rig is available on acceptable terms. In the past 6 months, Primeline has been actively seeking rigs and has received several proposals in respect of various international drilling rigs and drillships. However, for a variety of reasons, it has not so far been possible to obtain a suitable rig on economic terms. Primeline is nevertheless continuing its discussions with COSL/CNOOC and other drilling contractors in order to secure a rig for the selected exploration well locations.


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