Cirrus Energy provides the following operational update regarding our activities in The Netherlands. The first exploration well in a six well drilling program has been spudded on the Q14-Alpha prospect and good progress continues on our two operated field development projects, M1-A and M7-A.
Q14-3 Exploration Well (Cirrus 30%)
The Cirrus operated Q14-3 well on the Q14-Alpha prospect was spudded on 15th September using the Noble Lynda Bossler drilling rig. Total depth of the well will be approximately 2750 meters sub-sea. The drilling duration is estimated as 35 days. A further 15 days is likely to be required if testing is justified.
The Q14-Alpha prospect is a large fault block interpreted and mapped on 3D seismic data. The primary reservoir targets are Triassic-aged Bunter sandstones with secondary reservoir potential in Permian-aged Zechstein and Rotliegend sandstones. Cirrus' internal estimate of combined most likely, gross, unrisked, recoverable resource potential in the Triassic is 125 bcf with a further potential 50 bcf in the Permian. In order to test the Triassic at an optimal location, however, it is not planned to deepen well Q14-3 to the Permian.
Partners in the well are TAQA Offshore B.V. ("TAQA") (30%) and the Dutch state participant, EBN B.V. ("EBN") (40%). Under a previously announced farmin arrangement, TAQA is funding Cirrus' share of gross well costs up to (euro)12.5 million in the event of a dry hole, or (euro)16.5 million if the well is tested. Expenditures in excess of these limits will be funded by partners according to their post-farmout working interests.
M7-A Development Project (Cirrus 42.75%)
Fabrication of the M7-A platform deck is mechanically completed and onshore commissioning is underway together with certification. The base frame of the support monopile has also been fabricated. It is currently expected that the complete platform will be installed offshore during late September.
The 13 km, 6" pipeline from the M7-A platform location to NAM's L09-FF process platform has been laid, trenched and buried. Pressure testing has been successfully completed. Tie-in modifications on the L09-FF platform are currently underway and installation of the riser from the pipeline to the platform is planned to be completed in October.
The jack-up drilling rig Noble Lynda Bossler will commence drilling operations at the M7-A platform when it has completed the Q14-3 exploration well. Depending on whether there is testing or not at Q14-3, the rig is expected to move to M7-A during either late October or early November. Detailed review of the original suspended discovery well (M7-5ST) indicated that there are significant well integrity concerns and, with a view to reducing risk, our plan is now to drill a new development well (M7-A1) from the M7-A platform with an expected drilling duration of 50 days. This is longer than the originally planned re-entry and sidetrack and hence the estimated gross well costs have increased to (euro)15.7 million from (euro)9.6 million.
Partners in the M7-A development are DSM Energie B.V. (5%), Energy06 Investments B.V. (2.25%) and EBN (50%). First gas from M7-A is expected around the end of December, 2008.
M1-A Development Project (Cirrus 47.5%)
Fabrication of the subsea protection dome has been completed. Fabrication of the subsea wellhead and high pressure protection system is underway. Offshore installation and well related activities are currently planned for the second quarter of 2009 when favourable weather is more predictable although this timing also depends on securing acceptable commercial terms for access to the existing 6" pipeline which would be used for export of the raw gas to the G17-A process platform. Commercial discussions with the relevant third parties are continuing.
Partners in the M1-A development are Energy06 Investments B.V. (2.5%) and EBN (50%).
L8-D Field (Cirrus 39.729%)
Cirrus has entered into an agreement with Chevron Exploration and Production B.V. to acquire its 48% operated interest in that part of the L8-D Field that potentially extends in the L11b license. The consideration for the acquisition takes the form of an overriding royalty payable out of future production revenues from the field and the drilling of one appraisal well. Cirrus holds a 39.729% interest in the planned L8-D Unit and is operator. Equity interest partners in the L8-D Unit are expected to be DSM Energie B.V. (2.880%), Energy06 Investments B.V. (2.091%), EWE Aktiengesellschaft AG (13.400%), and EBN (41.900%).
The L8-D Field was discovered by well L8-16x drilled in 2004. The well was drill stem tested at rates up to 430,000 Nm3/day (16.1 MMscf/day) of gas from a Rotliegend sandstone reservoir at a depth around 3850 meters. Water depth at the location is 30 m. It is expected that an appraisal well will be drilled on the L8-D Field in early 2009 with the Noble Lynda Bossler rig.
Cirrus currently has contracted the Noble Lynda Bossler jack-up rig for a total of six firm wells. In addition, the following has recently been agreed with Noble Neddrill International B.V. ("Noble") and Wintershall Noordzee B.V. ("Wintershall"):
- Wintershall will use the Lynda Bossler for two additional firm wells
in the period May to July 2009 after which the rig will return to
Cirrus to continue with Cirrus' drilling program.
- Noble has granted Cirrus two additional well slot options to be
exercised before December 31, 2008. If Cirrus exercises these
options, it would take Cirrus' firm well commitment to eight wells.
- Noble has granted Cirrus and Wintershall the option to extend the
Lynda Bossler contract for a further twelve months after the
completion of Cirrus' drilling program with this option to be
exercised seven months before the expected end of Cirrus' program.
The allocation of rig time between Cirrus and Wintershall for this
extension period has not been determined as yet.
This new arrangement provides all parties with the rig time required to meet their near term drilling requirements plus access to the rig for potential program extensions.
Cirrus' President, David Taylor, comments: "Despite a very tight market for materials, labour and equipment, Cirrus remains on track to achieve the start of gas production in Holland around the end of calendar 2008. We look forward to generating material production revenues in 2009 with gas prices in The Netherlands remaining high as they are linked to trailing oil product prices. As an example, $100 per barrel Brent corresponds to gas prices around US$12.00 per thousand cubic feet.
The commencement of our operated multi-well drilling program is another exciting milestone in Cirrus' growth. This drilling program will expose shareholders to numerous opportunities for significant value creation throughout the remainder of 2008 and most of 2009. It is important to note that Cirrus has a strong balance sheet and is fully funded for the M1-A and M7-A developments plus the planned drilling program of appraisal wells on both the K10-Bravo and L8-D fields and at least two exploration wells. Unlike many junior companies in today's challenging environment, Cirrus is very well positioned with an exciting prospect inventory, access to a drilling rig and the funds required to execute its program."
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