Ivanhoe announced that Sunwing, the company's wholly-owned subsidiary, has commenced drilling at Zitong-1 located in Sichuan Province, China's most prolific gas producing region. Sunwing is the operator of the 659,840-acre (1,031 square miles) gas exploration block in Sichuan, and it holds a 90 percent Contractor Interest in a Petroleum Contract with PetroChina Company Limited. Mitsubishi Gas Chemical Company of Japan holds the remaining 10 percent Contractor Interest.
Zitong-1 is targeting the Guan structure, a massive 70-square-kilometer structure in the center of Sunwing's block in Sichuan. Zitong-1 will target tight gas in fractured formations using horizontal drilling and established, multi-stage fracing technologies similar to those that have led to enormous gas developments in various tight gas projects in North America. Each target in the Guan structure is estimated to have potential of 0.3 to 0.5 trillion cubic feet of natural gas.
Total depth of the Zitong-1 well is planned to be approximately 4,500 meters and it is expected to take up to six months to drill and test the well. Zitong-1 is expected to cost US $14.5 million to US $17.5 million which includes plans to drill, test and case the well.
Yixin-2 - second well to begin drilling in July
Preparations for Sunwing Energy's second well location, Yixin-2, in the Zitong block are also underway and Sunwing expects to commence drilling this well in July 2010. Yixin-2 is being drilled as a twin well of Yixin-1, a well drilled by Sunwing in 2007 that generated flow rates of up to 4.0 million cubic feet per day before being shut down due to certain equipment failures during the testing program. Yixin-2 will be directionally drilled to allow the second wellbore to be located within 67 meters of the Yixin-1 at total depth.
Gas targets in the range of 0.3 to 0.5 trillion cubic feet
While Zitong-1 and Yixin-2 are targeting structures with natural gas potential in the range of 0.3 to 0.5 trillion cubic feet, any gas test with a minimum flow rate of 0.7 mmcf/d for eight hours will allow Sunwing to declare a commercial discovery. According to the terms of its Petroleum Contract, upon declaration of a commercial discovery, Sunwing is permitted to develop any of the various previously drilled structures on the block. These structures were drilled without the benefit of current technology and Sunwing's ability to access these additional structures would significantly enhance the value of the Zitong block.
"This is clearly an exciting time for us given the high-impact potential of these wells," said Gerald Moench, President of Sunwing Energy. "Any drilling success will have the potential to dramatically change the growth profile for Sunwing and Ivanhoe Energy."
Sichuan is the oldest and one of the most prolific gas producing regions of China. Sinopec and PetroChina have made significant gas discoveries from the Xu2 formation in blocks adjacent to Sunwing's Zitong Block. Any gas produced in Zitong will be fed directly into an existing regional gathering and sales distribution system.
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