Gulfsands provided the following update on the Company's operations at Block 26, Syria, where Gulfsands holds a 50% interest and is operator.
Yousefieh South -1 Exploration Well
The Yousefieh South-1 ("YSO-1") vertical exploration well has been successfully drilled to a total depth of 2100 meters Measured Depth Below Rotary Table ("m MD BRT"). The top of the primary objective, the Cretaceous aged "Massive" reservoir, was encountered 41 meters deep to prognosis at a depth of 1990 m MD BRT, 1583 meters True Vertical Depth Below Mean Sea Level ("m TVD SS").A total of 12 meters of continuous oil-stained core was recovered from the reservoir interval and a formation evaluation program consisting of wire-line logs was then completed. Analysis of the core along with the wire-line logs indicates that the well encountered a gross 11.5 meter (net 10.8 meter) column of oil bearing reservoir within the Massive formation, with an average porosity of 19.7% and average oil saturation of 61.6% over the pay interval.An oil-water contact may be present at approximately 1595 m TVD SS, similar to the contact depth that was encountered in the Yousefieh field approximately 2 kilometers to the north.
The oil-bearing formation was flow tested under nitrogen lift conditions, but only minor non-commercial volumes of 16 degree API oil and water were recovered to surface. The poor flow performance of this well may relate to the viscous nature of the oil, possible formation damage and the close proximity to the oil-water contact. The well will be further flow tested following plug-back and acidification of the formation via a rig-less operation to be conducted mid-October, an operation that has proved very successful in improving production performance at the Yousefieh Field.
Khurbet East - 18 Field Delineation Well
The Crosco 401 drill rig used in the drilling of the YSO-1 exploration well has now been mobilized to the next well on the Company's Khurbet East Field development program, the Khurbet East-18 ("KHE-18") vertical delineation well, located on the north-west flank of the Khurbet East Field. Drilling and evaluation of this well is expected to require approximately 30 days to complete.
Contract for Second Drilling Rig and Zahraa-1 Exploration Well
Due to the large remaining drilling inventory in Block 26 the Company has signed a contract for a second drilling rig, the Crosco 501, to undertake drilling operations in Block 26. The first well in the campaign for this rig is the Zahraa-1 ("ZAH-1") exploration well located in the far north-east portion of the Block.
The ZAH-1 exploration well will be drilled as a "sole risk" well with Gulfsands having a 100% interest in the well and any subsequent discovery, subject to the Company's partner in the Block having the right, in certain circumstances, to "back into" a 50% interest in any discovery upon reimbursing Gulfsands a multiple of the costs incurred in acquiring 3D seismic data and drilling of the well.
The ZAH-1 exploration well will evaluate a structure that is similar, on trend and adjacent to the neighboring producing Karatchok oil field. The drilling location was selected based on interpretation of 3D seismic data acquired over the prospect area. The primary targets for the well are the Cretaceous aged Shiranish and Massive formations, and the well is planned to drill to a total measured depth of 2600 meters.
The well will spud after the rig has been mobilized to the location which is now likely to occur in mid-October. It is expected that drilling and evaluation operations for this well will require approximately 45 days.
3D Seismic Acquisition Program
The 2010 3D seismic acquisition program, consisting of approximately 1025 km2 of new 3D seismic data directly west of the Greater Khurbet East area, is approximately 50% complete. The program remains on track to be completed during the fourth quarter of this year, with delivery of the final processed data during the first quarter of 2011.
Results of Well Testing of Development Wells
The recently completed horizontal development well Yousefieh-4H has been subjected to an extended flow test. Following a clean-up flow period, the well flowed at an average production rate of 1617 barrels of oil per day ("bopd") of 22 degree API oil over an 11 hour flow period on a choke setting of 48/64" at a wellhead flowing pressure of 72 psi. The well has now been diverted to the Yousefieh Early Production Facility ("EPF").
The Khurbet East horizontal development well, Khurbet East-17H has also been subjected to an extended flow test. Over an 18 hour flow period, the well produced at an average rate of 1564 bopd of 26 degree API oil on a choke setting of 24/64" at a wellhead flowing pressure of 272 psi. The well has now been hooked up to the Khurbet East EPF and is contributing to production from the field.
Khurbet East and Yousefieh Production
Combined production from the Khurbet East and Yousefieh fields has reached approximately 21,000 bopd, with approximately 3000 bopd being produced from the Yousefieh field, and 18,000 bopd from Khurbet East. Both fields continue to produce oil with negligible associated volumes of formation water.
Pipeline and Oil Storage Tanks Project
Commissioning of the 22 km oil pipeline linking the Khurbet East EPF with the oil export facility at Tal Adashas been completed and oil is now being transported to Tal Adas via the new pipeline. The oil trucking operation which has been utilized since production commenced in July 2008 has been discontinued and all of the current production from the Khurbet East and Yousefieh fields are being transported via the new pipeline.
The Company is also pleased to report the completion of construction at the Khurbet East EPFof anew oil storage tank taking the EPF combined storage capacity to approximately 15,000 barrels of oil. This tank has been installed to provide additional storage that can be utilized in the event of an unplanned shut-in of the oil export pipeline.
Commenting on this operations update, Ric Malcolm, CEO of Gulfsands, said, "We continue to improve efficiencies and build momentum in Block 26, with two rigs to be drilling concurrently from mid-October. We are now producing oil from 12 wells and within reach of our year-end target of 22,000 barrels per day.
The commencement of operations using the new pipeline marks a major milestone for the Company which will further enhance operational efficiencies and reduce even further our already low cost of producing and transporting oil. I would like to express our gratitude for the considerable assistance and cooperation we received from Syria's General Petroleum Corporation and various departments of the Syrian government to bring this important project online and congratulate our team in Syria for their terrific execution of this project."
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