Gulfsands Sees Decline in Syria's Production

Gulfsands provided the following update on oil production in Syria.

Block 26 Production Operations

During September 2011, Gulfsands Petroleum was instructed by the Syrian Oil Ministry to reduce Block 26 production in line with reduced availability of crude storage capacity within the country. Production operations on Block 26 have consequently been impacted such that average gross production during the month of September was 14,547 bopd versus the average for the month of August of 24,112 barrels of oil per day ("bopd"). As of October 3rd daily gross production had been reduced further and is currently steady at approximately 6,000 bopd.

During this period of reduced offtake, the opportunity has been taken to undertake a complete shut-in of the Yousefieh field in order to conduct a long term field pressure build-up survey. Memory pressure gauges have been placed in all Yousefieh wells prior to the shutdown of the field on 26th September. This data acquisition exercise represents an opportunity to determine average field reservoir pressure to a level of accuracy that would not otherwise be possible to achieve when the field is under normal production conditions. Measuring reservoir pressure in this way will enable a more accurate calculation of field in-place volumes and recoverable reserves to be made.

The outlook for Block 26 oil production during October remains uncertain as refinery maintenance work within the country may contribute to further temporary restrictions on production levels.

Block 26 Drilling Operations

Wardieh Exploration Well

Drilling operations have concluded on the Wardieh-1 exploration well after a zone of live asphaltic hydrocarbons was encountered while drilling, overlying a porous reservoir zone, the combination of which threatened the safety of the drilling operation. For safety reasons, the well was plugged and abandoned at a depth of 2229 meters Measured Depth below Rotary Table ("m MDBRT"), 271 meters shallow to the planned total depth for the well.

The asphalt zone was encountered in a layer overlying and within the upper part of the exploration objective in the Cretaceous Shiranish and Massive formations. Wireline logging operations were successfully completed prior to the continuation of drilling operations. A high density oil-based drilling fluid was deployed to replace the water-based system to assist with the control of influxes of asphalt and maintain borehole stability. However, upon drilling ahead, a highly porous and potentially cavernous zone was encountered resulting in the complete loss of the heavier drilling fluid, which resulted in the decision to halt operations for safety reasons.

The Wardieh-1 exploration well was designed as a test of a combined structural and stratigraphic trap in formations of Cretaceous age. The well was located approximately 16 kilometers to the southeast of Yousefieh Field and targeted a new stratigraphic exploration play.

The exploration objectives within the Wardieh area remain of interest due to the presence of live asphaltic hydrocarbons and underlying highly porous reservoir rocks. A similar occurrence of a hazardous asphaltic zone overlying a productive oil field of Cretaceous age is found in Syria at the North Karatchok field which is located 25 kilometers to the northeast. The company will conduct a comprehensive geological and operational review of the Wardieh-1 well result prior to taking a decision on whether to conduct further drilling and to establish the optimal drilling procedure to ensure a safe and successful operation.

Khurbet East 20 Delineation Well

Operations have been completed on the Khurbet East 20 ("KHE-20") vertical delineation well located in the north flank of the Khurbet East field, approximately 650 meters to the east of successful horizontal production well KHE-19H and approximately 830 meters to the north-east of successful vertical production well KHE-18. The KHE-20 well location was selected as a test of the presence of good quality karst reservoir on the field's northern flank as predicted from a newly developed field mapping methodology utilizing non-standard seismic data interpretation techniques. Mapping of the Khurbet East karst reservoir to date has proved challenging due to the non-reflective properties of this type of rock.

The KHE-20 well encountered the hydrocarbon bearing Cretaceous Massive Formation at a depth of 1933 meters Measured Depth Below Rotary Table ("m MDBRT"), 1529 meters True Vertical Depth Sub-Sea ("m TVDSS"), 3 meters shallow to the prognosis indicated from the new mapping technique. Interpretation of wireline logs indicated a high quality gross porous karst reservoir interval of 38.6 meters with a net oil column of 29.8 meters, average porosity of 20% and average oil saturation of 82%. No oil-water contact has been observed in this well.

An open hole well test was conducted over a 36 meters gross interval from1933-1969m MDBRT (1529-1565m TVDSS), during which the well flowed at a rate of 1897 barrels of oil per day ("bopd") for a 6 hour period on a choke setting of 48/64th inch at a wellhead pressure of 103 psi and with an associated water-cut of 1% by volume. Oil quality and formation pressure were recorded as being in line with surrounding Khurbet East production wells.

Forward Drilling Program

Gulfsands drilling operations in Syria Block 26, using the Crosco E-401 and M-501 drilling rigs, will continue as planned on the Yousefieh 8 sub-horizontal development well ("Yousefieh-8H") and on the Khurbet East 102 Triassic reservoirs appraisal well ("KHE-102") respectively.

The Yousefieh-8H development well targets recoverable oil volumes located on the south flank of the Yousefieh field. The well is located 315 meters to the south of the Yousefieh-3 vertical production well and is designed to be drilled in an east-northeast direction with a planned sub-horizontal open hole reservoir section of approximately 360 meters. The production target for this well is to add an incremental 500 bopd to Yousefieh field production.

The KHE-102 vertical well is targeted to appraise the as yet undrilled northern flank of the Khurbet East field Triassic Butmah and Kurrachine Dolomite reservoirs. This well will be located approximately 1100 meters north north-east of the KHE-1 Khurbet East field Triassic reservoirs discovery well, and will obtain key information on reservoir top structure and quality, the depth of the fluid contacts and on the properties of the hydrocarbons encountered.