SOCO Encouraged by Mongolian Drilling Program
SOCO announces the results of its 2002 drilling program in Contract Area 19 in the Tamtsag Basin, Mongolia. The Company had encouraging results as it significantly expanded its area under evaluation by drilling two exploration wells 20 and 25 kilometers, respectively, outside of the pilot production area, which has been the focus in recent efforts. Both exploration wells, only one of which was production tested prior to suspension of drilling operations with the onset of the harsh Mongolian winter, encountered hydrocarbons. However, the 19-16 well appears to have intersected the highest quality oil-bearing reservoir yet encountered in Mongolia. The appraisal well, drilled across a fault line from one of the structures drilled last year, gave additional confirmation to the reserves upgrade associated with last year's drilling program.
The 19-15 well, the first well drilled after the program got underway in August, is located approximately one kilometer east of the SOTAMO 19-14 well, which was drilled in 2001 and is productive from the Tsagantsaav Sands of Lower Cretaceous age. The well reached a total depth of 2,579 meters on 28 August having encountered 27 meters of oil shows in a gross interval from 2,006 meters to 2,084 meters in the Lower Cretaceous aged Tsagantsaav formation. The rig was released 28 August and the well has been perforated and fracture stimulated. It was put on production in November at an initial rate of 110 barrels of oil per day (BOPD).
The SOTAMO 19-16 well is an exploratory well located approximately 20 kilometers northeast of the Contract Area 19 development to test a large, previously undrilled structure. The 19-16 is the first well to be drilled on the eastern margin of the basin and was drilled on a sparse seismic grid. The well was spudded September 3rd and drilled to a total depth of 2,227 meters having encountered 31 meters of oil shows in the Tsagantsaav within a gross interval from 1,682 meters to 1,730 meters. The rig was released 16 September and the well was completed and fracture stimulated. The initial production testing recovered oil and formation water and indicated good reservoir capable of sustained production. The well will be followed up with a 2D seismic program during the winter season to identify additional locations to be drilled during 2003 on this trend.
The SOTAMO 19-17 well, an exploratory test located approximately 25 kilometers north of the Contract Area 19 development, spudded September 20th and drilled to a total depth of 2,445 meters. The well encountered 26 meters of shows in the Tsagantsaav interval from 2,175 meters to 2,348 meters. The well has been suspended due to the onset of winter and will be tested in the second quarter of 2003.
The pilot production test of the existing Contract Area 19 wells will continue through the winter with the crude oil being sold at world prices under a contract with China National United Oil Corporation. The crude sold is trucked under a turnkey contract to a pipeline terminal in Aershan Oilfield in China for further transportation to a refining center. Production rates, although restricted due to production equipment limitations, are currently averaging approximately 550 barrels per day.
SOCO plans to acquire approximately 1,500 kilometers of 2D seismic during the winter season to identify the location of exploratory tests to be drilled during 2003.
SOCO Tamtsag Mongolia, the Company's wholly owned subsidiary, currently holds an approximate 85% working interest in production sharing contracts over Contract Areas 19, 21 and 22 in the Tamtsag Basin in Mongolia. The Chinese company providing the drilling services has earned the right to take a 10% working interest and a 5% interest is being carried through the exploration phase for Petrovietnam.
Ed Story, President and Chief Executive of SOCO, commented: "We are encouraged by the presence of oil in these large structures which adds further support to the ultimate exploration potential of the Tamtsag Basin. A concerted mapping effort will take place over the winter to further define new exploration opportunities leading into next year's drilling program."