ROC Oil Production Increases at Zhao Dong Block

ROC Oil recently provided a production and drilling progress report on the C and D oil fields in the Zhao Dong Block in the Bohai Bay, offshore China.

The 2007 Zhao Dong drilling program began in April and is scheduled to finish in early December when the last well, a water injector, will be drilled. The total program comprises 13 wells consisting of 11 oil producers and two water injectors.

The four most recent producers, all completed since mid-September, have boosted gross production to the current level of 25,000 BOPD. This rate compares with quarterly production averages of 21,000 BOPD, 18,700 BOPD and 17,320 BOPD for the first, second and third quarters of 2007, respectively. The current expectation is that Zhao Dong production will exit 2007 at a rate in excess of the 22,000 BOPD 2006 exit rate.

This recent lift in production coincides with a record realized oil price of approximately U.S. $81/BBL and a 306,000 BBL ROC shipment on November 24, 2007. The November price represents a 62% improvement on the year low realized price of approximately U.S. $50/BBL in February 2007.

Total 2007 gross production for Zhao Dong is expected to be in the order of 7.2 MMBO, representing an average of 19,700 BOPD (ROC net: 4,800 BOPD). This is 22% less than the gross production target set by ROC at the beginning of the year, which was identified at the time as being ambitious. The 2007 production shortfall, which has been reported previously, mainly relates to the under performance of four wells thath did not meet expectations due to reservoir and geological complexities, some of which are now better understood, as well as other producing wells that experienced minor mechanical difficulties that have largely been resolved. The overall revenue impact of this under performance has been offset to some extent by the oil price strengthening referred to above.

Typically, the seven successful producers drilled during 2007, all of which either met or, in the case of the most recent wells, largely exceeded, original expectations and pay out quickly, sometimes within three weeks.

"The recent uptick in production is hard won and warmly welcomed," John Doran, ROC's CEO, said. "It keeps ROC’s current company-wide production comfortably above the 10,000–12,000 BOPD previously quoted target range."

ROC’s basic business plan for Zhao Dong was to treat the C and D Oil Fields as well factories: keep drilling costs under control, during a period of rampant industry inflation and focus on well profitability in the context of a full drilling season - and that is exactly what happened. The first five producers completed this year effectively paid out the costs associated with the entire 2007 program leaving the wells completed most recently and the pre-2007 producers notionally free of operating costs.

Concurrent with the 2007 drilling activity in the C and D Oil Fields work continued on the expansion of those facilities and also on new facilities for the C4 Oil Field Development.