Xtract's MEO Goes Deep into the Plover Sands for Commercial Development

MEO Australia Limited submits this drilling report for the period ending 1000 hours, January 11, 2007. The Heron-2 well was spudded at 2230 hours (ACST) on October 12, 2007 in Exploration Permit, NT/P68.

Open-hole production testing of the Elang/Plover formation commenced on January 3, 2008, focussing on the Plover sands as the primary gas-bearing reservoirs in the Heron North structure. Due to blockages now confirmed in the well immediately above the Plover formation, it is regarded likely that only a 15m section of the higher Elang sand flowed gas to surface during this production test.

MEO believes that the permeable fracture zones in the better quality deeper Plover sands, which are likely to be a significant contributing mechanism for gas to flow at the rates necessary for commercial development, have probably also been irreversibly blocked by the LCM (loss circulation material) treatment that was required to stem losses of synthetic mud sustained while drilling the original 6 inch hole.

Given the encouraging mud log indications while drilling the Plover formation of possible wet gas (gas with associated LPG and condensate), positive electric log interpretation and no recorded carbon dioxide in the mud returns, the joint venture agreed to sidetrack around the blockage to re-drill the Plover gas charged sands.

The permanent packer (installed for the production test) at the base of the 7 inch liner has been milled out successfully, a whipstock which facilitates the side tracking of the well has been installed and a hole has been milled through the side of the 7 inch liner. The rig is currently pulling the milling tools out of the well and MEO expects to commence drilling the 6 inch hole using a combined diamond impregnated drill-bit and turbine to optimize the rates of penetration tomorrow. In order to avoid further significant mud losses, the well will be drilled with an optimally weighted mud calculated on the recorded reservoir pore pressure measurements during the production test of the Elang sands.

At the completion of drilling, a slotted 4 1/2 inch liner will be run, which is designed to preferentially allow the Plover formation to flow gas during the planned production test.

Following the Plover production test, the well will be plugged back to the base of the Darwin formation, the 9 5/8 inch casing will be perforated and the gas charged zones of the Epenarra structure will be production tested.

Heron-2 is being drilled by Seadrill's West Atlas jack-up rig contracted to MEO for two firm wells. The Heron-2 well is designed as a vertical well to penetrate and production test the Epenarra Darwin Formation and the deeper Elang/Plover Formation of the Heron North structure.

The Heron-1 well drilled by ARCO in 1972 intersected a 52m gas bearing column in the Darwin Formation (a fractured carbonate reservoir) within the 1,200 square km mapped closure of the large Epenarra structure. Heron-1 also reached a gas charged zone in the deeper underlying Elang/Plover horizon, which is a secondary objective for the Heron-2 well.