Primeline Hits Paydirt in East China Sea

Primeline has completed the drill stem test (DST) program for the LS 35-3-1 exploration well in Block 25/34 East China Sea and has confirmed a hydrocarbon discovery. This discovery opens up a new exploration play in the East China Sea for Primeline. The discovery also has significant implications for the development of the LS 36-1 gas field which Primeline and CNOOC are jointly developing.

As previously reported, electric logging at the level of Target Zone 3 had indicated over 20 meters aggregate of potential hydrocarbon pay in two zones. These zones were further investigated by the Reservoir Characterization Instrument (RCI - MDT) and side wall coring and results suggested the presence of hydrocarbons in low permeability sandstones.

On May 16, 2010, Primeline commenced a DST program to test these zones under a turnkey arrangement with contractor China Oilfield Services Ltd. (COSL).

DST1 was conducted over the depth range 2836-2852m measured depth (MD). This was conducted conventionally using diesel in the wellbore. There was no flow of hydrocarbons to surface.

DST2 was conducted over the depth range 2794-2802m MD. In contrast to DST1, nitrogen was used in the wellbore to optimize the pressure drawdown and gas flowed naturally to the surface and was flared continuously and steadily for over 7 hours. A second flow period was attempted after an 18 hour shut-in but was unsuccessful because the test valve was blocked by formation sand. There was then a second shut-in period of 15 hours. Data from the downhole pressure gauges showed that the two pressure build-ups during the shut-in periods were consistent. The surface gas flow during the first flow period was at a low pressure which steadily rose over the 7 hour flow period but did not reach the pressure necessary to operate the separator or the flow meters. The flow potential of the well was thus not measured. Gas samples were collected at the wellhead and fluid samples were collected from the well bore which will be analyzed in laboratory conditions. It was therefore decided that sufficient data has been collected to enable the estimation of the production pressure and flow rates and the composition of the hydrocarbons in due course. The test program ended on 29th May and the COSL rig will be released in the next few days after the completion of current end-of-well operations.

This discovery is significant in that it confirms hydrocarbons have migrated to and are trapped in the channel systems in the west flank of the West Lishui Basin, the majority of which is inside Block 25/34. Three channel systems have been mapped and delineated in Primeline's 3D area, with others recognized to the north of that area which is covered by 2D seismic data. Primeline will now carry out a careful post well evaluation over the next 4 to 6 months to assess the volume and nature of the resources discovered in LS 35-3, refine the petroleum system model and high-grade and further define prospects for further exploration drilling.

This discovery is also the first surface flow of natural gas from a low permeability reservoir in the southern East China Sea. This is significant, not only for further exploration in Block 25/34, but also for upside in the LS 36-1 development. The LS 36-1 gas field has over 200 meters of gas-bearing low-permeability reservoirs which are directly below the gas zone being developed. With the new data from LS 35-3-1, Primeline will assess the potential for modern fracing, horizontal and multi-lateral drilling technology to make the low permeability reservoirs achieve commercial production rates.

The LS 35-3-1 well is part of the rolling development exploration program Primeline and CNOOC are implementing. As this discovery well is only 14.5 km from the proposed production facility to be built at LS 36-1, it could be tied in to the development at a relatively low cost.