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Gulfsands has two producing oil fields within the PSC area, Khurbet East and Yousefieh. The development and production period for the Khurbet East field expires in February 2033 (25 years after commercial approval) and that for the Yousefieh field in January 2035, but each may be extended for a further 10 years at the Operator's option.
The Khurbet East field was discovered in June 2007, commercial development approval was granted in February 2008, and production commenced in July 2008. This field has been producing at an average gross production rate of approximately 21,500 barrels of oil per day through early production facilities during August 2011. The development and operation of the field is being undertaken by Dijla Petroleum Company ("DPC"), a joint operating company formed with the Syrian Petroleum Company ("SPC") for this purpose. The KHE-1 discovery well encountered hydrocarbons in the Cretaceous Massive formation at a depth of approximately 2,000 m and in the deeper Triassic Butmah and Kurrachine Dolomite formations. The reserves attributable to Khurbet East come from the Cretaceous Massive formation only and exclude hydrocarbons in the deeper Triassic formations.
The Yousefieh field was discovered in November 2008, commercial development approval was granted in January 2010, and production commenced in April 2010 and has been producing at approximately 2,600 barrels of oil per day. Oil production is from Cretaceous aged reservoirs at a similar depth to the producing Massive formation at Khurbet East. The YOUS-1 discovery well is located approximately 3 km away from the early production facility ("EPF") at Khurbet East.
The crude oil from Khurbet East has an API gravity of approximately 25°, slightly lighter than that of the area benchmark "Syrian Heavy" crude oil. Oil produced from the Yousefieh field is similar to that from the Khurbet East field, with an API gravity of 23-24°. As of October 2010, the trucking operation previously used to transport the Khurbet East and Yousefieh oil was discontinued and the oil is now transported via pipeline to the SPC operated gathering facilities located some 30km away at Tel Addas. There it is blended with the Syrian Heavy crude oil, and transported to the Mediterranean port of Tartous using SPC's oil handling infrastructure.
Production
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.
Gross oil production from Block 26 increased by 25% during 2010, with daily average production of 16,511 bopd in January rising to 20,578 bopd in December. For the full year, the daily average was 18,330 bopd compared with 12,499 bopd in 2009. Gross oil production increased to over 24,000 bopd by the end of August 2011 following the commissioning of an additional Khurbet East sub-station facility on August 6. The Yousefieh field was brought on production in April 2010 and by December was producing an average of 2,450 bopd from three wells. At Khurbet East production rose from 16,511 bopd from seven wells in January to 18,128 bopd from 10 wells in December. At the end of August 2011 KHE is producing over 21,500 bopd and Yousefieh is averaging over 2,600 bopd.
The reservoir pressure at Khurbet East has fallen by only around 15 psi since the start of production in July 2008, a negligible amount given the 16.0 million barrels produced since inception, and implying the likely presence of an effective water drive from an aquifer located at the flanks of the field. During 2010 additional wells were brought on line and a few existing wells had their production rates decreased in order to more evenly distribute production across the fields. This has proved an effective reservoir management strategy as water production from both fields continues to be negligible. Gross daily oil production at the end of August 2011 stood at approximately 24,000 bopd.
Development wells
During the year a total of six development wells were drilled: five on Khurbet East and one on Yousefieh. Three of the wells were designed as production wells whilst the other three wells were designed to delineate the Khurbet East field. Ultimately, four of these wells were placed on production immediately and the other two were suspended, one as a potential future production well and one as a potential future water disposal well.
The three production wells were drilled with horizontal sections, of which YOUS-4 contained the longest horizontal section drilled to date in Syria by Gulfsands at 710 m. Wells KHE-15 and KHE-17 were horizontal production wells located within the central area of the Khurbet East field. All production wells were placed on-stream shortly after the cessation of drilling operations.
One of the three delineation wells drilled in 2010, KHE-14 was a vertical well drilled in the south of the Khurbet East field with the objective of locating the field oil-water contact. The well encountered the high quality Massive reservoir approximately 10 m deep to prognosis but nevertheless contained a 12 m net oil column with no fluid contact present. Therefore the well has been suspended as a future production well. The other two delineation wells, KHE-16 and KHE-18, were vertical wells aimed respectively at north-eastern and north-western extremities of the field. KHE-16 encountered the Massive formation some 39 m deeper than the pre-drill prognosis: it produced water on test, and so has been suspended as a future water disposal well. KHE-18 encountered the Massive reservoir 12 m higher than pre-drill prognosis and recorded the second thickest net reservoir section found in the field to date: it produced 2,385 bopd on test and was subsequently placed on production.
The development and appraisal wells drilled in 2010 cost an average of $2.5 million to drill (50% for Gulfsands' interest) and took an average of 26 days from spud to rig release.
Facilities
Production to date has been through the EPF located at Khurbet East, to which the Yousefieh field is also linked. In October a new 22km 8" pipeline was commissioned to take production from the EPF to the SPC processing facilities at Tel Addas, replacing the previous trucking operation which has now been discontinued. The rated capacity of this pipeline is 24,000 bopd.
A contract was awarded in November to Saipem to construct a central processing facility ("CPF") at Khurbet East at a gross cost of Euro 94 million, to replace the EPF. The initial fluid handling capacity of the CPF will be 50,000 bfpd of which the initial oil production capacity is expected to be 33,000 bopd. Completion is anticipated around September 2012.
Our HSE record continues to be excellent. By the end of 2010 more than 67,000 metres had been drilled with no LTIs after approximately one million man-hours of drilling since the commencement of operations in 2006.
Geologic model of the Khurbet East and Yousefieh oil fields, showing their structure and relative geographic positions.
The Cretaceous aged producing reservoirs in each field are located at a depth of approximately 2,000 m below ground level. Oil production is from a mix of vertical and horizontal production wells. Not all of the wells within the fields are shown in this model.
Triassic aged reservoirs, at depths greater than 3,000 m, were also found to be hydrocarbon bearing in the original KHE-1 discovery well.
The Khurbet East structure is contained by faults on the east and west sides. The very prolific "karst" reservoir is located primarily on the crest of the structure.
The Yousefieh field is contained within a carbonate mound, which creates the structure and provides the reservoir for the oil.
Health, Safety & Environment ("HSE")
Our HSE record continues to be excellent with no catastrophic or serious accidents reported. By the end of 2010, more than 67,000 m had been drilled with no LTI (Lost Time Incidents) after approximately one million man-hours of drilling since the commencement of operations in 2006. The risk previously associated with the transport of our crude by truck was eliminated in October when the 22" pipeline was commissioned.
Our drilling, production and seismic operations today are all being conducted with either negligible or acceptable residual operational risks, mainly associated with the risk of driving and the risk of fire in low pressure facilities.
To address these risks, a regular formal HAZID (hazard identification) review process is in operation resulting in the issue of action plans for immediate implementation based on the Group's HSE policy and standards. As an example all vehicles in our fleet now have rollover bars and two firefighting trucks have been ordered. The focus going forward is to continue to improve awareness and qualification of our employees and contractors and to design and build our central production facility based on the highest international HSE standards.
Exploration Programme - 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 metres Measured Depth below Rotary Table ("m MDBRT"), 271 metres 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 kilometres 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 kilometres 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 metres to the east of successful horizontal production well KHE-19H and approximately 830 metres 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 metres Measured Depth Below Rotary Table ("m MDBRT"), 1529 metres True Vertical Depth Sub-Sea ("m TVDSS"), 3 metres 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 metres with a net oil column of 29.8 metres, 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 metres 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 Programme
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 metres 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 metres. 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 metres 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.
We also plan to acquire further 3D seismic data over a 300 km² area of Block 26, with the aim of maximising the exploration prospectivity of the Block before the final relinquishment of the exploration licence in August 2012. This additional area will be selected after an initial review of the 2010 3D survey is undertaken. On completion of this survey Gulfsands will have acquired a total of approximately 2,500 km² of contiguous 3D seismic over Block 26.