Gulfsands is the Operator of the Contractor Group ("Contractor") for the Block 26 Production Sharing Contract ("PSC"), and owns a 50% working interest in the PSC. The remaining 50% working interest in the PSC is owned by Sinochem. Block 26 covers an area of 8,250 kmē. The PSC grants rights to explore, develop and produce from all stratigraphic levels outside the existing field areas and the deeper stratigraphic levels below the pre-existing discovered field areas. The current exploration period expires in August 2010 but may be extended at the Contractor's option for a further two years. The minimum work commitments for the current exploration period have already been satisfied. The development and production period for the Khurbet East field expires in February 2033 (25 years after commercial approval) but may be extended for a further 10 years at the Contractor's option. The terms of the PSC comprise a 12.5% royalty, cost recovery provision, and the sharing of the resultant profit oil.
Khurbet East field
The Khurbet East field was discovered in June 2007 by the KHE-1 well, a multi-zone discovery that encountered hydrocarbons in the Cretaceous Massive Formation and in the Triassic Butmah and Kurrachine Dolomite Formations.
Gulfsands determined that the Cretaceous Massive Formation reservoir had the highest value potential of the discovered hydrocarbons and an appraisal programme, including the drilling of two additional wells and the acquisition of 3D seismic data, was undertaken during H2 2007. The second appraisal well (KHE-3) produced oil on drill-stem test, under natural flow, at an average stabilised rate of 3,420 barrels of oil per day ("bopd") of ~25o API gravity oil, confirming that the wells in the Khurbet East Field could produce oil at commercially attractive rates. In February 2008, less than 8 months after the original discovery well, the Ministry of Oil and Mineral Resources granted approval for development of the field. In accordance with the terms of the PSC, the development and operation of the field is managed by Dijla Petroleum Company ("DPC"), a joint operating company formed with the Syrian Petroleum Company ("SPC").
After gaining approval for the development of the Field, design and construction of an Early Production Facility ("EPF") commenced. The Khurbet East EPF was constructed by SPC and leased to the Block 26 Contractor Group, allowing for rapid development of the Field at low capital cost. The initial nameplate capacity of the EPF was 10,000 barrels of fluid per day ("bfpd"). The first two appraisal wells (KHE-2 and KHE-3) were completed as oil production wells, and three additional development wells were drilled in H1 2008, providing five wells for the initial production phase. The first development well was a vertical well (KHE-4), while the following two were drilled with a horizontal section through the productive reservoir (KHE-5H and KHE-6H). Installation of the EPF was completed in July 2008, only thirteen months after initial discovery of the Field. After a six week period of initial testing of the wells and the facility, full production commenced on 6th September 2008. The original discovery well, KHE-1, is preserved for further appraisal of the deeper Triassic aged reservoirs.
Average daily gross oil production from the start of full production on 6th September 2008 through 31st December 2008 was in excess of 10,800 bopd, with only trace amounts of water produced and minimal reservoir pressure drawdown observed. Production slightly in excess of nameplate capacity was possible due to the absence of produced formation water. In recognition of the exceptional production performance of the Field, an expansion of the Khurbet East EPF was undertaken in H1 2009. The facility expansion, providing for approximately 18,000 bfpd of processing capacity, was completed in July, 2009. Two additional development wells, vertical well KHE-9 and horizontal well KHE-10H, were subsequently tied into the production facility. By mid-October 2009, daily gross oil production from the Khurbet East Field reached 17,000 bopd, and gross cumulative production from the Field had exceeded 5 million barrels of oil.
In order to provide for sound reservoir management and optimization of full field development design, reservoir pressure monitoring programmes are regularly undertaken and the results incorporated into field simulation studies. A full field development plan, consisting predominantly of additional processing facilities and development drilling and targeting a total production capacity of at least 30,000 bfpd, is in preparation. Gulfsands anticipates that the operating company, DPC, will commit to the full field development plan in early 2010.
Under oil marketing arrangements agreed with SPC and the Oil Marketing Bureau of the Syrian Government ("OMB"), oil produced from the Khurbet East Field is transported to an SPC-nominated delivery point where it is mixed with the Syrian Heavy crude oil, and exported through the Mediterranean port of Tartous using SPC's oil handling infrastructure. The crude oil produced from the Khurbet East field has specifications (gravity, sulphur content) slightly better than those typical of Syrian Heavy crude oils.
Since the beginning of 2009, three delineation wells have been drilled with the intent of establishing the northern and southern boundaries of the Khurbet East field. KHE-7 was drilled approximately 4 km north of KHE-1, and encountered good hydrocarbon shows but with reservoir properties poorer than those in the central portion of the Field. KHE-8 was drilled approximately 2.7 km south of KHE-1, and encountered a 23 metre gross (15 metre net) oil bearing reservoir section and produced oil to surface under natural flow on drill-stem test. Neither of these wells identified a definitive oil-water contact for the field. Delineation well KHE-12, located approximately 5.9 km south of KHE-1 and 3.2 km south of delineation well KHE-8, was drilled in August 2009. The KHE-12 well encountered good hydrocarbon shows while drilling through the Massive Formation reservoir, but the well produced primarily formation water on drill-stem test. An additional delineation well, to be located between KHE-8 and KHE-12, will likely be drilled during 2009. The results of all of these wells, together with incorporation of the production data from the Field, will be utilized in updating the reserves for the Khurbet East Field in early 2010. Proven and probable reserves attributable to Gulfsands for Block 26 at 31 December 2008 were 35.2 mmbbl (working interest), 14.3 mmbbl (entitlement).
Yousefieh discovery
The Yousefieh-1 exploration well was drilled in November 2008 to a total depth of 2,139 metres to evaluate the potential of a new exploration play identified from the 3D seismic survey acquired in 2007 over the Khurbet East field and nearby areas. The well encountered an oil column of approximately 64 metres in the target Cretaceous aged formations, containing approximately 63 metres of net oil pay having an average porosity of 18.6%. During an open-hole test of the top 19 metres of the reservoir the well flowed 23° API oil to surface, under natural flow, at approximately 900 bopd through a 48/64" choke. The well has been completed and suspended as a future oil producer.
The Yousefieh-2 appraisal well, located approximately 1.8 km east of the Yousefieh-1 discovery well, commenced drilling in January 2009 and reached a total depth of 2,070 metres in February 2009. Based on wireline logging and cores recovered while drilling, the well encountered approximately 16 metres of net potential hydrocarbon pay with an average porosity of approximately 16%. As expected in the pre-drill estimation, the Yousefieh-2 well encountered the reservoir with less thickness and lower reservoir quality than seen in Yousefieh-1. This variation is consistent with many carbonate reservoirs such as that found in the Yousefieh discovery. An initial open-hole production test of the recovered quantities of oil and water but did not establish continuous production at surface. During a subsequent work-over operation, a liner was set over the potential reservoir interval 1558 to 1571 metres TVD ss. Following acid treatment, the reservoir flowed 17 degrees API oil to surface at an average rate of 139 barrels bopd, under artificial lift using nitrogen on a 2" choke setting over a period of 12 hours with an associated water cut of 49%. The data acquired in this well will be used to refine the understanding of these lateral variations in the geological and reservoir modeling of the accumulation and to assist in development planning.
The Yousefieh-3 appraisal well, located approximately 500 metres southeast of Yousefieh-1, commenced drilling in September 2009 and encountered the top of the Cretaceous Massive Formation at a measured depth ("MD") of 1946 metres (1530 metres true vertical depth sub surface ("TVD SS") and was drilled to a total depth of 2056 metres MD (1640 metres TVD SS). Preliminary interpretation of drilling data and wireline logs has identified a gross oil column within the well-bore of 60 metres with a net pay of 49 metres having an average porosity of 19.5% and an oil-water contact at 1590 metres TVD SS, consistent with that seen at Yousefieh-1 and Yousefieh-2. An open-hole drill-stem test was conducted over the interval 1946-1985 metres MD. Yousefieh-3 flowed naturally at an average rate of 226 stock tank barrels per day of 24-25 degree API oil for 9 hours on a 32/64" choke setting. No formation water was produced during this flow period. Analysis of this well test indicates that a component of this reduced oil flow rate when compared to Yousefieh 1 is the result of formation damage sustained during drilling and coring operations. The reservoir section will be subjected to an acid stimulation at a later date with the objective of improving flow performance.
The Yousefieh discovery is located close to existing infrastructure, with the Y-1 surface location being approximately 3 km from the early production facilities in the Khurbet East field. The close proximity of the Yousefieh discovery to the intended site for the full field development facilities for Khurbet East may lead to an enlarged shared facility being installed resulting in both capital and operating cost savings.
Exploration
Following the success in the Yousefieh discovery, the Block 26 joint venture has completed the acquisition and processing of an 850 kmē 3D seismic survey to assist in the identification of further prospects and leads in this new exploration play in the areas surrounding the Khurbet East Field and Yousefieh discovery.
Health & Safety
Gulfsands' health & safety record since it became operator of Block 26 in 2005 has been exemplary. Since formal safety records first began to be kept in April 2006 there have been no lost time incidents.