Primeline Announces Vicky-1 Well Spudded, And March 31, 1997 Audited Year-End Results
Hong Kong August 1st, 1997 —- Primeline Energy Holdings Inc. (“Primeline”), a Vancouver Stock Exchange (“VSE”) listed company, released its financial results for the year ended March 31, 1997, audited by Price Waterhouse. As at Marchj 31, 1997 Primeline had working capital of $1,143,724 as compared with $1,311,883 as at March 31, 1996. Primeline does not yet have any revenue. Expenses for fiscal 1997 were $168,159 as compared with $441,499 for fiscal 1996. Financing was a loan provided by Primeline’s controlling shareholder Primeline International (Holdings) Inc.
Primeline through its wholly owned subsidiary, Primeline Energy China Limited, owns a 75% interest in a production sharing contract with China National Offshore Oil Corporation, owned by the Chinese government, which entitles Primeline to participate in the exploration, development and production of oil and gas in the East China Sea, offshore China. During the past year, Primeline continued its exploration work in Block 32/32 in the East China Sea, conducting further technical evaluations of the prospectivity of this block, which led to the selection of a well location. Primeline subsequently designed the drilling programme and negotiated the drilling contract.
Following on last year’s evaluation, Primeline acquired and purchased further seismic data which made the entire seismic database held by the company over 6,000km. This covers the most interesting areas of block 32/32 in reasonable detail, 1 x 1km or 2 x 2km seismic data. Primeline then contracted experts from China National Offshore Oil orp. (“CNOOC”), the Ministry of Geology (“MOG”) of China and Gustavson Associates of Denver USA to assist Primeline’s own technical staff during the second phase of evaluation. The joint project team thoroughly examined the hydrocarbon potential of the block. The results confirmed the optimism drawn from previous evaluation and several drillable prospective candidates were selected. Primeline authorised additional detailed prospect oriented seismic re-processing and interpretation work, in particular, over the “K” prospect and Lingfeng structure which were regarded as the two top candidates. These studies defined the closure more accurately and the potential hydrocarbon accumulation in these prospects, and thus lowered the exploration risk.
The K-prospect was selected as the drilling target due to its sizable closure, proximity to source rocks and a favourable reservoir potential. The K-prospect is located in the northern part of the block and it is largely an anticlinal structure closure above the main part of the source kitchen basin. The main source rock in this basin is lacustrial dark mudstone of the lower Paleocene Yueguifeng formation and marine dark mudstone of the middle Paleocene Lingfeng formation. These source rocks have been penetrated by two previous wells drilled in block 32/32 by MOG and, in particular, by one of the recent wells drilled in a nearby block by a foreign operator. These wells have proved the existence of good quality source and reservoir intervals in these formations. The K-prospect also features a so-called “bright and flat spot” and an AVO (amptitude vs offset) anomaly on seismic section. These are most important direct hydrocarbon indicators. The closure area is about 34-42 sq. km, depending on the closure interval, and the most likely recoverable reserve is about 145 million barrels.
Based on the above data, Primeline prepared plans to drill the K-prospect to a total depth to 3,200m. The main target zones are anticipated at being between 2,200 - 3,000m. The company put the drilling out to tender. Two bids were received by the required date, both competitive on price and technical specifications. The company signed a turnkey drilling contract with China Offshore Southern Drilling Corp. (“COSDC”) on April 23, 1997 for the drilling of the commitment well in block 32/32. The contract calls for a turnkey drilling cost of about US$4 million including a weather downtime contingency. If the well encounters hydrocarbons, the additional cost for testing is estimated at about US$1.5-2 million including all Primeline supervision representative personnel costs. Under the current market conditions, the cost negotiated by Primeline into the contract is extremely cost competitive. COSDC is one of the main drilling arms of CNOOC. It has drilled 270 wells in the Chinese offshore area with over 190 wells drilled for foreign oil companies. Primeline is confident that it has the technical ability to drill the well successfully.
At the same time, CNOOC and Primeline signed an amended agreement to expand block 32/32 to cover the entire structural closure of the K-prospect and related potential stratigraphic traps.
COSDC for Primeline spudded (started drilling) the Vicky-1 exploration well in block 32/32 on July 24, 1997 and the operational period including testing is estimated to last about 50 days, subject to weather conditions. Preliminary results are expected in late August.
Primeline is the only exchange listed oil and gas exploration company focused on upstream opportunities in China. Copies of its audited financial statements and management discussion, including further information on the geological and geophysical evaluation leading to the selection of the K-Prospect in which Primeline is drilling the Vicky-1 well, are available from Primeline or from its transfer agent Pacific Corporate Trust Company.
Brian Chan, Vice-President & Director
Primeline Energy Holdings Inc.
The Vancouver Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.