SYRIA : BLOCK 26

Within the Block 26 boundary there are several discovered oil fields owned by the Syrian Petroleum Company (SPC) with reserves in excess of 2 billion barrels. Some of these fields are currently operated by SPC with current production over 100,000 barrels of oil per day. Included in these SPC fields is Souedieh, the largest oil field in Syria. These fields produce medium gravity oil, approximately 26 API density, from Cretaceous limestone reservoirs. The oil is transported via existing infrastructure for domestic refining or export; produced gas is treated locally and used as fuel for local needs and power generation. The rights to these existing discovered Cretaceous fields are excluded from the PSC for Block 26.

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. Following the mandatory relinquishment of 25% of the block in August 2007, the block area is currently some 8,250 square kilometres. Gulfsands Petroleum Syria Ltd is operator and holder of the remaining 50% interest.

During the initial 4 year exploration period that ended in August 2007, over 1,400 km of 2D seismic data was acquired, processed, and interpreted; three exploration wells were drilled with one discovery, Khurbet East, and a fourth well was drilled to appraise this discovery.

In August 2007, Emerald entered the first extension of the exploration period with duration of three years and a minimum work obligation of 250 square kilometres of 3D seismic and two exploration wells (the work obligation for the 3D seismic and one of the exploration wells has already been fulfilled). In August 2010 the joint venture partners have the option to enter a second extension period of two years with a minimum work obligation of two exploration wells.

Khurbet East Field

Since the discovery of the Khurbet East field with the Khurbet East No.1 well, announced in June 2007, the field was appraised by the Khurbet East No.2 and No.3 wells and, in February 2008, the Syrian Ministry of Oil and Mineral Resources and the Syrian Petroleum Company ("SPC") granted approval for commercial development of the Khurbet East field and approved a Development Area of approximately 100sq km covering the field, The development area is operated by Dijla Petroleum Company ("DPC"), a joint operating company set up with SPC.

Initial field development commenced with the establishment of early production from the shallow Cretaceous Massive reservoir. The first well to be drilled in the development phase of the field, Khurbet East No.4, reached a total depth of 1,935 metres in March 2008 and was completed as an oil producer.  The well is located close to the crest of the structure in the Cretaceous Massive reservoir, approximately 150 metres away from the Khurbet East No.1 well which has not been completed for production from the Massive reservoir as it is intended to be used for further appraisal of the deeper reservoirs.

Khurbet East No.5, the first horizontal development well in the field, was drilled with a 300 metre horizontal section and was flow tested during a 6 hour flow period at an average oil rate, under natural flow and restricted by well testing equipment, of 2,041 bopd through a 24/64 inch choke.  Khurbet East No.6, the second horizontal development well in the field, was drilled with a 200 metre horizontal section and well testing operations were not conducted.

Oil production commenced from the Khurbet East field on 21 July 2008 using a newly installed early production facility.  Gross oil production to the end of 2008 was 1.414 million barrels of oil (0.417 million barrels Emerald net entitlement).  Five producer wells have been available for production during this period, consisting of three vertical producers, Khurbet East No.2, No.3 and No.4, and two horizontal producers, Khurbet East No.5 and No.6.  Since the commencement of production, a number of reservoir and pressure monitoring programmes have been conducted in the wells to collect information to optimise the design of the full field development facilities.

The crude oil produced from the Khurbet East field was determined to have specifications similar to those of the Syrian Heavy crude oil.  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 sold as Syrian Heavy crude oil which has an API of approximately 24.1, and exported through the Mediterranean port of Tartous using SPC’s oil handling infrastructure.  In the period to September 2009, under the OMB’s arrangements for marketing oil produced from newly developed fields in this area, the Company receives 80 per cent of the price of the Syrian Heavy crude oil, with the settlement for the remaining unpaid amount, subject to any adjustments for variations in oil quality, taking place in September 2009.  After completion of the initial oil analysis process OMB will then pay, without retention, 100% of the selling price as determined for the measured oil quality. 

The first of 2 delineation wells, Khurbet East No.7, was drilled to a total depth of 2,060 metres in the northern part of the field in January 2009, encountering the top of the Cretaceous Massive reservoir at approximately 1,978 metres.  Good hydrocarbon shows were encountered across a 7 metre interval while drilling into the reservoir and gradually diminished over the next 13 metres.  Reservoir porosities in the range of 5% to 10% were measured, significantly lower than the range of 16 to 20% encountered in the central portion of the field.  Although the oil-water contact was not directly determined by the wireline logs, preliminary analysis indicates that the oil-water contact in the field may be slightly deeper than previously interpreted.  The well has the potential to be used for future water disposal.

The second delineation well, Khurbet East No.8, drilled in April 2009 and located 2.7 kilometres to the south of the Khurbet East No.1 well to investigate reservoir properties and the oil-water contact in the south of the field, encountered a 23 metre gross oil column (15 metre net) within the Cretaceous Massive reservoir. Wireline logging indicated an average porosity in the net oil bearing interval in excess of 23%. However, a definitive oil-water contact could not be identified as the porous oil-bearing reservoir lies directly above a low porosity and low permeability interval. An open-hole flow test conducted over the full reservoir interval using nitrogen injection artificial lift resulted in limited amounts of oil being produced to surface, indicative of poorer reservoir quality in this location than encountered in the central part of the field. Following an acid stimulation operation on the open-hole reservoir section, the well produced, using artificial lift, 23 degree API oil at an average rate of 617 barrels per day over an 8 hour period with a water-cut of less than 2%. Under natural flow, the well flowed at an average oil rate of 120 barrels per day over a 12 hour period through a 40/64 inch choke with a water-cut of 1%. The well was suspended as a future oil producer.

An updated independent reserves evaluation of the Massive reservoir was completed in April 2009.

As a result of the early field performance, work was undertaken to expand the capacity of the field’s gathering, processing and loading facilities to 18,000 bfpd as an interim expansion prior to the full field development of the Khurbet East field. This interim expansion of capacity, consisting of the installation of additional surface equipment and the drilling of three further development wells, Khurbet East No.9, No.10 and No.11, commenced operations in August 2009 with an oil production rate of approximately 14,700 barrels per day following the connection of the Khurbet East No.9 and No. 10 wells, with the Khurbet East No.11 well awaiting connection.  The Company anticipates that the operating company, DPC, will commit to the full field development, consisting predominantly of additional processing facilities and development drilling, during 2009.

Drilling operations commenced in August 2009 at Khurbet East No.12, a vertical delineation well located approximately 3.2 kilometres south of the Khurbet East No.8 well, previously the most southerly well drilled in the field, which encountered a 15 metre net oil column within the Cretaceous Massive reservoir.  The well is designed to provide geologic information on the southern limits of the Khurbet East field, establish the oil-water contact and to have the potential to be used as a water disposal well in the future. The Khurbet East No.12 well is expected to take approximately 45 days to drill and evaluate.

Yousefieh Discovery

The Yousefieh No.1 exploration well, located approximately 3 km from the Khurbet East field processing facilities, 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, with approximately 63 metres of net oil pay having an average porosity of 18.6%, and during an open-hole test of the top 19 metres of reservoir flowed 23° API oil to surface, under natural flow, at approximately 900 bopd through a 48/64 inch choke.  In January 2009 a cased-hole flow test of the Yousefieh No.1 discovery well was performed, effectively testing the whole 63 metre net oil pay interval as an ineffective cement bond behind the casing provided poor vertical isolation over the interval.  The well flowed, under natural flow and through a 48/64 inch choke, at an average rate approximately 1,460 bopd over a 4 hour period with a water cut of up 5% comparing favourably with the open-hole test run previously over the top 19 metres of reservoir.  Remedial cementation of the production liner is planned to isolate the water producing zone prior to commencement of production from the well.

The Yousefieh No.2 appraisal well, located approximately 1.8 km east of the Yousefieh No.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%.  An open-hole production test of the reservoir interval recovered quantities of oil and water but did not establish continuous production at surface.  A liner was run in the well and the reservoir interval may be re-tested at a later date.  As expected in the pre-drill estimation, the Yousefieh No.2 well encountered the reservoir with less thickness and lower reservoir quality than seen in Yousefieh No.1.  This variation is consistent with a stratigraphic carbonate accumulation such as the Yousefieh discovery.  The data acquired in this well will be used to refine the understanding of these lateral variations in the geological and reservoir modelling of the accumulation and to assist in development planning.

An independent reserves evaluation was completed in April 2009.

The Yousefieh discovery is located close to existing infrastructure, with the Yousefieh No.1 surface location approximately 3 kilometres 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.

Previous Exploration Results

During 2006 and early 2007 two exploration wells were drilled to test a Cretaceous prospect on the flank of the Souedieh field (Souedieh North prospect) and a deep Palaeozoic target underlying the Souedieh field (Tigris Prospect).

The Souedieh North No.1 exploration well was drilled to 2,225 metres and evaluated during May 2006. While drilling the well a series of hydrocarbon gas shows were recorded and analysis of the electric wireline logs in the Tertiary and Cretaceous reservoir sections of the well indicate potential hydrocarbon zones. However, wireline conveyed sampling tools did not recover any hydrocarbon fluids. Preliminary analysis indicates that the hydrocarbon is low API gravity oil with a high viscosity and the low porosity and permeability reservoirs may produce fluid only after mechanical or chemical stimulation. The well has been suspended in order to determine if these reservoirs may be suitable for fracture stimulation, or whether the well should be deepened.

Tigris No.1, the second exploration well, was spudded in September 2006 targeting the Palaeozoic formation underlying the Souedieh oil field. The S1100 well drilled by SPC in 1994 penetrated several zones within the Tigris structure, some of which, when tested, produced gas to surface. The Tigris No.1 well was drilled to a depth of 4,500 metres. Hydrocarbon shows were encountered while drilling, two cores were cut, and an extensive suite of wireline logs was run across the Palaeozoic section. On the basis of the data acquired in the well, Emerald concluded that although hydrocarbons may be present, it is unlikely that commercial hydrocarbons can be produced from this well.

Acquisition of the 850 square kilometre 3D seismic survey surrounding the Khurbet East and Yousefieh fields was completed in the second quarter 2009. The data will be processed in the third quarter, followed by seismic interpretation and prospect definition in the fourth quarter 2009.