On August 3, 2007, the Group entered into a legally binding cooperation agreement with Ningxia Changqing Shuang Long Industrial Co., Ltd. (寧夏長慶雙龍實業有限公司, “PRC Partner”) in relation to Xun Yi Oil Field in Shaanxi Province, the PRC. The Group and the PRC Partner shall each share 95% and 5% respectively of profits generated from this project, which covers a site area of approximately 560 sq km.
The Group will hold the exclusive right to explore and produce oil from not less than 1,000 oil wells at the cost of RMB120,000 each. Development works have to be completed within three years and the Group shall have the right of exploitation on the worked oil wells for 25 years after exploration.
The Group has recently commissioned international energy technology and testing services provider Halliburton (NYSE: HAL) for reservoir testing of three specified sites within Xun Yi Oil Field, which is situated in southern Eerduosi Basin (鄂爾多斯盆地). The study provides reservoir information for the evaluation of the oil and gas production prospects and economic value of the oil field.
Mr, Hou Xiu Chuen, Geologist of Genesis Energy indicated that Halliburton’s report revealing initial test findings of a total crude oil reserve of 71.62 million cu m or 60.86 million tonnes (of density 0.85 g/cu cm) in the captioned area. Prospective exploitable oil reserve amounts to 15.62 million cu m or 13.27 million tonnes equivalent. Total gas reserve was estimated at 96.93 billion cu m, or 96.93 million tonnes. Prospective exploitable gas reserve amounts to 56.85 billion cu m or 56.85 million tonnes equivalent.
Mr Terence Kong, Executive Director of Genesis Energy, said: “The technical report points to a higher-than-expected prospects for Xun Yi Oil Field, exploration of which is expected to begin in January 2008. This project will also provide headway for our investments in the oil and gas prospects of China.”
The study also gave an estimated oil exploration investment of RMB130 million, and an additional input of RMB233.6 million for gas exploration. With an exploration cycle of 10 to 15 years, the annual investment is estimated to be RMB24.24 million to RMB36.36 million.
As regards Grassy Trails Oil and Gas Field in Utah, the USA, an inspection of ten wells had been performed after which five wells have been identified for re-work, with the prospect of an additional three wells to be re-worked upon good production of the former five wells.
Re-working of the first five wells was completed in mid-August with production level increasing to approximately 160 barrels per day. Subsequent to this, two horizontal drillings will commence in early October. After completion of the horizontal drilling, production at Grassy Trails is expected to reach 360 barrels per day. Additional CAPEX will be allocated to Grassy Trails in order to boost production whilst prevailing Brent Crude is breaking new highs in recent months.
The five identified wells (ed 11-13, 11-33, 11-41, 11-42 and 12-13) each have a lifetime production of 307,638 barrels through 2006, representing 58% of the lifetime production out of a total of ten wells in the Grassy Trails production fairway. Sonic tests had been performed on all old wells, and the five identified wells showed reasonably good fluid levels indicating higher reservoir pressure and thus good anticipated fluid levels.
Mr Kong continued: “We are also glad to report that Grassy Trails is in the process of getting approval from the USA State authorities to commercialize its water disposal well. A local oil company, North Star, is currently a user of the water disposal well and we are confident that this branch of business will generate additional revenues of US$365,000 per annum. At least five more companies in the area are identified as potential customers of our water disposal services upon its commercialization. We are also undertaking initial negotiations for the re-use of carbon dioxide emitted at Grassy Trails. If materialized, this is both an environmentally friendly move and also provides an additional avenue of income for the operation.”
Grassy Trails encompasses an area of 6,268 acres and has yielded approximately 600,000 barrels of golden-colored, light, sweet crude oil since its discovery in 1962. To date a total of 31 wells have been drilled at Grassy Trails to delineate the oil reservoir. The estimated total reserve of crude oil is about 1.0 million barrels, of which about 157,000 barrels are proved undeveloped and about 783,000 barrels are probable reserves.
About Genesis Energy Issued by : Through :
Genesis Energy Holdings Limited (702) is an energy company with focus on oil and gas exploitation and operations. The company invests in and operates oil and gas fields in the United States and is currently in negotiations with regard to certain investments in oil and gas projects in the PRC. Downstream, the company is engaged in crude oil transportation and pipelined gas businesses.
Genesis Energy Holdings Limited
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