February Newsletter from StratoChem Services [Print]

February 2011

A Message from StratoChem Services

We would like to thank all of you who called and emailed us during this difficult time in Egypt. We are truly touched by your caring and concern. Things are settling down substantially and life is finally finding some semblance of normalcy. Everyone is back at the office and work is flowing through the lab once again. Even in the midst of these challenging times, we had several dedicated people come into the office to complete rush projects for customers. Their dedication confirmed what we already knew - that we have a great staff.

You may have also noticed that each month we post the price of oil and gas in separate charts that are shown in the right column of our newsletter. It is interesting to note where the prices fall for January and February 2011. The charts show that the price of oil hasn't been this high, this early in the year, since 2008 and that turned out to be an interesting year for oil and gas. With that in mind, we would like to invite you to read the following article entitled "The Other Revolution in Egypt". It provides a fascinating perspective on where oil and gas are going and what is happening around the world.

The Other Revolution in Egypt

(www.chron.com - Feb. 12, 2011)

While the world's attention has been focused on the political change that swept over Egypt late last week, the country is also undergoing a more obscure change that could have far-reaching repercussions on America's future energy needs.

Two decades ago, Egypt consumed about half the oil it produced and exported the rest, about 450,000 barrels a day. Since then, however, its production has declined as its domestic energy consumption has increased, and today Egypt is a net importer of oil, based on data from the International Energy Agency.

That concerns those who believe in "peak oil," the theory that global crude production has hit its apex and is entering a state of persistent decline. "Egypt is just a perfect case history of export math," said Jeffrey Brown, an independent petroleum geologist in Fort Worth who writes frequently on peak oil issues.

Theory hits home

His theory hit home with me as I thought about the efforts that will be required to rebuild Egypt's economy, regardless of how the current turmoil plays out. "There has to be a massive investment scheme," said Mahmoud El-Gamal, chairman of the economics department at Rice University. "You'll need a lot of infusion of capital."

Sooner or later, that capital is likely to lead to greater demand for energy. Egypt's consumption, of course, isn't enough to upset the global energy market, but last week we got a reminder that declining oil exports aren't limited to just that country.

Reserves and WikiLeaks

The latest batch of WIkiLeaks cables included a series of communications between the U.S. Embassy in Riyadh, Saudi Arabia, and Washington.

Between 2007 and 2009, U.S. diplomats became increasingly concerned that Saudi Arabia no longer had enough oil reserves to keep crude prices from rising. "Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period," one of the cables said. A former top executive for Aramco, the Saudi state-owned oil company, told embassy officials that the country's reserve estimates may be overstated by as much as 40 percent.

The bigger issue

The diplomats, though, may have missed the bigger problem. "What's amazing is they're not talking about Saudi net exports and the rise in oil prices," Brown said.

The global supply and demand for oil has typically worked something like this: As prices rise, producers increase the flow of oil, generating a short-term profit for them and causing prices to fall. During the past decade, though, Saudi Arabia hasn't followed the pattern. As oil prices rose from 2002 to 2005, so did Saudi exports. But then, in 2006, oil prices continued to rise, while Saudi exports fell and the divergent trend has persisted every year except 2008, when the global recession caused prices to plunge. "The bottom line is they're not delivering the oil to the market that the market wants," Brown said. "The price has to go up."

Shrinking pool of crude

Rising oil prices, though, are just part of the problem. Consumption in developing countries, whether it's Egypt, Kenya or Morocco, continues to rise. Yet the decline in exports from countries like Saudi Arabia could mean that consumer nations such as the U.S. will be competing for a shrinking pool of available oil.

For every three barrels of oil that countries excluding China and India imported in 2005, there will be only two by 2015, Brown estimates. China and India, meanwhile, will consume about a third of global exports by then to fuel the rapid growth of their expanding economies.

End result

If Brown's right, the result is sobering: significantly higher oil prices that could have a devastating effect on our economy. So far, the political change in Egypt has had little direct impact on oil markets. That nation's pattern of domestic consumption, though, may serve as another reminder to the world that the days of cheap oil are over.

Iraq: Shell's Iraq Natural Gas Venture Delayed by Legal Issues

(www.energypedia.com - February 15, 2011)

Legal hurdles could delay for weeks, if not months, a long-awaited $12 billion joint venture deal with Royal Dutch Shell to capture and market natural gas from Iraq's southern oil fields, Iraq's Deputy Oil Minister said Monday. The deal, also involving Mitsubishi Corp, is a joint venture in which Shell would hold 44% of the project, Mitsubishi 5%, and Iraqi state South Gas Co. would own the remaining 51%. It aims at capturing associated natural gas produced at fields near the oil hub of Basra, including Rumaila. Shell in early 2010 finalized contracts with Iraq to produce oil from several large Southern oil fields.

'There are some legal and economic aspects in the draft deal and also old Iraqi laws are needed to be changed or amended to allow the implementation of the project,' Ahmed al-Shammaa told Dow Jones Newswires in an exclusive interview. Iraqi officials had originally intended to finalize the gas exports deal by the end of 2010. Iraqi officials expect to meet later this week to try to hash out a plan to allow exports to begin. Production of the 25-year venture is expected to reach 2.5 billion cubic feet a day, officials said.

Shamma said that according to oil and gas law established under the Saddam Hussein era, only the state oil marketing company, or SOMO, is eligible to export gas or crude oil. That poses a challenge to the Shell venture, even though another Iraq state entity holds a majority interest in the project. 'There are officials in the ministry who think that the deal cannot be finalized under the past laws,' Shamma said. Iraq has yet to enact a new oil and gas law which has been stalled for more than two years. The government is hoping that the new law will be enacted this year.

The oil ministry has also hired two consulting firms, one from the U.S. and another from the U.K., to look at the legal and economic aspects of the draft gas deal with the Shell-led venture. 'These firms have also found that some of the provisions of the deal aren't favourable for Iraq and proposed changes,' Shamma said. He didn't name the two firms.

The deputy oil minister said that he, the deputy prime minister for energy affairs, Hussein al-Shahristani, and newly appointed oil minister Abdul Kareem Luaiby would attend a meeting in the ministry later this week to discuss how to resolve legal and economic hurdles. He expects that resolving these issues would take some time.

Shahristani, who is a former oil minister, had previously said that the deal could be signed by the end of last year. The Iraqi cabinet already had approved the planned investment last June, but it is now waiting to sign the final draft once it is resubmitted by the oil ministry.

The joint venture initially would deliver gas to Iraq's domestic market, mainly for electricity generation, but would export extra gas after meeting local needs in the form of liquefied natural gas, or LNG. The joint venture had seen opposition from Iraqi lawmakers and politicians who argued that the deal was not transparent and that the oil ministry didn't allow other international companies to compete for the project. The oil ministry, however, then said that three companies were invited and Shell won the deal.

Iraq, which has natural gas reserves totaling 112.6 trillion cubic feet, produces only around 1.6 billion cubic feet a day, half of which is being flared. However, the country has ambitions to become one of the world's biggest LNG exporters. Last October, the country awarded three of its largest discovered gas fields to international companies.

Morocco: Circle Oil Confirms Further Gas Discovery DRJ-6 in the Sebou Permit, Rharb Basin, Morocco

(www.energy-pedia.com- February 8, 2011)

Circle Oil has announced that the DRJ-6 exploration well has been successfully tested in the Sebou Permit, Rharb Basin, Morocco. DRJ-6 was drilled in April 2009 and, as previously announced, not tested due to local logistical problems at the time of drilling.

The Company confirms a gas discovery in the Base Guebbas target. The well tested gas at a sustained rate of 5.363 mmscf/d on a 26/64" choke. The perforated Base Guebbas zone of 1.5 metres at 1,042.25 - 1,043.75 metres MD and 3 metres at 1,046.0 - 1,049.0 metres MD has a calculated net gas pay of 4.5 metres. The well is being completed as a potential producer.

A full technical evaluation of all the results of the well is underway. This will allow for forward planning as a precursor to further assessment of the resource, including conducting an extended well test to give a more complete estimation of the reserves.

Due to bad weather over the last two weeks and some flooding in the permit area, the drilling rig will be demobilised to move onto the higher level KSR-10 site near to the location of the fifth and final well of this campaign, being the KSR-11 exploration well. The rig is expected to be stored for 2-3 weeks whilst weather conditions improve before drilling operations on KSR-11 commence. Further updates will be provided in due course.

The Sebou permit lies to the north-east of Rabat in the Rharb Basin in Morocco. The Rharb Basin is a foredeep basin located in the external zone of the Rif Folded belt. The concession agreement, in which Circle has a 75% share and ONHYM, the Moroccan State oil company, has a 25% share, includes the right of conversion to a production licence of 25 years, plus extensions in the event of commercial discoveries. Prof. Chris Green, CEO, said: 'The successful testing of DRJ-6 is particularly pleasing as it means that a 100% success rate has now been achieved from the six wells drilled during the first campaign.'

Egypt: RWE Dea Announces Gas Discovery in North El Amriya Concession, Offshore Egypt

(www.energy-pedia.com- January, 26 2011)

RWE Dea Egypt has made a gas discovery in its own operated North El Amriya concession. The successful testing of the reservoir opens chances of further future discoveries in the licence. The NEA 3x discovery is located in the offshore North El Amriya concession, some 40 kms North of Alexandria. The well was drilled to a total depth of 3,055 meters and encountered gas in a lower Plicene sand in the Kafr El Sheik formation. The well was sidetracked to a total depth of 2,642 meters where a conventional gas filled sand channel was encountered with an additional unconventional reservoir above.

A drill stem test was carried out successfully on the unconventional reservoir with flow rates of up to 14 mmscf/d with the objective to prove the productivity in this kind of reservoir. 'The successful testing of the unconventional reservoir gives RWE Dea the opportunity to expand its activities in this concession on a new play with chances for future discoveries.' said Ralf to Baben, Chief Operating Officer of RWE Dea AG. The North El Amriya concession is operated by RWE Dea with a 100% working interest. Currently, RWE Dea holds a total of 13 onshore and offshore concessions, covering a net acreage of about 13,300 sq kms.

Shell Halts Its Plans for Arctic Project

(www.chron.com- February 3, 2011)

Royal Dutch Shell is scrapping plans to drill an exploratory well in the Beaufort Sea near Alaska this summer, after failing to secure key permits for the project.

Shell CEO Peter Voser confirmed Thursday the work will now be postponed until at least 2012 as the company tries to obtain environmental permits and convince federal regulators it is prepared to contain an out-of-control well in remote, icy waters. This is the latest delay in the company's five-year quest to drill in the Beaufort and Chukchi seas.

"Despite our investment in acreage and technology and our work with stakeholders, we have not been able to drill a single exploration well," Voser said during a conference call to discuss Shell's earnings. "Despite our best efforts, critical permits continue to be delayed, and the timeline for getting these permits is still uncertain."

The company was preparing to drill in the Beaufort Sea last year, but that was put on hold after the oil spill in the Gulf of Mexico.

Shell hoped to launch work after ice cleared this summer, but its plans were put in jeopardy after a legal challenge by environmentalists and native Alaskan groups. In December, two air quality permits were revoked by the federal Environmental Appeals Board, which said regulators hadn't sufficiently reviewed potential emissions from a drill ship and support vessels. Pete Slaiby, the vice president of Shell Alaska, said the permitting problem was more bureaucratic than environmental. "This is not an issue with the air emissions on the drilling rigs," he said. "It is the issue of processing a permit application in a timely way."

Shell plans to use ultra-low sulfur diesel and has invested about $30 million of investments in technology to control emissions from the Beaufort rig, Slaiby said during the conference call. "Nobody is saying Shell needs to install more equipment," he said. "It's all about satisfying a process. And this conversation has gone on for five years now."

Seals, whales, walruses

The spill ramped up scrutiny of Arctic drilling pro- jects, as environmentalists and federal officials raised new questions about how anyone could effectively remove oil from the slushy waters of the Arctic or when the area is iced over. Environmentalists have warned about potential damage to seals, whales and walruses in the region, which also is home to roughly a half of America's polar bears.

But Shell touted its wide-ranging preparations, including additional safety equipment and its promise to build an Arctic containment system that could trap and siphon oil in case of a blowout. Shell has also stressed the distinctions between its Arctic drilling aspirations and BP's Macondo well in the Gulf. Shell's proposed drilling is in roughly 150 feet of water, compared with the 5,000 feet that separated BP's doomed well from the sea surface.

Environmentalists cheered Shell's decision, which they said would give federal officials more time to scrutinize the company's plans.

Deepwater Horizon

The Interior Department had pledged to update a pre-Macondo environmental assessment before deciding on Shell's drilling application. But now regulators can conduct a more far-reaching analysis known as an environmental impact statement, said Erik Grafe, an attorney with Earthjustice.

"This is a chance for the government to step back and make sure it takes a full account of the lessons of the Deepwater Horizon," he said. "This also gives the government the opportunity to make sure that Shell's air emissions comply with all now-applicable standards."

That includes new mandates governing the release of nitrogen dioxide and greenhouse gas emissions from stationary sources. Voser said Shell will keep working with regulators to get the project on track for 2012, adding that Shell is still invested in Arctic drilling.

The drilling season in offshore Alaska is brief - just about 105 days each summer, Slaiby said. "So losing any season, of course, is like gold falling out of your hands." Regulators have extended some of Shell's Chukchi and Beaufort 10-year drilling leases because of the delays. But "the timer is running on all these leases," Slaiby said.

Shell paid the government more than $2 billion for the right to drill in the Beaufort and Chukchi seas. The company has spent $1.5 billion more preparing for the work.

Federal agencies blamed

Alaska lawmakers blamed federal agencies for the delays. "Shell has now invested roughly $4 billion and five years attempting to get the permits it needs, without success," said Sen. Lisa Murkowski, R-Alaska. "The federal government's inability to process a straightforward air permit calls into question its willingness to support a rational energy policy."

Said Sen. Mark Begich, D-Alaska: "I put the blame for this squarely on the EPA and the Obama administration, who have taken virtually every opportunity to block responsible development of Alaska's resources."

OPEC Reaches 'Highest Level in More Than 2 Years'

(www.rigzone.com - February 9, 2011)

Organization of the Petroleum Exporting Countries' (OPEC) crude oil production averaged 29.57 million barrels per day (b/d) in January, up 300,000 b/d from December and the highest level in more than two years, according to a just-released Platts survey of OPEC and oil industry officials and analysts. The month-on-month gain from December's estimated 29.27 million b/d came as a result of a significant boost in Iraqi crude exports.

Excluding Iraq, which does not participate in OPEC output agreements, the 11 members bound by quotas (OPEC-11) pumped an average 26.91 million b/d, up 70,000 b/d from December's 26.84 million b/d, the survey found. The OPEC-11 has operated under a 24.845 million b/d production target that's been in place since January 2009.

"The numbers out of Iraq are lending support to the declarations by BP that it is significantly increasing output at the Rumaila field," said John Kingston, Platts global director of news. "But it's not just that field, where production is said to be up by 150,000 b/d. The increase since August is more than 300,000 b/d, showing a more broad-based growth than just Rumaila."

Declines of 40,000 b/d and 20,000 b/d in Iranian and Nigerian production volumes partly offset increases totalling 130,000 b/d from Angola, Kuwait, Saudi Arabia, the United Arab Emirates (UAE) and Venezuela. The latest increase in OPEC-11 volumes putsproduction 2.065 million b/d beyond the target and reduces compliance with the 4.2 million b/d of output cuts agreed in late 2008 to 50.8% from 52.5% in December.

OPEC production has been climbing in recent months alongside rising oil prices, which earlier this month climbed above $100 per barrel for the first time in two years and last week pushed above $103 per barrel as political unrest in Egypt escalated.

The group's most powerful producer, Saudi Arabia, boosted output to 8.4 million b/d in January after a 130,000 b/d hike to 8.35 million b/d in December, well above its notional quota of just above 8 million b/d. At present, it remains unclear whether higher production volumes from Saudi Arabia have been exported or used internally where power station demand has been high.

On February 7, a senior Gulf source said Saudi Arabia was ready to supply more oil to the market but only if there was demand from its customers. This source said the market currently was in "good shape" and that the recent spike in global oil prices to their highest levels in 28 months had not been driven by supply/demand fundamentals. Brent crude futures have risen by as much as $13 per barrel since OPEC's December meeting in Ecuador, but top OPEC officials have insisted that this has had little to do with supply or demand factors.

OPEC's current president, Iranian oil minister Masoud Mirkazemi, said last weekend that he saw no need for OPEC to call an extraordinary meeting, prior to the next scheduled meeting in Vienna in June, even if the oil price were to rise to $120 per barrel. He said he had received no requests from members for a special meeting. But the Gulf source said on February 7 that Saudi Arabia was keen to hold informal consultations with other OPEC members on the sidelines of the upcoming February 22 ministerial meeting in Riyadh of the International Energy Forum.

Platts' survey data shows that Iraq production, at 2.66 million b/d, was the highest output level since November 2001, when volumes were estimated at 2.8 million b/d. Exports were up by more than 200,000 b/d, reflecting rising production as a result of field work by international oil companies. In particular, the increases are attributed to higher output from the giant Rumaila field, which is being developed by BP and China's CNPC, and the Zubair field, being developed by a consortium led by Italy's Eni.

Siemens and Saudi Aramco Sign Strategic Procurement Agreement

(www.ordons.com - February 9, 2011)

Saudi Aramco Logo

Siemens and Saudi Aramco, one of the world's largest oil companies headquartered in Dhahran, Saudi Arabia, have signed a corporate procurement agreement (CPA). This corporate-level agreement will strengthen the cooperation between the two companies. In addition, a sub-procurement agreement grants Saudi Aramco improved access to Siemens Oil and Gas Division's rotating equipment and services. This will lead to more cost efficiency for both companies due to reduced project times.

Tom Blades, CEO of the Siemens Oil&Gas Division and Munir Rafie, Saudi Aramco Vice President of Materials Supply (f.l.t.r.)

"We have worked closely with Saudi Aramco to better understand its needs and requirements," said Tom Blades, CEO of the Siemens Oil and Gas Division. "This corporate procurement agreement with Saudi Aramco demonstrates our commitment to the kingdom of Saudi Arabia. At the same time Saudi Aramco will have even better access to Siemens´ global service and manufacturing network."

Munir Rafie, Saudi Aramco Vice President of Materials Supply, said: "We are delighted to conclude this wide ranging agreement with Siemens. Over many years, Siemens has made a very important contribution in supporting the efficient production of oil and gas in the Kingdom, with a good record of investing in the local economy."

The agreement will enable Saudi Aramco to take advantage of the rotating equipment portfolio of Siemens Oil and Gas Division. Initially for a period for seven years, the CPA will cover low-emissions gas turbines with a capacity of up to 50 megawatts (MW) for a wide range of applications, high-efficiency steam turbines with ratings up to 200 MW, and compressors and blowers. Shop and field services and spare parts are also included in the CPA. Siemens has been present in Saudi Arabia for almost 75 years. Since 1976, Siemens has been a joint venture partner of E.A. Juffali & Bros. Today, Siemens has over 1,800 employees in Saudi Arabia.

The Siemens Energy Sector is the world's leading supplier of a complete spectrum of products, services and solutions for the generation, transmission and distribution of power and for the extraction, conversion and transport of oil and gas. In fiscal 2010 (ended September 30), the Energy Sector had revenues of approximately EUR25.5 billion and received new orders totaling more than EUR30.1 billion and posted a profit of more than EUR3.3 billion. On September 30, 2010, the Energy Sector had a work force of more than 88,000.

Iraq: Heritage Unlocks 'One of The Largest' Gas Finds in Iraq (www.rigzone.com- January 26, 2011)

Heritage Oil announced a major gas discovery in the Kurdistan Region of Iraq ("Kurdistan"). Following completion of the deepening and testing of the Miran West-2 well, management estimates that the Miran West structure has P90-P50 gross in-place volumes of gas of between 6.8-9.1 trillion cubic feet (TCF) with 42-71 MMbbls of condensate and 53-75 MMbbls of oil.

Highlights

Highly productive Jurassic reservoir intervals tested at a restricted cumulative flow rate of over 75 million cubic feet per day (MMscfd)
Estimated gross P90-P50 in-place volumes of between 6.8-9.1 TCF, with a P10 upside of 12.3 TCF
Management estimates Heritage has mean risked contingent and prospective resources in Miran West and Miran East of 744 million barrels of oil equivalent (MMboe), based on a 75% working interest
Significant increase in contingent resources following the successful testing of hydrocarbons
Development options being considered with first production targeted for 2015 using planned regional infrastructure
2011 multi-well drilling program has been accelerated with the Miran West-3 appraisal well scheduled to commence drilling in the second quarter
Second rig planned to commence drilling in the autumn of 2011
Size of 3D seismic program has been expanded following this successful well
Miran East prospect risk reduced

The Miran West-2 well was initially designed as an appraisal well for the Cretaceous section and was subsequently modified to assess the exploration potential of the deeper formations, eventually being drilled to a total depth of 4,426 meters. The well results have confirmed three additional pay zones within Lower Cretaceous and Jurassic formations, in addition to the pay zone identified in the Upper Cretaceous in the Miran West-1 well.

Additionally, well results have established that the Miran Field contains two hydrocarbon systems, with oil in the shallower Upper Cretaceous section and wet gas/condensate within the deeper Lower Cretaceous and Jurassic formations. This has resulted in the previously anticipated prospective oil resources in the Lower Cretaceous, identified on the basis of oil shows in the Miran West- 1 well, being proven to be wet gas/condensate. The Miran West-2 well has been suspended as a future producer.

The test rates were constrained by the capacity of the surface equipment and the well test data indicate that individual test intervals could produce at rates of 40 MMscfd with the well capable of producing at a rate of over 100 MMscfd when it is placed on production. The proven hydrocarbons in the Upper Cretaceous can be accessed commercially on the structure as demonstrated by the 8,000-10,000 bopd potential of the Miran West-1. Furthermore, future drilling techniques will maximize the benefit from the fracture networks in order to achieve optimal production rates.

In-Place Hydrocarbon Volumes

Following completion of the test program, the hydrocarbon volumes of the Miran Field have been re-evaluated and management estimates in-place volumes for the Miran West structure to have a P90-P50 range of 6.8-9.1 TCF, with an upside P10 potential of 12.3 TCF of gas. Miran East has an additional estimated P90-P50 gas in-place range of 0.6-0.9 TCF with a P10 upside of 1.3 TCF.

The extensive coring program linked with wireline log analysis in Miran West-2 has indicated the presence of matrix porosity within the Cretaceous and Jurassic formations. Management estimates, based on initial evaluation of the well, that Heritage has mean risked contingent and prospective resources in Miran West and Miran East of 744 mmboe, based on a 75% working interest. The Regional Government of Kurdistan has a back in right which could, if exercised, reduce Heritage's working interest to 56.25%. Management estimates that mean net risked contingent resources have increased from 53 MMbbls to 605 MMboe following completion of the Miran West-2 well.

Forward Program and Development

Results from drilling and initial indications from the 3D seismic program indicate that there are pervasive fracture networks across the Miran structures. Future drilling plans will be designed to intersect these fracture networks in order to achieve optimal flow rates. Heritage is planning to accelerate the forward program on the Miran West structure with an additional high-angle appraisal well, Miran West-3, expected to commence drilling in the second quarter of 2011. This will target the fracture systems on the flanks of the structure in the Lower Cretaceous and will take approximately 120 days to drill and complete. In addition, a second rig is being sourced to continue appraisal work on Miran West and subsequently to begin exploration drilling on Miran East. It is planned that the second rig will commence drilling in the autumn of 2011.

The 3D seismic program, that is currently underway to acquire 550 square kilometers of data, is being expanded by a further 180 square kilometers due to the increased confidence provided by these well results. This extension to the program is aimed at the southern flanks of both the Jurassic and Cretaceous structures. Preliminary 3D volumes will be analyzed in up to four separate tranches to expedite our understanding of the structures. Initial samples indicate good quality data.

The location of the Miran Field in Kurdistan makes it ideally placed to gain access to secure and profitable European gas markets. Over the last two years a number of major gas companies, including OMV, MOL and RWE, have entered into agreements in Kurdistan with a view to creating a route to market for Kurdistan's major gas reserves. Heritage is currently considering potential development options which could include either bringing gas into Turkey and/or into Europe via the Nabucco pipeline. The company is currently targeting first production in 2015.

Tony Buckingham, CEO, commented, "The discovery of a major gas field of up to 12.3 TCF in-place with exceptional flow rates makes this one of the largest gas fields to be discovered in Iraq. This well has substantially de-riskedthe field so we have the confidence to accelerate the work program on Miran. We are considering various development options including a tie-in to planned infrastructure that will achieve first production for both oil and gas in 2015. This discovery has the potential to generate substantial further value for our shareholders and benefit the people of Kurdistan and Iraq."

DNO IDs Oil Shows in Yemen, Updates Ops in Iraq

(www.rigzone.com- February 4, 2011)

DNO logo

DNO updated the status of well testing operations being undertaken in its exploration wells in Yemen and Iraq.

Gabdain-1, Block 72, Republic of Yemen

The Gabdain-1 basement exploration well commenced drilling on November 19, 2010. The well was drilled to total depth of 3,485 meters measured depth (approximately 636 meters measured depth into the Basement). Hydrocarbons were observed while drilling through the Kohlan sandstone overlaying the basement interval and an oil sample was recovered from the Kohlan using a wire line MDT tool prior to running intermediate casing.

Hydrocarbon charged fractures were also observed while drilling the upper basement interval. An open hole test was conducted on the basement interval, but no flow to surface was achieved due to the limited fractures encountered in the wellbore at this location.

Following the basement test, a 15 meter interval was perforated in the Kohlan. The Kohlan was placed on test using a small electric submersible pump. The well continued to clean up and was producing at an unstabilized rate of approximately 130-180 barrels per day of 39° API oil at the end of the five-day test. The presence of oil shows in the basement and the Kohlan demonstrates a working hydrocarbon generation and migration system. Studies are underway to determine if a more optimal drilling location is feasible.

The Block 72 partners have approved a second exploration well, Gabdain-2, subject to Government approval. DNO is now preparing to suspend Gabdain-1 and move to the Gabdain-2 location. The Gabdain-2 exploration well will drill a shallow Qishn formation prospect.

Bastora-1, Kurdistan Region of Iraq

Drilling of exploration well Bastora-1 in the Erbil license commenced on September 7. The well has been drilled to total depth of 3,600 meters. As previously reported hydrocarbons were observed while drilling through several of the prospective intervals.

Two tests were undertaken in the lower part of the Cretaceous interval, both flowing water. A third test in the Cretaceous has now been completed. A flow rate of 500 - 600 barrels per day of 16-18 API was achieved during the test. The test was undertaken after acid stimulation of the perforated interval, and the well was flowed using a submersible jet pump. The well flow was not fully stabilized during the test. Various options for improving the flow rate from this zone at a later stage will be investigated. Additional three tests are planned to be undertaken in the well. Once the full test program is completed and the results are evaluated, a further update will be reported to the market.

Sea Dragon Provides an Operational Update on Egypt

(www.egyptoil-gas.com - February 16, 2011)

Sea Dragon Energy Inc. wishes to provide the following update on its Operations in Egypt.

The Corporation is pleased to report that throughout the past two weeks while demonstrations were taking place in Egypt, field operations were relatively unaffected. Production from the Al Amir SE, Geyad and Al Baraka fields continued without any interruptions. Drilling and Service rigs are back in operation in both the NW Gemsa and Kom Ombo concessions.

NW Gemsa Concession

Al Amir SE #7 Well
The Al Amir SE #7 well was successfully drilled to a depth of 9,650 feet and the 9 5/8" intermediate casing was run and cemented. Drilling of the 8 1/2" hole then resumed, however due to mechanical difficulties encountered at a depth of around 10,000 feet, the well was plugged back and sidetracked. The well is currently drilling at a depth of 10,835 feet towards the targeted depth of 16,750 feet. Preliminary petrophysical analysis of the logs run indicate 6 feet of oil pay in South Gharib Formation, extending the Al Amir South Gharib oil pool to the west.

The primary target for this well is the Kareem Formation and the secondary target is the Lower Rudeis Formation where gas and condensates were tested in the adjacent Al Amir SE #6 well and also encountered in the Al Ola X-1 well. The well is expected to delineate the western limits of the Al Amir SE field and is anticipated to be completed as a water injector in preparation for commencing water injection in the field. Water flooding of the Al Amir field is expected to provide significant additions to reserves and production.

Production from the Al Amir SE and Geyad fields is currently running steady at around 8,500 bopd. Cumulative production from the concession has now reached approximately 4.5mmbbls of 42 degree API crude oil. Sea Dragon has a 10% working interest in the NW Gemsa Concession with Vegas Oil at 50% as operator and Circle Oil Plc with 40%.

Kom Ombo Concession

Al Baraka #3, #7, SE and #6 Wells

These wells have now been fracked and placed back on production for clean-up of frac fluids. Frac operations appear to have been carried out successfully in all wells.

Al Baraka #5 Well

This well was tied into the production facilities and placed on production.

Al Baraka #14 well

The well was spud on January 11th and drilled to a total depth of 5,643 feet. Open hole logs were run and analyzed. Preliminary analysis of Petro-physical data showed the potential for oil pay in the Six Hills "D" sands. Casing was run and the well is now awaiting completion.

Al Baraka #15 Well

The well was spud on February 9th and is now drilling at a depth of 4,440 feet towards its targeted total depth of 5,000 feet in the Six Hills Formation. Current gross production from the Al Baraka field is running at 1050 bopd. Sea Dragon has a 50% working interest and is a joint operator of the Kom Ombo Concession with Dana Gas Egypt owning the remaining 50%. Commenting on the latest developments on the Company's operations in Egypt, Company Chairman and CEO, Mr. Said Arrata stated "It is comforting to see that our production operations remained stable and without disruptions during this period of unrest in Egypt. I am also pleased to see that we are back drilling again in both of our concessions. We are continuing to focus on increasing our production in Kom Ombo through the ongoing fracture stimulation program and the completion and placement of new wells on production. As well with water injection in NW Gemsa scheduled to begin soon, production levels are expected to increase substantially by the end of the year".

Issue: 02-2011