Dec 6 2010
Southwest China have been successfully drilled to total depth. The Zitong-1 well reached total depth at 4,294 metres (14,088 feet) in the Xu2 Formation and the Yixin-2 well reached total depth at 4,165 metres (13,661 feet) in the Xu3 Formation.
The wells have been logged, Zitong-1 has been cased and cemented, and Yixin-2 is currently running casing prior to cementing. A testing program for both wells is scheduled to commence in mid-December.
"Our enthusiasm continues to grow as we obtain more information from these two wells," Mr. Dyck said. "We believe the Zitong Block is highly-prospective and has the potential for several trillion cubic feet of natural gas. As we proceed with our testing program at Zitong-1 and Yixin-2, and follow-up with a development program for the block, we aim to demonstrate the significant upside potential."
Testing program to start in mid-December
Initial testing of the Zitong-1 well, located on the 70-square-kilometre Guan structure, is expected to commence in the Xu2 Formation. Following the initial test period, Sunwing may elect to initiate a testing and stimulation program for a long term evaluation or drill a horizontal section to evaluate the ultimate potential of a stimulated horizontal wellbore. Given the thickness of the Xu5 and Xu4 sandstone package and the Xu2 sandstone, the Zitong-1 well is already believed to be an ideal candidate for horizontal well evaluation.
At Yixin-2, an initial short-term flow test of the lower section of the Xu4 Formation will be performed. The test data obtained will be used in the design of any ongoing stimulation program for this well.
"Ultimately, a successful gas test would be a transformative event for Sunwing and would allow access to all the other structures on the block," Mr. Moench said. "The other structures on the Zitong Block were drilled without the benefit of current technology and Sunwing's ability to access these additional structures, as well as evaluate other resource plays on the block, would significantly enhance the value of the Zitong Block."
Data from the initial tests will provide the necessary information to model and design the stimulation program for all zones in each well. Open-hole logs and geological data gathered during drilling already provide strong indication that the wells could be stimulated into a commercial production rate.
Over the next two months, and pending the results of the initial testing of the Zitong-1 and Yixin-2 wells, Sunwing's and PetroChina's technical teams will work together to develop a strategy to appraise the Guan and Yixin structures. As provided for in the Production Sharing Contract, Sunwing Energy, with the cooperation of PetroChina, will develop a strategy to appraise and develop the remaining Zitong Block potential including, but not limited to, any of the previously drilled structures.
Potential for production and cash flow in mid-2011
Gas produced from the Zitong-1 and Yixin-2 wells could be tied into an established local and regional gathering and sales distribution system located within four kilometres from each well. For long-term testing periods of over 30 days, the Zitong-1 and Yixin-2 wells could be tied-in to the local gas gathering system to allow for longer term performance monitoring and natural gas sales to PetroChina and cash flow to Sunwing by mid-2011.
Natural gas sales are regulated in China and current prices are approximately $5.00 per thousand cubic feet at the wellhead. As part of China's commitment to develop cleaner sources of energy, demand for natural gas is projected to continue to grow in the country.
Zitong-1 - Log data on Xu2 Formation
The upper Xu2 sandstone was encountered at 4,121 metres with high mud gas readings. Having reached the primary target, the complete Xu2 Formation was drilled, and the well reached total depth at 4,294 metres.
Data from the open-hole logs indicate a 99-metre sandstone section in the upper Xu2 Formation, from 4,121 metres to 4,220 metres, with high mud gas readings during drilling. These gas readings are consistent with offsetting wells drilled by PetroChina and Sunwing's prognosis for this section of the well. Within the upper Xu2 section, there is a 51-metre (168 feet) thick, coarser grained sandstone, with 5% average porosity and higher mud gas readings. This section will be the focus of initial testing. The upper Xu2 sandstone overlies a section in the Xu2 Formation between 4,220 metres to 4,275 metres with much less net sandstone, but it includes an additional 14 metres of net sandstone averaging 4% porosity.
As announced in an Ivanhoe Energy news release on November 1, 2010, data from the open-hole logs indicate that the shallower, Xu5 and Xu4 formations at Zitong-1 most likely share the same pressure regime, with a total sandstone and shale sequence of 357 metres, from 3,445 metres to 3,802 metres. Of primary interest in the lower Xu5 Formation, there are four units between 3,841 metres and 3,564 metres comprising up to 58 metres (190 feet) of net sandstone, with porosity ranging up to 13% and averaging approximately 7%. Of secondary interest in the Xu4 Formation, there are three units between 3,592 metres and 3,801 metres comprising up to 22 metres (72 feet) net sandstone, with porosity up to 8.5% and averaging 5%.
Yixin-2 - Log data on Xu4 Formation
Data from the open-hole logs at Yixin-2 indicate multiple stacked sandstones in the lower Xu5, Xu4 and Xu3 formations from 3,738 metres to 4,150 metres which had corresponding high mud gas readings during drilling. In the Xu4 Formation, log-calculated porosity values are low - up to 3% - with the section likely containing numerous fractures, as indicated from spikes in mud gas readings during drilling and from the open-hole logs. Rock quality in the lower Xu5 Formation is improved over the Xu4 Formation, with 18 metres net sandstone averaging 6% porosity encountered in the interval 3,740 metres to 3,773 metres.
Sichuan is the oldest and one of the most productive gas producing regions of China. Sinopec and PetroChina have made significant gas discoveries from the Xu-2, Xu-4 and Permian formations in blocks adjacent to Sunwing's Zitong Block.