Primeline Energy Holdings Inc. has signed a Letter of Intent (LOI) for the drilling operations of the forthcoming exploration programme in Block 33/07 in the East China Sea.
In the last few months, Primeline has been in discussion with a number of potential drilling contractors in the region to secure contract terms for drilling operation planned to start in August 2015.
According to the company, the rig market has proved favourable with good availability of suitable rigs and competitive prices. With the completion of the 3D seismic data interpretation, the selection of drilling locations was completed in the past few weeks and locations have been agreed and approved by the joint management committee established by CNOOC and Primeline under the petroleum contract for Block 33/07. This allowed Primeline to finalise the well design and conclude discussions with potential drilling contractors. Following a detailed negotiation process, Primeline has selected China Oilfield Service Co. (COSL) as the drilling contractor and signed the LOI with COSL on July 22, 2015.
Under the LOI and subject to final contract, COSL has offered to undertake turnkey drilling works for 2 wells in Block 33/07 for Primeline, starting in August. The first well will be LS23-1-1 and the second well will be selected from 2 further candidate locations following the evaluation of the results of the first well. The total drilling costs for 2 wells will be around $20 million, excluding costs for any test when oil and gas is discovered.
The costs of drilling will be funded by the $20 million principal amount convertible bonds to be issued to GEMS. The one remaining condition precedent to the issuance of the bonds is completion of the previously announced acquisition of Primeline Petroleum Corporation (PPC) to be presented for disinterested shareholder approval at Primeline’s Extraordinary General Meeting on July 30. Assuming approval at the EGM, Primeline anticipates the issue of the bonds to GEMS will be completed on July 31 to allow the drilling operations to proceed.
Primeline noted that this exploration drilling programme is the first step in the rolling development strategy now that the production infrastructure hub and access to gas market has been established and LS36-1 has been in production. The plan now is to find more hydrocarbons to capitalise the infrastructure hub and access to market. The company added that any discovery in this future exploration in the area can be quickly and cost effectively developed.
Primeline is the operator of the Petroleum Contract with CNOOC for Block 33/07. Block 33/07 covers an offshore area of 5,877 sq km (1.45 million acres).