PELICAN XIII & MIDIA XV
In late 2006 Sterling completed an arrangement with Talisman Energy Ltd. to acquire its 80% interest in the Black Sea blocks X111 Pelican and XV Midia. As a result Sterling increased its interest from 20% to 100% and operates the blocks.
The blocks cover 1.1 million acres and are comprised of the Pelican Block XIII to the north and the Midia Block XV to the south. These blocks contain several mapped prospects as well as the Doina and Ana gas discoveries in the southern Midia block.
Following its corporate strategy, Sterling farmed out 35% of its interest in both blocks to Petro Ventures and Gas Plus reducing its interest to 65%.
In late December 2007 Sterling drilled the Ana-1 (formerly Doina Sister) well and encountered gas. The well tested at stabilized rates up to 19.2 MMscf/d from perforations over a 29 meter interval. As with the discovery well on the neighboring Doina well, the test results do not reflect the full production for a development well due to the limitations of the testing equipment. The well is now suspended for possible future re-entry.
During August 2008 Sterling completed the open-hole logging of the Doina-4 well after having reached a target depth of 1,250 metres approximately 17 days after the well was spudded. Initial results confirmed the northerly extension of the gas bearing Doina Main Sand reservoir, some 1.6 kilometres north of the previously drilled Doina wells. In addition, prospective gas bearing intervals were noted both above and below the main reservoir body.
The Doina Main Sand reservoir was encountered some 3 metres higher than anticipated, and had a significant gas show on drilling. Subsequent electric wireline logging has confirmed a reservoir section similar to previous Doina wells with excellent sand intermingled with more silty intervals. The top of the Doina Main Sand section was at 1,094 metres true vertical depth subsea (tvdss) with the base of the gas bearing reservoir picked at 1,125 metres tvdss, which is consistent with the gas water contact noted in the previous Doina wells. This interval contained an estimated gross 12 metres of high quality reservoir with porosities in excess of 30%, again similar to previous wells. Given the equivalent reservoir was tested in the Doina-2 well at 17.5 MMscf/d, and calculations for this well indicate similar productivity potential, the well has been suspended for possible re-entry as part of any future development program.
During September of 2008 Sterling announced the successful completion of the Ana-2 appraisal well, in the Romanian Black Sea. Ana-2 was drilled as a follow up appraisal well following the Ana-1 discovery well, which was drilled and tested in January 2008.
The Ana-2 well encountered gas within the Doina Main Sand Formation at 1,121 metres tvdss, some 10 metres shallower than originally mapped. The well has been extensively evaluated with electric logs, MDT pressure tests and a collection of wireline gas samples. These results confirm the presence of a 39 metre gas column with a net pay of 23 metres in high quality reservoir sands with porosity of up to 32% and good permeability. The pressure data also confirms a gas water contact consistent with the earlier Ana-1 well. The reservoir sands encountered in the Ana-2 well are equivalent to, or slightly better, than those encountered in Ana-1. The original Ana-1 well tested gas, at rates up to 20 MMscf/d under conditions restricted by equipment. Under unrestricted conditions, a final completed rate in excess of 30 MMscf/d per well is anticipated.
The Ana-2 well also encountered a 5 meter gas bearing reservoir in a shallower horizon at 766 metres tvdss. This shallower horizon was also present in the Ana-1 well and will be further evaluated, in order to determine its feasibility as a new reservoir.
The well reached a total depth of 1,600 metres on September 10th, 2008 and was located approximately 750 metres north west of the original Ana-1 seabed location. Following the successful acquisition of the logging suite, the well has been suspended. Ana-2 was directionally drilled from a seabed template, which provides re-entry capability for both of the Ana wells for future production.
Sterling and the National Agency for Mineral Resources (NAMR) signed an agreement in 2007 to modify the existing Exploration and Production Sharing Agreement (EPSA) to a tax royalty concession agreement. In November of 2008 the Government of Romania ratified this agreement and changes for the 11th Amendment to the EPSA for Blocks XIII Pelican and XV Midia located in the Romanian Black Sea.
This Amendment converts the original EPSA to conform with Romania's tax and royalty structure as contained in other recent petroleum agreements. The agreement transfers greater control and decision-making to the operator, and reduces direct day-to-day Government involvement, without compromising the requirement for ongoing compliance with both Romanian and European legislation.
In addition to the Doina and Ana discoveries, the Doina trend also contains several other mapped prospects with amplitude anomalies indicative of possible gas. The Midia and Pelican blocks also have other exploration targets, including the large Midia SE prospect, which is located to the south and east of the Doina trend. In late 2008, Sterling shot 3,000 kilometres of new seismic data across the Doina trend and Midia SE to progress all of these to drillable status.
In early December 2008, Sterling signed a Heads of Agreement with Melrose Resources plc (“Melrose”) relating to the Pelican XIII and Midia XV Blocks. In exchange for a cash consideration and a carry on future expenditures, Melrose will acquire a 32.5% working interest in the Pelican XIII and Midia XV Blocks.
An initial advance of US $12-million will be made to Sterling on closing by Melrose. Melrose will also carry Sterling for a proportion of their future development costs. The amount of the cost carry will be up to US $90-million, depending on the prevailing gas price at the time the field commences production. Sterling will retain a 32.5% working interest in the Pelican and Midia Blocks.
Melrose will become operator of the development projects, initially associated with the recently appraised Doina and Ana fields on the Midia XV Block. Sterling will retain operatorship for the exploration of the significant prospects in the remaining parts of the blocks. During 2009 Exxon farmed into the Petrom Block, East Neptune, and shot 3,000 square kilometers of new seismic to explore for potential in the deepwater area of the Western Black Sea.
On February 3, 2009 resolution of the Maritime Boundary Dispute between Romania and the Ukraine was announced by the International Court of Justice (“ICJ”)in the Hague with approximately 80% of the disputed territory awarded to Romania. Concurrent to the announcement media reports in Romania surfaced questioning the validity and extent of certain concessions granted to Sterling by the Romanian government. On February 5, 2009 Sterling issued a Statement of Facts outlining Sterling’s history of operations in Romania and confirming the validity of the concessions in place.
During the remainder of calendar year 2009 subsequent political events delayed the approval of the transfer of the offshore licenses to Melrose, Petro Ventures and Gas Plus. However the transfer of the onshore license to TransAtlantic was approved and drilling was commenced late in 2009. We remain guardedly optimistic that the transfer of the offshore license to our partners will be approved early in 2010.
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