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The LS36-1 gas field came on stream in July 2014 and it and the nearby prospects are ideally located for development, being only 110 km from the coast of Zhejiang Province, part of the fast growing economy of East China. Wenzhou City, with 8 million people is 140 km from the gas field and is one of the most dynamic cities in China. A provincial grid is currently being expanded within Zhejiang Province, presenting an exciting opportunity to Primeline.
More importantly, the development has established a production facility for related analogous prospects and leads (together "the Lishui Gas Play") and established access to the dynamic local gas market in Eastern China. The confirmation of the market and the creation of the production facility will significantly enhance the value of any production from the LS36-1 field's incremental reserves and over 1TCF of prospective unrisked resources in the Lishui Gas Play.
The Gas Sales and Purchase Contract was signed on October 29, 2014 (the "Gas Sales Contract") between CNOOC China Limited ("CCL"), a subsidiary of China National Offshore Oil Corp, and Zhejiang Gas for the sale of gas from LS36-1 on the basis of the fixed price, take or pay gas sale agreements with Zhejiang Gas originally dating back to 2008. The parties to the Gas Sales Contract are CCL (acting for itself and as agent for Primeline) and Zhejiang Gas.
Primeline is the operator of the Petroleum Contract with CNOOC for Block 33/07. Block 33/07 covers an offshore area of 4,397 sq km, enclosing Block 25/34.
Primeline is responsible for 100% of the exploration costs and CNOOC has the right to participate in up to 51% of any commercial development. Additional resources which may be discovered within Block 33/07 can be monetized using the infrastructure already constructed for the LS36-1 gas field.
Primeline's 2015 programme which saw a cost effective and smooth drilling operation of two exploration wells - LS23-1-1 and LS30-3-1. Primeline spudded the first well, LS23-1, on September 23 and reached total depth (TD) of 2,666m on October 21 and wireline logging data was subsequently acquired. The well encountered sandstone units of Paleocene and early Cretaceous age, drilling through the geological sequence as anticipated and finished in basement rock. It discovered several zones of gas bearing sandstone and evaluation of logging data indicated total cumulative net pay thickness of 14 metres.
The second well spudded on November 13. LS30-3-1 is located approximately 20km north of the LS36-1 gas field platform - targeting a large channel sand prospect. The prospect was originally mapped in 2009/2010 and refined during the 2014/2015 evaluation. When the well reached the planned total depth of 1800m, Primeline decided to deepen the well, drilling to a total depth of 2000m on November 27 with electronic log data being collected during November 27-30..
Both wells encountered very good sandstone reservoirs as predicted and gas shows, but were not commercial.
At the end of April 2016, Primeline elected to enter the next and second phase of exploration commitment.