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The Republic of Yemen: Block 41 PSA

Note: updated as of June 2009

The Block 41 Production Sharing Agreement (“Block 41PSA”) was initially granted to Oil and Gas Mine Company (“OGMC”) in July 1998.  The concession area covers approximately 5,600 square kilometers (1,384,000 acres) and lies onshore along the Gulf of Alden to the west of the city of Mukalla.  Since 1998, OGMC has drilled two exploratory wells (the Al Waya-1 and the West Mahrawa-1) drilled on Block 41, both of which are currently shut-in, and approximately 700 kilometers of 2D seismic has been shot over Block 41. 

On September 10, 2007, the Corporation signed a Farm-In Agreement with OGMC, to acquire a 57.14% paying interest and a 50% undivided percentage interest in the Block 41 PSA.  With the majority interest in the Block 41 PSA, Epsilon is now the operator of Block 41.

Location Map - Click to enlarge

Mukalla

The Mukalla prospect is approximately 15 kilometers east of the Al Waya discovery. The Mukalla #1 well on the Mukalla structure was spud in late January 2009. The planned vertical depth of this well was 2,100 meters and represented the company's final obligation well under the approved 2008 Exploration Program. In a press release dated February 26, 2009, the Epsilon announced that this well was uneconomic. Having drilled this well, the Company has now fulfilled all its exploratory obligations for Block 41. The Coporation, along with its partners, plan to review the data gathered from wells drilled to date to determine future exploration plans on Block 41, if any.

Kaninah

During November 2008, Epsilon commenced drilling the Kaninah #1 well on the Kaninah structure. The Kaninah structure is the largest structure identified on Block 41 to date. According to the McDaniel research report issued August 2007, crude oil resources assigned to the Kaninah feature included 36 - 752 MMBO of unrisked (7 - 208 MMBO risked) net mean crude oil resources. It has been decided to plug and abandon the well after testing failed to yield commerical results.

Drilling Map - Click to enlarge

West Mahrawa

Drilled to a depth of 2,924 meters by OGMC in 2002, the West Mahrawa-1 well was drilled vertically and test results reflected a 10% oil cut (90% water, 10% oil) at a rate of 168 barrels of fluids per day at an interval depth of 2,118 to 2,147 meters.

The West Mahrawa 1 well appears to have been drilled down-dip to the mapped structural high and had oil shows of approximately 3 meters in the Naifa, 100 meters in the Madbi and 10 meters in the Qishn. The West Mahrawa prospect is currently mapped as a faulted 3-way structure.

West Mahrawa 2 was spud in late September 2008, targetting structure up-dip to West Mahrawa 1. Drilling was completed in November 2008, and after encountering hydrocarbons during drilling, a testing program was implemented to test commerciality of the oil. Initial test results, as outline in a press release dated January 9, 2009, yielded heavy oil with a gravity of 4.62 degrees API.

Al Waya

Drilled to a depth of 2,343 meters by OGMC during 2002, the Al Waya-1 well was drilled vertically and tested 454 bbls/d of 34 API gravity crude oil over long-term production test from the Naifa formation at an interval depth of 1,195 to 1,368 meters.  The Al Waya-1 well also had significant hydrocarbon shows in the Madbi formation at an interval depth of 1,507 to 1,555 meters and the fractured basement at an interval depth of 1,637 to 1,644 meters. 

Management believes the testing of the Madbi and fractured basement zones were not successful due to reservoir damage resulting from a combination of drilling over-balanced and other mechanical problems.  In addition, the Al Waya-1 well appears to have been drilled down-dip from the mapped structural high.

The Al Waya 2 was the first well drilled on Block 41 with Epsilon as the operator during 2008. As outlined in the 6-2-08 and 7-21-08 press release updates, the Al Waya 2 well originally targeted the Al Waya up thrown structure, however the directional tools failed and the drill bit drifted to the down thrown side. The decision was made to continue drilling to test the down thrown Duda feature. Initial data appeared very favorable with numerous oil and gas shows while drilling with good pay intervals present on the logs. Testing revealed the well to be directly in the downthrown fault zone and all zones tested wet. The Al Waya 2 was then sidetracked towards the original targeted Naifa zone in the Al Waya structure. While drilling towards the original target a fault or highly fractured zone was encountered. Complete loss of circulation was encountered and the well had to be plugged and abandoned. Since the Naifa formation was never reached, no firm evaluation about the size of the Al Waya oil accumulation can be made to date.

The Company is currently evaluating further exploration and development plans on the Al Waya structure, including the possibility of re-entering and testing the Al Waya 1 or drilling an offset well.

Seismic Activity Map - Click to enlarge

Upside Potential

To date, substantially all seismic activity has been focused on the western half of the middle portion of Block 41, representing approximately one-third of the concession. There has been little or no exploratory activity conducted on the other portions of Block 41. As such, management believes there may be potential for substantial oil and gas resources yet to be exploited on Block 41 beyond the prospects identified on 2D seismic to date.

For more information on Yemen please visit the following links: The CIA World Factbook on Yemen, The Petroleum Exploration and Production Authority of Yemen (PEPA), and the Energy Information Administration.