Fuyu 1 Block
Covering a total area of approximately 254.9 sq km, the Fuyu 1 Block is located south-east of the Fuyu oilfield in the Jilin province of northern PRC. This area forms part of the Songliao basin, a large intracratonic rift basin which is one of the largest petroleum producing regions in the PRC, and in which major oilfield such as XinMin is situated.
Fuyu Block 1 Location Relative to the Neighbouring Oil Fields
The Fuyu 1 Block is located south-east of the central basinal part of the Songliao basin, at the western edge of the southern uplift. The location of the Fuyu 1 Block is indicated in the location plan set out below:
The Fuyu 1 Block was explored by CNPC in 1984. After the discovery of oil, the Fuyu 1 Block was not developed due to the heavy oil reservoir's low permeability, multiple thin reservoir sand layers, low oil saturation and the oilfield being compartmentalised by shale barriers and faults.
However, with advancements in technology, high oil prices, the relatively low cost of developing the shallow oil reservoir and the low cost of oil production in the PRC, the development and production of oil at the Fuyu 1 Block could potentially become more commercially viable, as compared to about 20 years ago.
Based on the technical report dated April 2009 prepared by Gaffney, Cline & Associates ("GCA"), an independent international energy technical advisor, the Stock Tank Oil Initially In-Place ("STOIIP") calculations of Fuyu 1 Block are a Low of 11.42 million tonnes (or 75.63 million barrels), a Best of 41.12 million tonnes (or 272.19 million barrels) and a High of 97.5 million tonnes (or 642.50 million barrels). GCA assumes a range of estimated recovery factor from 16.7% to 30.5% by applying Huff 'n' Puff and steam flooding oil production methods. The resulting Contingent Resources of the net entitlements attributable to KRL are 1C of 0.906 million tonnes, 2C of 5.144 million tonnes, and 3C of 14.435 million tonnes.
| Low | Best | High | |
| STOIIP (MMstb) | 75.63 | 272.19 | 642.50 |
| STOIIP (MMtonnes) | 11.42 | 41.12 | 97.05 |
The crude oil can be recovered from two methods: the Huff 'n' Puff and steam flooding oil production methods, and the recovery factors are from 16.7% to 30.5%, respectively.
To date, approximately 41 wells have been drilled at Fuyu 1 Block and the log analysis has confirmed oil pay for most of these wells. Plans are underway to drill additional wells.
Once the Group obtains the approval for the Overall Development Programme for the development of Fuyu 1 Block, commercial production will commence. At a later stage, a new name will be assigned to Fuyu 1 Block as per industry practice.
Production Sharing Contract
On 12 November 2007, Kingworld Resources Limited ("KRL") entered into a petroleum production sharing contract ("PSC") with China National Petroleum Corporation ("CNPC") relating to the joint development and production of hydrocarbon resources in Fuyu 1 Block.
KRL has the right to operate the assets and receive production and/or revenue from the sale of oil and gas in accordance with the PSC.
The salient terms of the PSC are set out below:
Duration of the PSC
The PSC will be implemented in 3 phases, namely an evaluation period, a development period and a production period.
- Evaluation Period. The evaluation period is 3 years commencing after the Ministry of Commerce of the People's Republic of China ("PRC") has approved the PSC ("Contract Implementation Commencement Date") and will end when KRL receives the approval of the relevant PRC authorities for the Overall Development Programme.
KRL is currently in the Evaluation Period to identify the most feasible production process to produce crude oil.
- Development Period. The development period shall commence after obtaining the government approval for the Overall Development Programme for the development of the said oilfield, and will end on the date of the completion of the development operations.
- Production Period. The production period of the oilfield will be 20 consecutive production years from the commencement of commercial production. The date of commencement of the production of oil from any oilfield in Fuyu 1 Block is subject to the approval of the production plan from CNPC and the total amount of oil extracted from such oilfield reaching a cumulative total of 40,000 metric tonnes. Of the 40,000 metric tonnes of oil, KRL is entitled to 30%.
The total duration of the PSC shall not exceed 30 years from the approval of the Ministry of Commerce for the PSC.
Financing and Cost Recovery
Funds required for the production operations, including the evaluation costs, development costs and production cost, will be raised by KRL. The operation costs incurred will be paid by CNPC and KRL in accordance with the parties' proportion of the shared oil. However, CNPC's portion of operating costs shall be advanced by KRL and recovered by KRL from the production of crude oil.
Application of Proceeds from Crude Oil Production
Under the terms of the PSC, KRL pays 100% of evaluation costs, development costs and 49% of the operating costs, which it recovers according to a mechanism of "cost recovery oil" and "investment recovery oil" as described in the contract. Remaining oil after cost recovery is "shared oil", which is apportioned between CNPC 51% and KRL 49%.