Primeline Energy Holdings Inc. - Lishui 36-1 Discovery

The Lishui 36-1-1 well was spudded on 25th July 1997 and reached a total depth of 3,300 m. The well encountered 543 m of gross hydrocarbon-bearing section and flowed 9.86 mmcfpd of gas and 117 bopd of condensate through a 48/64" choke from the top reservoir section of 24 m.

The first appraisal well, Lishui 36-1-2, was spudded on 1st June 2000 and reached a total depth of 2,900m. The well encountered and confirmed similar reservoir quality and characteristics to the discovery well. From a single test zone in the upper Palaeocene reservoir, the well flowed at a stabilised rate of 12.25mmcfd of gas and 189bopd of condensate through a 7/8" choke.

At that time, following evaluation of the results of the two wells and the 3D seismic data, the resource base for Lishui 36-1 discovery was regarded as sub-commercial. However, as a result of the general escalation of world oil and gas prices, the continued economic growth of China and the recent rapid growth of gas infrastructure in China, it is now regarded as a potentially commercial discovery and, accordingly, CNOOC and Primline have now embarked on the commercialisation of the discovery.

Early in 2007 Primeline commissioned CNOOC to prepare a reserve report for the Lishui 36-1 discovery in accordance with the Chinese government regulations in order to obtain "Development Reserves" status. The report, which is an essential requirement for official approval of any development plan as well as the fundamental basis for any discussions relating to a gas sale contract, was completed and reviewed by CNOOC Reserve Office in June 2007. The reserve report was then submitted through CNOOC to the State Reserves Committee and approval was granted on 5th July 2007. It should be noted that the existence of a reserve report approved under Chinese government regulation does not mean the Company has "reserves" within the meaning of the Canadian NI 51-102 regulations as these are two different regulatory regimes.

In order to comply with TSX Venture Exchange reporting requirements, Primeline retained McDaniel & Associates (http://www.mcdan.com) of Calgary to carry out an independent resource audit. In July 2007, McDaniel submitted to the Company its independent resource estimate for Block 25/34 for filing with the Exchange in accordance with NI 51-101. McDaniel's report concluded that Lishui 36-1 has a best estimate Gas Initially In Place contingent resource for the property of 292 bcf (net pure hydrocarbon recoverable resources to Primeline 45 bcf). The report stated that the term "contingent resources" is used rather than "reserves" since "commerciality of the Lishui 36-1 discovery had not been confirmed". The full text of the McDaniel's report is available on this website.

Following completion and approval of the reserve report by China's State Reserve Committee, Primeline commissioned CNOOC China Ltd., Shanghai and CNOOC Research Beijing to prepare a full feasibility study for the commercialisation of the Lishui 36-1 discovery. Completed in December 2007, the feasibility study covered reservoir engineering, development drilling and completion engineering, production engineering, design of the development facilities including the platform, pipeline and onshore terminal, HSE and the detailed costing of all aspects of the development, numerous development options and future production operations. These are standard requirements for an offshore feasibility study and CNOOC Research is the most authoritative body for offshore development feasibility studies and development plans in China.

Following execution of the agreement for sale of the gas from Lishui 36-1 on 27th October 2008, (described in more detail under "Gas Agreement") Primeline commissioned CNOOC Research in Beijing in December 2008 to produce an Overall Development Plan for the discovery which, barring any delay, is expected to be completed by mid-2009.



	Introduction Exploration History Lishui 36-1 Discovery Lishui Gas Play Block 25/34 Petroleum Contract Dynamic Gas Market Gas Agreement Resource Report	The Lishui 36-1-1 well was spudded on 25th July 1997 and reached a total depth of 3,300 m. The well encountered 543 m of gross hydrocarbon-bearing section and flowed 9.86 mmcfpd of gas and 117 bopd of condensate through a 48/64" choke from the top reservoir section of 24 m. The first appraisal well, Lishui 36-1-2, was spudded on 1st June 2000 and reached a total depth of 2,900m. The well encountered and confirmed similar reservoir quality and characteristics to the discovery well. From a single test zone in the upper Palaeocene reservoir, the well flowed at a stabilised rate of 12.25mmcfd of gas and 189bopd of condensate through a 7/8" choke. At that time, following evaluation of the results of the two wells and the 3D seismic data, the resource base for Lishui 36-1 discovery was regarded as sub-commercial. However, as a result of the general escalation of world oil and gas prices, the continued economic growth of China and the recent rapid growth of gas infrastructure in China, it is now regarded as a potentially commercial discovery and, accordingly, CNOOC and Primline have now embarked on the commercialisation of the discovery. Early in 2007 Primeline commissioned CNOOC to prepare a reserve report for the Lishui 36-1 discovery in accordance with the Chinese government regulations in order to obtain "Development Reserves" status. The report, which is an essential requirement for official approval of any development plan as well as the fundamental basis for any discussions relating to a gas sale contract, was completed and reviewed by CNOOC Reserve Office in June 2007. The reserve report was then submitted through CNOOC to the State Reserves Committee and approval was granted on 5th July 2007. It should be noted that the existence of a reserve report approved under Chinese government regulation does not mean the Company has "reserves" within the meaning of the Canadian NI 51-102 regulations as these are two different regulatory regimes. In order to comply with TSX Venture Exchange reporting requirements, Primeline retained McDaniel & Associates (http://www.mcdan.com) of Calgary to carry out an independent resource audit. In July 2007, McDaniel submitted to the Company its independent resource estimate for Block 25/34 for filing with the Exchange in accordance with NI 51-101. McDaniel's report concluded that Lishui 36-1 has a best estimate Gas Initially In Place contingent resource for the property of 292 bcf (net pure hydrocarbon recoverable resources to Primeline 45 bcf). The report stated that the term "contingent resources" is used rather than "reserves" since "commerciality of the Lishui 36-1 discovery had not been confirmed". The full text of the McDaniel's report is available on this website. Following completion and approval of the reserve report by China's State Reserve Committee, Primeline commissioned CNOOC China Ltd., Shanghai and CNOOC Research Beijing to prepare a full feasibility study for the commercialisation of the Lishui 36-1 discovery. Completed in December 2007, the feasibility study covered reservoir engineering, development drilling and completion engineering, production engineering, design of the development facilities including the platform, pipeline and onshore terminal, HSE and the detailed costing of all aspects of the development, numerous development options and future production operations. These are standard requirements for an offshore feasibility study and CNOOC Research is the most authoritative body for offshore development feasibility studies and development plans in China. Following execution of the agreement for sale of the gas from Lishui 36-1 on 27th October 2008, (described in more detail under "Gas Agreement") Primeline commissioned CNOOC Research in Beijing in December 2008 to produce an Overall Development Plan for the discovery which, barring any delay, is expected to be completed by mid-2009.