NINOTSMINDA

Field Description

CanArgo, through its wholly owned subsidiary Ninotsminda Oil Company Limited (NOC), owns 100% of the contractor's share in the Ninotsminda, Manavi and West Rustavi Production Sharing Contract (PSC). The main producing field in this PSC area is the Ninotsminda Oil Field which was initially developed in 1979 by the Georgian State Oil Company. Cumulative production from the field to date is approximately 11.5 million barrels of oil and 11.7 billion cubic feet (331 MMCM) of natural gas of which approximately 5 million barrels of oil and 8.4 billion cubic feet (239 MMCM) of gas have been produced since CanArgo began its involvement with the field in 1996.

The Ninotsminda Field covers an area of approximately 2,500 acres and is located 40 Km east of the Georgian capital city, Tbilisi. Ninotsminda is the easternmost element of an elongate anticline which includes the Samgori and Patardzeuli Fields and is separated from the Patardzeuli Field to the west by a saddle and a NW-SE trending cross fault. The field has a maximum structural relief of around 2,493 feet (760 metres). The main reservoir horizon is the Middle Eocene which consists of well-bedded deep marine sedimentary rocks eroded from volcanoes. Such rocks typically have low matrix porosity but well developed sub-vertical fractures can provide secondary porosity and permeability of up to 100-500 mD. The reservoir which in the field area is up to 1,640 feet (500 metres) thick is at a depth of 8,530 feet (2,600 metres) below surface to 9,843 feet (3,000 metres) below surface. Production from the field is facilitated by a strong water drive. The oil accumulation has a gas cap which together form a maximum hydrocarbon column of 1,060 feet (323 metres), with the gas-oil contact at 4,839 feet (1,475 metres) True Vertical Depth Sub Sea ("TVDSS") and the oil-water contact at 5,413 feet (1,650 metres) TVDSS. The oil itself is a high quality light sweet crude: 41°API, with just 0.24% sulphur, 4.9% paraffin and 8.7% tar and asphaltene.



Production & Development

Early Operations

NOC began an immediate rehabilitation of the Ninotsminda Field in 1996 which included repairing and adding perforations to existing wells, acquiring additional seismic data and a limited drilling program. The first new vertical well (named N96) was completed in October 1997 and a second well (N98) was completed in October 1998 which was sidetracked as a horizontal producer in 2000. The N98 horizontal well had produced approximately 470,000 barrels of oil to the end of June 2007.

Horizontal Drilling

As a result of this development work, subsequent drilling and the completion of a dynamic reservoir model, it was suggested that a higher level of production could be achieved from the Middle Eocene reservoir from horizontal wells drilled in a preferred orientation so as to intersect the main fracture sets. During 2003, three horizontal sidetrack wells were completed with a total of 3,720 feet (1,134 metres) of horizontal section having been drilled through the reservoir using CanArgo's own rigs, equipment and conventional drilling techniques. Although individual wells tested at rates of over 2,000 barrels of oil per day (bopd) when completed, the wells were put on production at lower rates in accordance with the recommendations of independent petroleum engineering specialists in order to maintain production.





Eastern Ninotsminda

Production and development to date at the Ninotsminda Field has focused on the western 2/3rds of the field. The eastern most wells drilled on the field are the N98 horizontal well and the N52 well which is an inclined well towards the southeast, both of these wells have proven the oil-water contact to be at a deeper level than in the western part of the field. N52, which is a Soviet era well, has never produced from the reservoir due to a complex fish being left in the hole with the well subsequently abandoned. N98H, on the other hand, was the first horizontal completion and while not oriented in an optimal direction so as to best encounter the sub vertical fractures, the well has produced in excess of 470,000 barrels of oil and continues to produce at the same steady rate of approximately 200 bopd with less than 1% water cut.

The eastern part of the field has not been exploited because most of the area falls within an environmental protection zone where drilling is prohibited. CanArgo has plans to develop this area by drilling a highly deviated well from the vicinity of the N98H surface location into the eastern part of the field and completing the well with up to two horizontal sections in the reservoir interval.

Shallower Reservoirs

Apart from the Middle Eocene sequence on the Ninotsminda Field there are a number of other reservoirs which contain oil. These intervals have not yet been fully evaluated which may only be achieved by further seismic evaluation, and the employment of modern drilling techniques such as radial drilling so as to get past near well bore reservoir damage caused by unsuitable drilling fluids used in Soviet times.



Reserves

The following table summarizes net hydrocarbon reserves for the Ninotsminda Field. This information is derived from a report dated as of January 1, 2009 prepared by Oilfield Production Consultants (OPC), independent petroleum consultants headquartered in London, England. This report is available for inspection at our principal executive offices during regular business hours. The reserve information in the table below has also been filed with the Oslo Stock Exchange.