Status Report on PetroNeft Resources Activities

March 3, 2006

Status Report on PetroNeft Resources Activities

1. Stumul-T Organization - Tomsk Office

We have made an excellent start to staffing a Tomsk office and have been
fortunate to have hired a knowledgeable and very respected senior management team.
This coupled with our timely work program already gives the company a solid reputation
in the Region. Our approach has been to out-source work where possible and to slowly
build staff and hire permanent employees very selectively. We are currently in the process
of hiring a Surveyor, which is a special position in Russia and critical to coordinating and
obtaining the necessary surface rights for the facilities and other necessary approvals.


2. Seismic Reprocessing & Interpretation - LLC "Tomskaya
Geophysical Co."

The final reports for seismic reprocessing and interpretation of 1,392 line
kilometers of data has been completed and translated into English. This report is
currently being reviewed by one of PetroNeft's geophysical associate consultants
in Houston. The reprocessed data gives us a consistent data base with one set
of processing parameters in the northern part of the license that is of superior
quality to anything done in the past. Some example sections showing this
improvement are posted on the company website.
We are also negotiated a new contract with "Tomskaya Geophysical Co. where-
in they will incorporate the new high resolution seismic data acquired this winter
into the structural interpretation in the northern part of the License. They will also
obtain from government archives, reprocess and interpret approximately 1,262
line kilometers of data remaining in the southern part of the License.


3. Well Log Evaluation - OOO "Tomskneftegazengineering"

The final report on the well log digitization and reevaluation of 14 previous wells
in the License area is now complete and has been translated into English. The
reevaluation of the old analogue logs using modern digital-based log analysis
software has confirmed the oil zones in both the Lineynaya No. 1 and
Tungolskaya No 1 wells. The overall content of the report is currently being
reviewed by one of PetroNeft's petrophysical associate consultants in Houston.


4. Acquisition of New Seismic Data - OAO "Stavropolneftegeofizika"

The seismic line clearing commenced in October 2005 and the recording crew
was mobilized to the field in December. We have also signed a contract with
JSC RPC "GeoSeisControl", a quality control company located in Moscow to
provide technical quality control for the data acquisition.
The weather was unusually mild at the beginning of this winter and the winter
roads were not firm enough to support heavy equipment until late in December.
Things quickly changed in January as it then turned extremely cold with record
setting temperatures.
A plan to visit the seismic crew in mid January by the Tomsk office technical
management team was delayed due to the extremely cold weather. Field
activities were actually shut down at that time. When the free air temperature is
below -35°C or below -30°C with wind velocity above 5 m/sec, outside work
activities must stop by Russian civil codes. The planned trip was eventually
made in mid February. Despite the loss of work activities in January we feel
confident that the 500 km of new seismic will be acquired this year. At the end of
February the acquisition status stood as follows:

Line preparation                          Drilling of Shot Holes                          Seismic Acquisition
     Line kms                                             Line kms                                              Line kms          
   378.5 kms                                            275.5 kms                                            245.4 kms


The work is being prioritized with the Lineynoye lines first, then Tungolskoye and
finally the other prospects (see Figure 1).
The field data is to be obtained and delivered by April 30, 2006 and the
processed data is to be delivered by June 15, 2006.


5. Preparation for 2006/2007 Winter Drilling Program - OOO

In reviewing the various mobilization scenarios for next winter's three well drilling
program it became apparent that the program could be carried out with two
drilling rigs instead of three drilling rigs if we could mobilize the rigs to site this
winter. The cost savings on the mobilization was significant and ease of
operating two rigs versus three made for a quick and unanimous decision of the
Board to implement this option if at all possible.
Inquiries were made with three drilling contractors in the Tomsk Region and the
only one interested in pursuing the option was OOO "Nizhnevartovskservis" a
company owned by Mr. Sobraliev. Mr. Sobraliev is a director and major
shareholder of PetroNeft Resources and as such this is a Related Party
Transaction which has undergone special scrutiny by the Board. Normally
a contract of this magnitude would be competitively bid; however, given the short
time frame Mr. Sobraliev's company was the only one interested in working with us
on developing this scenario. If Mr. Sobraliev had not been extremely interested
in seeing the company succeed, this scenario would never have materialized.
We have cost data on recent wells contracted by other operators in the Tomsk region
and feel that the quotations received are very competitive in today's market.
Like the rest of the world, the Russian drilling market has seen a surge in activities
due to the high oil prices over the last couple of years.

In conjunction with the drilling program, two additional contracts for the
Lineynaya No. 6 and Tungolskaya No. 4 well construction are being finalized with
the State Enterprise "Siberian Scientific Research Institute for Geology,
Geophysics and Mineral Resources". These contracts allow for the preparation
of the geological and technical design for the construction of the wells, including
obtaining the necessary approvals of the design documents from the state and
regional authorities.

6. Environmental Base Line Study

A contract is being finalized with the Oblast State Agency "Oblast Committee for
Environmental Protection and Management" for a baseline environmental survey
of the Tungolskoye License area. One set of data needs to be acquired this
winter while snow in still in the area and another set needs to be acquired this
coming summer. The workscope also requires the development of an
environmental monitoring system to fulfill the License requirements.


7. PetroNeft Resources Consulting

While the primary business and focus of the company is the development of
License 61 and growing that asset, the company has a cadre of associate
consultants with expertise for doing business in Russia. These experts are both
Russian and foreign nationals and we normally have one or two jobs going at
one time. The company does not make a lot of money off these activities but the
jobs create goodwill, pay our associate consultants a competitive rate and keep
us engaged in the day to day business and deal flow in Russia. The License 61
opportunity actually arose as a result of relationships we had built through one of
the consulting activities. We currently have three areas of activity in this arena.


8. Accounting and Financial Status

PetroNeft has agreed a contract with the Dublin firm of LHM Casey McGrath to
provide accounting and administrative services. Under the contract, the books of
account for the company and its Russian subsidiary, Stimul-T, will be
consolidated on a quarterly basis. The firm will keep the company updated as to
its Irish tax compliance requirements and Irish Companies Office compliance
requirements and assist the Directors to meet these requirements.
Funds obtained through the Subscription Agreement are being utilized in
accordance with the business plan and the Agreement. First quarter financial
reports will be issued in April 2006.


9. Latest Tomsk License Results

Only two blocks were awarded as a result of the 20 December 2005 Tomsk
Auction. These were Chvorovoye and Yelleyskoye; both of these blocks were
included in last year's auction along with our license area and no one bid on
either of them. This time around they went for $10.32 million and $ 6.14 million,
respectively, and Sibneft and TNK Uvat were the winning bidders. We view this
outcome with mixed results. It certainly increases the value of our license but
also signals that the large Russian majors are now interested in smaller projects
in the Tomsk Region.


10. Summary

The major long term tasks driving our activities and on which we need to stay
focused are:

  • Preparation for next year's drilling program
  • Study of infrastructure options for long term operations
  • Obtaining a ground floor interest in downstream operations in order to offset lower domestic oil prices for crude oil that we will not be able to export.
  • Ensuring that documentation and other preparations for a market quote on AIM and IEX continue to be monitored so that the company is in a position to complete application for admission to trading when the timing is perceived as most advantageous to the company and its shareholders.

    Please do not hesitate to contact me if you have any questions regarding this report.



Dennis Francis




Figure 1 - Map showing Location of New Seismic Data

Appendix I - Major Contracts

Contract and Technical Report
Reprocessing and Reinterpretation of CDP Seismic Data for
License Area 61 (Tungolsky).

  • This report describes major objectives, methodology and deliverables relevant to the Agreement dated 10 June, 2005 with LLC "Tomskaya Geophysical Company"
  • For the purpose of executing the Contract, Stimul-T supplied LLC Tomskaya Geophysics Company with the necessary authorizations to access all available data from the Government archives.
  • The Contractor performed three major tasks under the Agreement, namely:

o  Reprocessing and complex reinterpretation of CDP 2D seismic data taking into account
drilling data, well-logging data and vertical velocity data for a total of 1,392 line kms
o  Preparation of structures for first-priority prospecting and evaluation drilling
o  Recommendations for locations of prospecting and evaluation wells
o  Develop recommendations for further field CDP seismic surveys
o  Preparation of digital data base of all data in accordance with the current Regalment and
in "SEGY" format.

  • The final report has been received and translated

Contract and Technical Report
Digitalization of Analogue Well Logs, Editing of Materials and
Re-Interpretation of Well Logs for License Block 61.

  • This report describes major objectives, methodology and deliverables relevant to the Agreement N32 of June 15, 2005 with OOO "Tomsk Neftegazengineering"
  • For the purpose of executing the Contract, Stimul-T supplied the Contractor with logs for fourteen wells drilled within Tungol License Block 61
  • The Contractor performed six major tasks under the Agreement, namely:

o  To scan and digitalize well logs in order to enable further processing with specialized
o  To ensure safe storage of the log data by making backup copies both electronically, on
CD-Rs, and as hard copies, as the source materials were executed as hand-made copies
in ink on chart paper in 1971 to 1974; the condition of the materials is satisfactory.
o  To verify the primary 'quick-look' interpretation performed earlier.
o  To reinterpret the materials using new data and up-to-date log interpretation
o  To investigate well cross-sections for new intervals that can contain hydrocarbons.
o T o systematize the deliverables.

  • The re-evaluated well logs and final report has been received and translated.


Contract and Technical Report
Seismic Survey on Tungol License Block 61.

  • This contract/report describes major objectives, methodology and deliverables relevant to the
    Agreement #3 of August 3, 2005 with OAO "Stavropolneftegeofizika"
  • For the purpose of executing the Contract, Stimul-T supplied the Contractor with line locations
    and prior well velocity surveys within Tungol License Block 61.
  • The Contractor is to perform the following major tasks under the Agreement:

o  Acquire a total of 500 line kms of high-resolution CDP-2D field seismic survey with a fold
not less than 48
o  Perform all required environmental procedures
o  Processing of the survey results with ProMax package preserving the correlations of the
amplitudes and spectral components of the wavefield so that in the future advanced
techniques of analysis can be applied
o  The acquired seismic data will be delivered in SEG-Y format on magnetic medium and
the geophone location/static data will be delivered on CD-Rs
o  The field data shall be obtained and delivered by April 30, 2006
o  The processing results will be delivered by June 15, 2006

  • Total value Roubles 56,000,000 VAT included (~$1,965,000)
  • Stimul-T has engaged RPC "GeoSeis Control" to provide field technical quality control
  • Acquisition commenced on January 1, 2006 and ~ 245 kms of data has been acquired through February.

Contract and Technical Report
Drilling Construction Turnkey Contract

  • The company signed an Turnkey contract on February 20, 2006 with OOO "Nizhnevartovskservis" for the mobilization and drilling of three wells in the Tungol License area.
  • For the purpose of executing the Contract, Stimul-T will provide the contractor with the Geological and Technical Assignments and necessary authorizations from state and local authorities to implement the drilling of three wells.
  • The Contractor undertakes works related to the mobilization and construction of the following wells on a turnkey basis:

Well Depth
Lineynaya No. 6 2,750 m
Tungolskaya No. 4

 3,100 m

Lineynaya No. 7 2,750 m

o  The costs for the Lineynaya No. 6 well and the costs of the Tungolskaya No. 4 and
Lineynaya No. 7 wells are fixed except for the cost of materials, equipment and services
which will be adjusted to actual costs at the date of their purchase.
o  The turnkey cost includes 60 meters of core, one test in open hole and two tests behind
flow tubing.
o  The drilling of artesian well to supply water to support drilling operations
o  The drilling progress will be reported in a daily drilling summary.
o  Stimul-T will have the right to have its representatives at the work site.
o  The Contractor is responsible for site clean-up and recultivation
o  The final drilling results will be transferred to Stimul-T in the form of complete well
passports for each well (3 hard copies and one electronic version).

  • The mobilization of two BU 3D-76 Drilling Rigs to drill these wells commenced on February 18, 2006.

Contract, Technical Report and State Approvals
Geological Field Development Project Contract

  • The Company will sign a contract in March 2006 with Federal State Unitary Enterprise "Siberian Scientific Research Institute of Geology, Geophysics and Mineral Resources" (TF FGUP SNIIGGMS) to develop design documents and cost estimates for the "Field Development Project for Tungol Field".
  • Stimul-T is required to supply the Contractor with initial data and other materials required to perform the workscope in due time.
  • The Contractor is perform the following works under the agreement:

o  Gather geological and geophysical data for Tungol Field and prepare 2D geological
model in GRID format
o  Prepare necessary Geological Chapters
o  Prepare validation for well construction, shutdown and abandonment
o  Prepare Chapters for: processing of additional environmental analysis results, additional
exploration results, time and cost estimates
o  Prepare and carry out geological expertise with appropriate state authorities


Contract, Technical Report and State Approvals
Well Design Contract for Tungolskaya No. 4

  • The Company will sign a contract in March 2006 with Federal State Unitary Enterprise "Siberian Scientific Research Institute of Geology, Geophysics and Mineral Resources" (TF FGUP SNIIGGMS) to develop design documents and cost estimates for the "Individual Construction Design for Exploration well 4, Tungol Field.
  • Stimul-T is required to supply the Contractor with initial data and Terms of Reference required to perform the workscope in due time.
  • The Contractor is perform the following works under the agreement:

o  Development of Geological and Technical Chapters including cost estimates
o  Support of the design documents during the state inspection of industrial safety
o  Conforming of design documents with Rostehnadzor for Tomsk Region
o  Development of Chapter "Environmental Protection"
o  Assessment of Environmental Impact