Status Report on PetroNeft Resources Activities


April 14, 2006

Status Report on PetroNeft Resources Activities

 

 

Summary

 

The company remains focused on License 61 with its key objectives being;

 

1) the timely monetisation of the existing core 2P reserves of 28 million

barrels of oil and

2) the determination of the full upside reserve potential of the license

area.

 

In order to accomplish these objectives the major long term tasks driving

PetroNeft's activities can be summarized as follows;

 

  • Preparation for next year's drilling program on the Lineynoye and Tungolskoye oil fields.
  • Study of infrastructure options for production operations.
  • Developing Environmental and other surveys required for drilling and production authorisation.
  • Continuing the overall accumulation of consistent and high quality seismic data to facilitate the longer term exploration and production of new oilfields on Licence 61.
  • Ensuring that documentation and other preparations for a market quote on AIM and IEX are in place for the planned September IPO

We are glad to report that the company's activities are progressing on time and within the approved expenditures.

 

1. Preparation for 2006/07 Winter Drilling Program - OOO

"Nizhnevartovskservis"

 

Mobilization efforts during the period have focused entirely upon moving the

rig from the West-Tymskaya location to the Lineynaya No. 6 well location

(Figure 2). This was the critical move that needed to be made this winter to

achieve our planned schedule. The second rig for the Tungolskoye No. 4

location will be moved to a staging area by river barge this summer and then

to location at the end of the year. As for the Lineynaya No. 6 well, the winter

road was constructed and the drilling rig, camp, fuel tanks and surface casing

are being moved to the site. As of April 14, we estimate that another week

will be required to have all of the equipment moved to the drilling location.

Stumping (tree cutting) of the area for the rig site and a helicopter pad is in

progress. Temperatures are still - 30° C in the field area and the winter roads

are holding up.

 

In conjunction with the drilling program for the Lineynaya No. 6 and

Tungolskaya No. 4 wells, various well construction contracts have been

agreed that allow for the preparation of the 1) pre-design documents

development, 2) geological projects and 3) technical design for the

construction of the wells, including obtaining the necessary approvals of the

design documents from the state and regional authorities. One additional

contract has been agreed with the Alexandrovsky Forestry Department to

prepare the land allotment documents for the wells. These contracts are all

being completed according to schedule and within the original budget.

 

 

2. Infrastructure Activities

 

Studies are underway which will allow us to determine the various

infrastructure options for developing the existing and potential fields in the

License area.

 

 

3. Environmental Base Line Study

 

A contract was signed on April 11 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 is 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 which will complete the

environmental activities needed to fulfill the current License requirements.

 

 

4. Seismic Reprocessing & Interpretation - LLC "Tomskaya

Geophysical Co."

 

Following approval of the Board, we have negotiated a new contract with

"Tomskaya Geophysical Co.". The contract contains two major work

activities. Firstly, they will incorporate the new high resolution seismic data

acquired this winter by "Stavroploneftegeofizika" into the structural

interpretation in the northern part of the License area.

Secondly, "Tomskaya Geophysical Co." will also obtain from government

archives, reprocess and interpret approximately 1,262 line kilometers of the

remaining vintage seismic data in the southern part of the License. Initial

results of this evaluation will be available in June for incorporation into an

updated Ryder Scott competent person's report on the reserves in the

License. This reinterpretation will also be the basis for the acquisition of

additional seismic data during the 2006/2007 winter season (see below).

 

 

5. Acquisition and Processing of New Seismic Data - 2005/06

OAO "Stavropolneftegeofizika"

 

Despite a slow start to acquiring seismic data this winter due to the unusually

cold weather, the "Stavropolneftegeofizika" field crew has made excellent

progress during the months of February, March and April. They successfully

collected all the data required to meet our scheduled work for the season. In

fact progress has been good enough to allow for the acquisition of an

additional 15 kilometers of data in the Tungolskoye field area. As of April 14

the acquisition status stood as follows:

 

        Line preparation   Drilling of Shot Holes   Seismic Acquisition

             Line kms                Line kms                      Line kms                

              515 kms                 515 kms                      515 kms

                  

A generalized map showing the location of the seismic data is shown in

Figure 1.

 

During the period PetroNeft's Dr. Karazpuzov and a representative of

"Tomskaya Geophysical Co." visited the processing facilities of

"Stavropolneftegeofizika" in Stavropol to agree the processing parameters

and processing schedule for the new data acquired this winter. Based on the

initial results it appears that the high resolution 2D seismic data acquired this

season is of much higher quality than any of the seismic data acquired in the

past. We have good reason to believe that new data will provide better

structural resolution and prediction of the stratigraphy in the License area. All

of the processed data is to be delivered on schedule by June 15, 2006.

 

 

6. Acquisition and Processing of New Seismic Data - 2006/07

OAO "Stavropolneftegeofizika"

 

Following approval of the Board, PetroNeft has agreed a new contract with

OAO "Stavropolneftegeofizika" for the acquisition of an additional 500 kms of

high resolution 2D seismic data during the winter season of 2006/2007. Not

only does this allow us to meet our License requirement to acquire 1,000 kms

of seismic data during the first three years of the license term, but it allows us

to lock-up a seismic crew with some of the best technical qualifications in the

region. Completion of this program and the reinterpretation of the vintage

seismic data (see item 4 above), will put the company in a position where a

complete, uniform data base is available over the entire License area. This

will enable the company to plan exploration, development and production on

the License in a rational manner over the coming years.

 

 

 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 following are our current activities in this arena:

 

  • Topping Plant Financing EBRD - We have an ongoing contract with
    "Tomskneftpererabotka" to assist in arranging EBRD financing for a
    small topping plant located at the village of Semiluzhki 18 kilometers
    from Tomsk. Services will result in a potential ownership interest in the
    Topping Plant by the Company which will help to maximize our return
    on domestic production. Documentation for this project has been
    prepared and submitted to EBRD. The project is scheduled to be
    presented to EBRD's Operations Committee in May.

  • Foster Wheeler Contract (BP-TNK) - We have an active contract to
    provide Russian technical experts in the areas of pipelines and
    processing plants.

 

8. Website

 

The new PetroNeft Resources website was activated on March 23 and can be

accessed at www.petroneft.com. The website design and development was

prepared in house with the help of a local Tomsk Company, Pratere Investing

Inc. (ContekSoft)

 

 

9. IPO Activities

 

Discussions are already underway with the various parties who will be

involved in the preparation and due diligence of materials for the planned

September listing on AIM and IEX. The schedule for the development of this

material has been agreed and tasks assigned.

In the summary we are pleased to report that the company's activities are

progressing on time and within the budgeted expenditure. Importantly we

have already secured two drilling rigs and a seismic crew for our planned

activities during the 2006/07 winter period. Should you have any questions

regarding the above report please feel free to contact us via our website.

 

 

Sincerely,

 

 

Dennis Francis

Figure 1 - Map showing Location of New Seismic Data

 

Figure 2 - Map showing Rig Mobilization and Adjacent License Area

   April 14, 2006  STATUS REPORT ON PETRONEFT RESOURCES ACTIVITIES (216 kb)