December 20, 2007
PetroNeft Resources plc
Pipeline Sharing Protocol of Intent Signed
Bashneft Pipeline Sharing Protocol of Intent Signed
PetroNeft is pleased to announce that it's subsidiary, Stimul-T has signed a protocol of intent which defines the details of an infrastructure sharing agreement with OAO ANK Bashneft, the operator of two Licences with producing fields in the Khanty-Mansiysk Oblast located immediately northwest of PetroNeft's Licence 61.
This agreement will enable PetroNeft to tie-in to the Bashneft pipeline at the Lukpaiskaya pumping station under a simplified custody transfer scheme. The Lukpaiskaya pumping station is located only 60 km from the Lineynoye and West Lineynoye Oil Fields. The new route is over flat terrain and no longer requires a major river crossing. Bashneft will then transport the crude to the Aleksandrovskoye (Strezhevoi) custody transfer station where it will enter the Transneft pipeline for export outside of Russia or for domestic sales. The tariff for this operation will be calculated based on actual costs in proportion to the transferred amount, but will not exceed the Transneft tariff for a similar pipeline segment. The two companies will now determine the technical aspects of the tie-in arrangements.
This infrastructure sharing agreement is a significant development for the economic commercialisation of Licence 61. When compared to the option of the Company building a 156 km pipeline to the Raskino pumping station to the southwest, it will result in significantly reduced pipeline capital expenditures and long term operating expenditures. It is also expected to facilitate commencing full scale production from Licence 61 in 2009.
An important outcome of the Bashneft agreement is that Licence 61 can now be developed in phases from the north. The initial phase will consist of the development of the Lineynoye and West Lineynoye fields along with a 60 km pipeline to Bashneft and a simplified custody transfer point. New fields discovered to the south, including Tungolskoye, will then be developed incrementally in order to optimise the overall economics for the Company
Update on Tungolskoye No. 4 Sidetrack
The new access to the Bashneft pipeline system means that emphasis will now be placed on assessing and developing the northern prospects on Licence 61. Delays in moving in the materials needed to complete the flow testing of the Tungolskoye No. 4 sidetrack well have the potential to inordinately delay the 2007/2008 drilling on the West Korchegskaya Prospect. Therefore, the Company has decided to commence the disassembly of the Tungolskoye No. 4 drilling rig now and move it to the West Korchegskaya Prospect, on the planned drilling schedule. The Tungolskoye No. 4 sidetrack test will now be concluded in February, using a truck mounted work-over rig that will be mobilised when winter roads are in place.
Dennis Francis, Chief Executive Officer of PetroNeft commented:
"This protocol provides the basis for an excellent long term agreement that significantly benefits both companies. PetroNeft achieves a significant up front cost savings as well as a favourable long term tariff rate.
This agreement, with a much reduced and simplified pipeline route, should greatly assist the Company in meeting its target pipeline production in 2009 as planned."
For further information, contact:
Dennis Francis, CEO, PetroNeft Resources plc (Houston)
+1 713 988 2500
Paul Dowling, CFO, PetroNeft Resources plc (Dublin)
+353 144 33720
Desmond Burke, Director Investor Relations, PetroNeft Resources plc (Ireland)
+353 52 53226
John Frain/Brian Garrahy, Davy
+353 1 679 6363
Damien Mauvais, Natixis Bleichroeder
+44 207 220 5184
Nick Elwes/Paddy Blewer/Simon Whitehead, College Hill (UK)
+44 207 457 2020
The information contained in this announcement has been reviewed and verified by Mr. Dennis Francis, Director and Chief Executive Officer of PetroNeft, for the purposes of the Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in March 2006. Mr. Francis holds a B.S. Degree in Geophysical Engineering and a M.S. Degree in Geology from the Colorado School of Mines. He has also graduated from the Harvard University Program for Management Development. He is a member of the American Association of Petroleum Geologists and the Society of Exploration Geophysicists. He has over 34 years experience in oil and gas exploration and development.
Forward Looking Statements
This announcement contains forward-looking statements. These statements relate to the Company's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as "believe", "could", "envisage", "potential" "estimate", "expect", "may", "will" or the negative of those, variations or comparable expressions, including references to assumptions.
The forward-looking statements in this announcement are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of this announcement.
"Bashneft" Joint Stock Petroleum Company - one of the oldest oil and gas producing companies of Russia - has been in existence since 1932. It is a powerful comprehensive business, providing the whole production cycle from field exploration to sales of final products. It currently has over 8,000 employees and produces about 244,000 bopd with principal operations in Bashkortostan, a semi-autonomous region. The Company is controlled by the government of Bashkortostan.