Operational Update

November 23, 2007

PetroNeft Resources plc

Operational Update


Drilling Programme and Reserves Report

  • Successful 2006/07 three well drilling programme:
    • Significant new discovery at West Lineynoye.
    • Confirmation of thick oil-filled pay columns of high quality oil in both of the existing fields;
      • Lineynoye confirmed with log, core and flow test data
      • Tungolskoye confirmed with log and core data - flow testing ongoing
    • Lowering the previously-believed Lineynoye oil/water contact by about 10 metres.
  • Tungolskoye No. 4 successfully side-tracked. Flow test temporarily suspended, due to mechanical faults, and will recommence in December when additional supplies can be transported to the rig site by winter road.
  • Full reserves review to be carried out by year end by Ryder Scott. Russian reserves for the Licence area are being simultaneously updated, with material increases anticipated from both processes.

Development Planning and Pilot Production

  • Pilot production plan approved by Ministry of Industry and Energy of RF.
  • Export Pipeline Survey for engineering design and approvals is 80% complete.
  • Approval of tie-in to Transneft at Raskino pumping station has been received.
  • Electrical Submersible Pumps have now been installed in the Lineynoye No. 6 and No. 7 wells for pilot/long term test production this winter.
  • Ongoing discussions with international banks in relation to debt finance for the development of Licence 61.

2007/2008 Three Well Drilling Programme

  • New "turnkey" contract to drill two exploration wells, targeting over 50 million barrels of possible reserves, and a delineation well on the newly discovered West Lineynoye Field, commencing February/March 2008, has been agreed under favourable terms.

Operational Overview

Following the successful Lineynoye No. 6 delineation well and the West Lineynoye discovery well (Lineynoye No. 7) the pilot production plan for Lineynoye has been approved by the Ministry of Industry and Energy of RF and the Company has been included in the Reporting Structure of Oil and Gas Producing Companies. This approval was necessary in order to commence pilot/long term production testing of the Lineynoye No. 6 and No. 7 wells this winter. Electrical submersible pumps have already been run in both wells utilising the drilling rigs currently at the well locations and test production will commence as soon as winter roads are in place to facilitate trucking the oil. It is planned to be in pilot production throughout the winter months as long as the winter roads can be kept open.

The Tungolskoye No. 4 appraisal well (T-4), which has 15 metres of net oil pay based on the core data and independent log interpretations, has now been side-tracked. The side-tracked well bore successfully penetrated the reservoir about 100 metres to the east and 5 metres structurally higher than the vertical hole. However, we are still experiencing mechanical problems with the testing and need to mobilise additional equipment and supplies to the well site. The testing has been temporally suspended until winter roads are in place to complete the mobilisation, which should occur during December.

After the T-4 well test data is available, independent consultants Ryder Scott will complete their reassessment of the reserves on Licence 61. Simultaneously, we are in the process of updating the Russian Reserves on Licence 61. Final reserves figures can not be determined until after Ryder Scott and the Russian expertise reviews are completed, but it is anticipated that both will result in significant increases to the Licence 61 reserves. This is expected to be completed by year end.

The pipeline survey to export oil from Licence 61 to Transneft at the Raskino pumping station is now approximately 80% complete. This survey includes all of the engineering design and approvals for the pipeline and custody transfer point at Raskino. The Company received approval to tie-in at the Raskino pumping station in September 2007.

Starting in February 2007 the Company commenced discussions with international banks in relation to debt finance for the development of Licence 61. These discussions are continuing based on the results from this years drilling and seismic programmes.

2007/2008 Exploration and Appraisal Programme

A new "turnkey" contract has been entered into with Tomskburneftegaz LLC for the drilling of three additional wells during the 2007/08 drilling season utilizing the three existing drilling rigs that are currently on Licence 61. The total value of the contract is about US$ 12 million. Vakha Alvievich Sobraliev, a Director and significant shareholder of PetroNeft, is a principal of Tomskburneftegaz LLC and accordingly the contract constitutes a related party transaction under Rule 13 of the AIM and IEX Rules. The Directors of PetroNeft (with the exception of Vakha Alvievich Sobraliev) consider, having consulted with Davy, the Company's nominated adviser, that the terms of the contract are fair and reasonable insofar as the Company's shareholders are concerned.

The results of this year's drilling programme, along with the seismic programmes undertaken over the last two years, have already been taken into account in planning next year's three well drilling programme. This three well programme, which is expected to commence in February/March, will seek to further delineate the newly discovered West Lineynoye Oil Field and to drill two low risk exploration prospects in the Tungolskoye-Lineynoye oil productive fairway. These two prospects, Korchegskaya and West Korchegskaya, are estimated to contain about 50 million barrels of possible reserves.

The necessary materials for these wells have already been moved to the Negotka staging area by river barge and will be moved to the well locations as soon as winter roads are in place commencing in December.

The Company is also focused on expanding its operational footprint beyond Licence 61 and is currently evaluating a number of opportunities, which match its skills and expertise.

Dennis Francis, Chief Executive Officer of PetroNeft commented:

"We are making good progress across the full spectrum of our projects and are pleased with the results. Over the last year we have added considerable value to the company, both in terms of material reserves increases and preparing for production and positive cash flows.

Whilst delays, particularly on the Tungolskoye No. 4 side-track, have impacted our schedule, the Company remains focused on its policy to expand the reserve base in Licence 61 and the development of existing reserves to early full production.

The three well drilling programme, pilot/long term production tests and completion of the field development plan, will make for a very active year in 2008."

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, 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.