June 26, 2008
PetroNeft Resources plc
PetroNeft Resources plc is pleased to provide a highly positive update on its operational activities.
Dennis Francis, Chief Executive Officer of PetroNeft Resources plc commented:
"Our operational activities over the last three years have significantly enhanced the reserves, future potential and value of Licence 61 and I believe we can be very proud of our achievements to date.
This success has directly led to the first phase of field development, designed to turn PetroNeft into a commercially producing E&P Company by the end of 2009. This is a significant milestone for both the management and shareholders of the Company.
Whilst there is still much work to be done to meet the Company's target of year-round pipeline production in the second half of 2009, we have a very capable and dedicated work force and a co-operative local administration that will help us to meet this goal.
We also remain focused on building further value through exploration of current targets and evaluating potential acquisitions. We are excited by the opportunity provided by the recent Cretaceous discovery in the adjacent block 80. We believe that the structure extends into our licence area and we have defined a dual objective, Cretaceous and Upper Jurassic, prospect for drilling in 2009."
26 June 2008
2008 Drilling and Testing Programme
Korchegskaya No. 1 Exploration Well was spudded on 29th February 2008 and has reached target depth of 2,863 metres. The Upper Jurassic J11, oil reservoir horizon was intersected at 2,571 metres. The reservoir consisted of 4.6 metres of continuous sandstone which was oil saturated throughout. Subsequent detailed analysis indicates that 3.25 metres is considered net pay with good reservoir properties. An open hole test was run following coring and the zone tested at an inflow of 125 bopd. The oil is high quality with an API gravity of 47.5 degrees which is slightly higher than the other fields in the Licence area. Additional testing and studies are ongoing. This discovery well adds a fourth oil field to the northern group of fields and will be included in Phase 2 of the development.
Lineynoye No. 8 Delineation Well was spudded on 5th May 2008 and has intersected the J1 reservoir horizon at a depth of 2,487.5 metres. Based on initial log and core data the well has encountered approximately 5 metres of oil bearing Upper Jurassic J11 reservoir sandstone. An open hole test was run on this interval and the well tested at an inflow calculated at 120 bopd. Additional testing and studies are ongoing on the well to fully evaluate maximum production potential.
West Korchegsakya No. 1 Exploration Well is in the final stages of rig construction and will be spudded in July as soon as the drilling crew from Lineynoye No. 8 is available to be moved to this location. The Upper Jurassic oil reservoirs are expected at a depth of 2,485 metres.
Tungolskoye No. 4 Delineation Well Test. Core and petrophysical logs indicate a net pay thickness of 15 metres and the well initially tested an inflow of 40 bopd. Based on the results to date the reservoir appears tight/damaged at this particular well location and will need to be fracture stimulated for proper assessment. Testing on the Tungolskoye No. 4 well will now be completed as part of the Lineynoye and West Lineynoye development project when PetroNeft will have its own frac crew and work-over rig in the field. This will allow for the testing to be completed in a proper and cost effective manner. Development of the Tungolskoye oil field will be part of Phase 2 of the Plan of Development (see below) and is currently planned to be brought on stream in 2012.
Licence 61 Oil Field Development Programme
PetroNeft is pleased to announce that the Plan of Development (POD) has been completed and the Board has sanctioned a field development programme for Licence 61, with commercial oil production targeted for the second half of 2009.
Based on the POD, oil production on the Licence will be developed in phases from the north, with the first phase consisting of the development of the Lineynoye and West Lineynoye oil fields. This will involve the construction of a pipeline to tie-in to a Bashneft pipeline, 60 kms northwest of the fields. Additional phases will consist of existing and new fields discovered to the south, which will be developed incrementally in order to optimise the overall economics of Licence 61 for the Company. Following completion of current exploration and appraisal activities, development plans will be finalised for the inclusion of the adjacent Korchegskaya and Tungolskoye oil fields in the second phase of the Licence 61 Field Development Programme.
Phase 1 will initially focus on the development of the Lineynoye oil field, with 18 production wells planned for the 2008/2009 season. The economics of the project are robust, using conservative oil price and recovery assumptions. Oil production is planned to be in the region of 4,000 bopd at the end of 2009, with peak production from Phase 1 of 14,000 bopd in 2012. PetroNeft is in advanced negotiations with a number of international banks in relation to financing the project. That, combined with our relations with the local administration and the skills of our highly competent staff ensures confidence that the development will be successful.
PetroNeft plans to commence construction of the 60 km pipeline in winter 2008/09. Production from the Lineynoye and West Lineynoye oil fields will be transported by this pipeline, over flat terrain with no major river crossing, to tie-in to the local Bashneft pipeline at the Lukpaiskaya pumping station using a simplified custody transfer scheme. 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.
Following the successful exploration and appraisal programme undertaken in Licence 61 during 2007, PetroNeft's net proved and probable (2P) oil reserves as of January 1, 2008 increased by 81% to 60.6 million barrels. Proved (1P) oil reserves increased to 6.7 million and proved plus probable plus possible (3P) reserves increased to 350.1 million barrels.
The Russian Reserves for Lineynoye, West Lineynoye and Tungolskoye which are the basis for the POD and subsequent approvals have been approved by the Russian expertise commission and are currently awaiting the signature of the Minister of Natural Resources to become official. These reserves are expected to equate well with those established by Ryder Scott.
The Company's reserves were revised following an independent reserve appraisal conducted by Ryder Scott Petroleum Consultants in accordance with reserve definitions approved by the Society of Petroleum Engineers (SPE) and World Petroleum Congress. A total of three oil fields and 26 prospects were included in the report.
PetroNeft expects to increase booked reserves following the completion of the 2008 drilling programme, including the results of the K1 well. The Company will continue to exploit the additional prospects already identified to determine the full upside potential of Licence 61 Core Area.
Continuing Exploration and Delineation Programme through 2009
Traverskaya Prospect - As a result of the recent Cretaceous oil discovery in Kiev Eganskoye well 361 in Licence 80, immediately east of Licence 61, the Company has undertaken a reinterpretation of all of the Cretaceous log data for wells drilled in the Licence 61 area. This study has identified the Traverskaya Prospect for priority drilling in early 2009. This prospect is a separate closed high in the overall Kiev Eganskoye structure.
Korchegskaya Delineation Well - The Korchegskaya No. 1 discovery well did not define the oil water contact (owc) in the Upper Jurassic Reservoir and a low cost delineation well is required both to further confirm the reservoir distribution and the owc for the field. It is planned to drill this delineation well in 2009 which will further confirm the total reserves and value associated with the field
Recent Board and management team appointments have been made to meet the growing nature of the Company's capital market activities and operational business.
PetroNeft is actively evaluating projects for acquisition, joint venture and auction. The objective is to acquire and build new core exploration and production areas that satisfy the Company's strict technical, financial and legal evaluation criteria. While the main focus for new acquisitions will be the Western Siberian Basin, the Company will also consider projects in other areas within the Russian Federation.
For further information, contact:
Dennis Francis, CEO, PetroNeft Resources plc,
+1 713 988 2500
Paul Dowling, CFO, PetroNeft Resources plc
+353 1 4433720
Desmond Burke, Director Investor Relations, PetroNeft Resources plc
+353 52 53226
John Frain/Brian Garrahy, Davy
+353 1 679 6363
Jonathan Marren/Matt Goode, KBC Peel Hunt
+44 207 418 8900
Nick Elwes/Paddy Blewer, College Hill
+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 35 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.