June 30, 2008
PetroNeft Resources plc
Final Results for the Year Ended 31st December 2007
PetroNeft Resources plc is pleased to report its preliminary results for the year ended 31st of December 2007.
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
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.
A year of major progress
2007 was an important and busy year for PetroNeft, as it continued to deliver on its objectives for both exploration and first oil production from Licence 61 in the Tomsk Oblast of Western Siberia. It was also a difficult year in that the winter season was short, limiting the time frame within which winter roads could be used to move heavy equipment and maintain planned work schedules. However, due to the dedication of the Group's management and staff, it was a very successful year.
Exploration success and reserve upgrade
On the exploration front, the Group's 2P oil reserves were increased by over 81% to 60.6 mmbo, all of which is high quality oil. This was achieved through the drilling of three wells during the 2006/07 season. Two of these were delineation wells, one on the Lineynoye oil field and one on the Tungolskoye oil field, both of which intersected the reservoir horizons and encountered oil as planned. The third well was the West Lineynoye Prospect exploration well where oil was also discovered, moving considerable reserves from the P3 category into 2P reserve. Mechanical problems were encountered in testing the Tungolskoye No. 4 well and, as the Tungolskoye oil field is not now scheduled to come into production until 2012, this test has been postponed until we have a full production and fraccing crew in the area and can carry out this test more economically.
The first two wells in the 2007/2008 season have also added to the discovery success. At our Korchegskaya Prospect, (K-1 well) the well tested at an inflow rate calculated at 125 barrels of oil per day ("bopd"). The delineation well on the West Lineynoye oil field has also flowed oil at an inflow rate calculated at 120 bopd. An exploration well on the West Korchegskaya Prospect will commence in July 2008 as planned.
540 line km of seismic were also completed during the 2006/2007 season, defining additional prospects for future drilling. This seismic data and the current 3 well drilling programme will complete all the seismic acquisition and exploration drilling programme requirements of the Russian Government in respect of Licence 61 for the full 25 year term. The primary remaining requirement is to commence production within two years from the approval of commercial reserves by the State Reserve Committee. This is the current focus of the Company.
Development planning advanced
To begin the transition to a producer, pilot production of oil commenced and first oil sales were achieved in early 2008 as part of reservoir test programmes on Lineynoye and West Lineynoye oil fields. The Group was added to the official list of Russian oil producing companies and was approved for connection to the Transneft pipeline system. A major advance was the conclusion of a deal, with Russian company Bashneft, to transport oil, via the Khanty Mansiysk Oblast thereby significantly reducing the capital cost of development.
A Development Plan for the Lineynoye and West Lineynoye oil fields has recently been completed and submitted to the Russian authorities. Initial production will be from the Lineynoye oil field, with pipeline construction expected to commence towards the end of 2008 and production drilling commencing in early 2009. First pipeline production is expected in the second half of 2009, with initial rates of approximately 4,000 bopd, rising to 14,000 bopd in 2012.
Successful equity financing
On the financial front, the Group successfully raised US$15.4m during 2007 to fund its ongoing programmes. Mr. Paul Dowling was appointed as Chief Financial Officer of the Group in October 2007 and to the Board of the Company in April 2008. He has been a major addition to the Group management team and has been expanding the relationships between the Group and the financial markets. The current crisis in the financial markets, both banking and equity, provides a significant challenge to the development of the Group's assets but the Board is confident that this challenge can be overcome and the development and reserve expansion program can be kept on schedule.
Planning for the future
Separately from Licence 61, the Group has been very active in its search for new asset acquisitions, both exploration and producing. It has also been active in seeking ways to manage its current assets to maximise shareholder value. Within the context of the current difficult markets this is an increasingly important focus in developing a broader portfolio of assets for the Group. It is hoped that these efforts will be brought to fruition in the coming year.
While major progress has been made, to achieve the goal of oil production in 2009 is still a considerable ambition. I am confident that the Group's staff and management will continue to meet all the challenges and bring the assets of Licence 61 to production on schedule.
Finally, I am sure that I speak for all the management and staff of PetroNeft in thanking our shareholders, both old and new, for your confidence and support to date.
The financial information presented in this report does not represent full statutory accounts. Full statutory accounts for the year ended 31 December 2007 prepared in accordance with IFRS as adopted by the European Union, upon which the Auditors have given an unqualified opinion with an emphasis of matter on the Group's ability to continue as a going concern and the recoverability of the carrying value of the Group's exploration and evaluation assets, have not yet been filed with the Registrar of Companies.
The full annual report and accounts was posted to shareholders on 30 June 2008.