August 27, 2009
PetroNeft Resources plc ('PetroNeft' or 'the Company'), owner and operator of Licence 61, Tomsk Oblast, Russian Federation, is pleased to provide an update on its operations.
* Crude Oil Transportation and Custody Transfer agreement signed with Imperial Energy
* Phase 1 project costs to first oil reduced by 58% to $25 million (previously $60 million)
* First pipeline oil targeted Q3 2010
Transportation Agreement with Imperial Energy
On 26 August 2009 PetroNeft's wholly owned Russian subsidiary, LLC Stimul-T entered into a Crude Oil Transportation and Custody Transfer agreement with LLC Nord Imperial ("Imperial"), a wholly owned Russian subsidiary of Imperial Energy. Under the terms of the agreement, Imperial will accept PetroNeft's crude oil using existing tank facilities at the Kiev-Eganskoye field and transport the crude to its Custody Transfer Point at Zavyalovo for transfer into the Transneft system. The agreement is effective for 25 years and the tariff is subject to adjustments based on the Russian Consumer Price Index.
The overall tariff and associated capital cost structure has material cost and operational advantages for PetroNeft compared to the previous export option to the north. The fact that the new pipeline route is entirely within the Tomsk Oblast, whereas the northern route also entered the Khanty-Mansiysk District, will significantly reduce the various permits and approvals associated with the pipeline. In addition, the new pipeline route from Lineynoye to Kiev-Eganskoye runs adjacent to the Tungolskoye and newly discovered Kondrashevskoye oil fields, creating useful synergies for future phases of development.
Subject to funding, the Company plans to construct the pipeline segment from Lineynoye to Kiev-Eganskoye this coming winter. The revised pipeline route is 70km long, of which some 65km was acquired in 2008 and is currently in storage. First pipeline production is expected in the third quarter of 2010.
Cost Reduction and Project Optimisation Efforts
Since the suspension last October of the Phase 1 project to develop the Lineynoye and West Lineynoye oil fields, PetroNeft has been reviewing all aspects of the development plan in order to cut and defer costs. General capex cost reductions since 2008, additional reductions associated with the new pipeline route and the deferral of the second drilling rig until year two of the project significantly reduces the amount of funds required to first oil.
The Russian Rouble to US dollar exchange rate has also changed significantly in recent times. Because almost all project costs are in Roubles this represents a significant portion of the cost savings in US dollars since last year.
When all of the reductions above are taken into account the funding required to bring the project to first oil has been reduced from $60 million in mid-2008 to approximately $25 million today.
Dennis Francis, Chief Executive Officer of PetroNeft Resources plc commented:
"We are delighted to have executed the crude oil transportation and custody transfer agreement with Imperial. The cost, schedule and operational efficiencies which are now possible have materially enhanced the value of our assets. We are now confident that, with our greatly reduced funding requirement of approximately $25 million, we can meet the targeted schedule for first pipeline oil. This provides an outstanding platform for PetroNeft's continued growth and development."
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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.