Operations Update
April 15, 2010
Positive result from first production well, pipeline substantially complete
PetroNeft Resources plc (AIM: PTR) owner and operator of€Licences 61€and 67, Tomsk Oblast, Russian Federation, is€pleased to€provide an€update on€its operations.
Highlights:
- First production well meets expectations
- Pipeline construction substantially complete
- Construction of€production facilities on€schedule
- Winter phase mobilisation for Arbuzovskaya exploration well complete
- Ryder Scott 2009 Reserve Report finalised
Development Drilling
Drilling of€the first of€9€production wells at€the Lineynoye oil field scheduled for 2010 has now been completed. Preliminary results of€the log and survey data indicate that the results of€this well are in€line with expectations. The top of€the reservoir section was penetrated at€2,391m vertical depth subsea. The J1€reservoir interval is€completely saturated with oil. The gross hydrocarbon interval in€the well is€14.2m and the preliminary log analysis shows net oil pay is€between 10.2m and 11.8m. Production casing will be€run in€the well and cemented, following which the production drilling rig will be€skidded to€drill the second well. An€electrical submersible pump will be€installed in€the well with a€work-over rig later in€the programme.
Pipeline Construction
The 60km export pipeline from the Lineynoye field to€the Kiev-Eganskoye field is€progressing on€schedule. All activities required to€be€completed during the winter construction season have been completed. These included the route clearance, field-welding of€the pipeline, wrapping, trenching, laying the pipe and backfilling the trench for the entire 60km pipeline. Remaining activities include the connection of€the pipeline to€facilities at€Lineynoye and Kiev-Eganskoye, which are not dependent on€winter roads. The hydro test of€the pipeline is€scheduled for June 2010 following which the pipeline will be€ready to€receive first production in€the third quarter of€2010.
Production Facilities
Mobilisation of€all the major equipment for the production facilities that were required to€be€moved to€Lineynoye by€winter roads has been completed. Construction of€production facilities continues and is€on€schedule to€be€completed for first production in€the third quarter of€2010.
Arbuzovskaya Exploration Well
The drilling rig, camp and necessary materials to€drill the Arbuzovskaya Exploration well have successfully been mobilised to€location during the winter season. Rig-up operations are planned to€commence by€September 2010 and drilling will commence in€October after the 2010 nine well production drilling programme has been completed. This is€the first of€at€least three exploration/delineation wells to€be€drilled in€the northern part of€Licence 61€in€2010 and 2011. This programme has the potential to€materially increase both Group reserves and the long term production potential of€Licence€61.
Ryder Scott 2009 Report
The reserve report prepared for year end 2009 has been completed by€Ryder Scott and is€now available on€the PetroNeft website (petroneft.com). The results are summarised in€the following table. The reserves are essentially the same as€last year because there was no€new drilling in€2009. However, the net present values have improved significantly, primarily due to€reduced capex and higher oil prices.
| Oil Field and Prospect Type | Proved | Proved and probable | NPV10 of€2P€reserves | Proved, probable and possible |
| 1P | 2P | Base case* | 3P | |
| mmbo | mmbo | US$ million | mmbo | |
| Lineynoye field | 5.69 | 23.88 | $192.32 | 29.82 |
| West Lineynoye field | 2.71 | 23.32 | $112.45 | 29.19 |
| Kondrashevskoye field | 0.61 | 8.12 | $31.05 | 26.11 |
| Tungolskoye field | 1.38 | 15.51 | $99.98 | 19.66 |
| Total | 10.40 | 70.84 | $435.80 | 104.78 |
| Upper Jurassic€- 24€prospects | 207.29 | |||
| Cretaceous€- 10€prospects | 156.17 | |||
| Lower to€Middle Jurassic€- 11€prospects | 63.06 | |||
| Total | 10.40 | 70.84 | $435.80 | 531.29 |
* Other NPVs, cases and the various assumptions used are detailed in€the Ryder Scott Report (PETROLEUM CONSULTANTS REPORT FOR 2009) available on€petroneft.com
Dennis Francis, Chief Executive Officer of€PetroNeft Resources plc, commented:
"The completion of€winter pipeline construction represents a€critical milestone in€our schedule to€commence year round production in€the third quarter of€this year. We€are also delighted that the preliminary results from the first production well are in€line with our expectations and look forward to€the remainder of€the programme with confidence and optimism."
For further information, contact:
| Dennis Francis, CEO, PetroNeft Resources plc | +1 713 988 2500 |
| Paul Dowling, CFO, PetroNeft Resources plc | +353 1 443 3720 |
| John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker) | +353 1 679 6363 |
| Jeffrey Auld/Elijah Colby, Canaccord Adams Limited (Joint Broker) | +44€207€050 6500 |
| Martin Jackson, Citigate Dewe Rogerson | +44€207€638 9571 |
| Joe Murray/Ed Micheau, Murray Consultants | +353 1 498 0300 |
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.
Notes to€Editors
PetroNeft Resources plc was established in€2005 to€develop oil and gas assets in€Russia and the Former Soviet Union and was admitted to€the London AIM and Dublin IEX Markets on€27th September 2006.
The main asset of€the Company is€a€100% interest in€Licence€61, a€4,991€sq km€oil and gas licence in€the Tomsk Oblast in€Russia, held through its wholly owned Russian subsidiary, Stimul-T. The Licence is€located in€the prolific Western Siberian Oil and Gas Basin and contains four known oil fields, Lineynoye, Tungolskoye, West Lineynoye and Kondrashevskoye, and over 25€exploration Prospects and Leads. In€December 2009 the Company announced the acquisition of€a€second oil and gas licence in€the Tomsk Oblast in€Russia, Licence€67.
The Board and Management of€PetroNeft is€made up€of€highly experienced professionals, including former Marathon Oil Company executives, in€the International and Russian Oil Exploration and Development business. The Russian Management team also has extensive local knowledge and experience in€the exploration and development of€oil and gas fields in€the Tomsk Oblast.
Since acquiring Licence 61€in€May 2005, the Company has carried out extensive reprocessing and reinterpretation, using modern technology, of€over 2,500 line kms of€vintage seismic acquired in€Soviet times. It€has also digitised and reinterpreted the logs of€14€wells drilled on€the Licence since 1972. PetroNeft also has acquired over 1,000 line kms of€new CDP-2D infill seismic and drilled six new exploration/delineation wells. This new seismic and six well drilling programme fully satisfied the exploration work obligation for the full 25€year licence term.
Reserve estimates on€Licence 61€prepared by€Ryder Scott as€of€1€January 2010€were:
| Proved reserves | (1P) | 10.4 million bbls |
| Proved and probable reserves | (2P) | 70.8 million bbls (P1+P2) |
| Proved, probable and possible reserves | (3P) | 531.3 million bbls (P1+P2+P3) |
PetroNeft has also recently announced a€crude oil transportation agreement with Nord Imperial, effective for 25€years, which significantly reduces the various permits and associated approvals required for pipeline construction as€well as€the costs. The new route, from Lineynoye to€Kiev-Eganskoye runs adjacent to€the Tungolskoye and Kondrashevskoye oil fields and will create useful synergies for future development phases.
On€21 September 2009 PetroNeft announced a€US$27.5 million fund raising from international institutional investors which fully funds the Phase€1 Development Plan for the Lineynoye and West Lineynoye Fields. PetroNeft expects to€have year-round production from the Licence in€the third quarter of€2010 with production of€4,000 bopd by€the end of€2010. Production from the Phase 1€project is€expected to€peak at€around 12,000 bopd in€2012.
