Operations Update

January 5, 2011

5 January 2011

PetroNeft Resources plc

(“PetroNeft” or the “Company”)

Operations Update

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 at Licence 61.


  • Year-end production reaches 2,750 bopd from 9 of 11 wells
  • Fracture stimulation programme to start mid-January 2011 will significantly increase output
  • Retaining 2011 and 2012 production targets
  • Lineynoye development programme on schedule; drilling from Pad 2 to start in February
  • Very good test results for Arbuzovskaya No. 1 well
  • Third Exploration well added to 2011 drilling schedule
  • Drilling Contracts awarded for 20 well Exploration and Development drilling programme

Year-end production reached 2,750 bopd from 9 of 11 wells drilled. While the performance of the wells is good, production growth is being constrained by greater than expected formation damage resulting from the drilling and completion process. This issue will be overcome by the planned fracture stimulation programme.

Production from the Lineynoye No. 1 well, which is one of the best wells in the field, is not included in the year end production total as the well is currently shut-in awaiting installation of a special screw pump. Also, well 117 was taken offline pre year-end in preparation for fracture stimulation. The current production capacity of the field is estimated at over 3,000 bopd which is less than our year-end target of 4,000 bopd.

The winter fracture stimulation programme will commence in mid-January and the Board are confident that this will significantly increase the well rates by fracing through the near well bore damage and creating additional permeability conduits in the reservoir.

The Board have not changed their view on the overall productivity of the field or long term production targets as our plans have always been to fracture stimulate the wells. Consequently the Board remain confident of achieving the production targets of 8,000 bopd by end 2011 and 12,000 bopd by end 2012.

2011 Licence 61 Development programme – Lineynoye oil field

The production drilling rig that drilled the Pad 1 wells will be mobilised to Pad 2 in the coming weeks and drilling of the first of nine wells at Pad 2 should commence by the end of February. A second production drilling rig is being mobilised to Pad 3 where drilling of the first of eight wells will commence in April.

Works to tie-in Pads 2 and 3 to the existing central processing facility have already commenced and it is expected these will be completed by June 2011 thereby allowing new wells to be brought swiftly into production. We are also planning to undertake an early fracture stimulation programme in June 2011 on up to 6 wells from Pads 2 and 3.

Arbuzovskaya Exploration Well

The well was drilled to a total depth of 2,903 m on 13 November 2010. The final log data indicates that the base of the Bazhenov Formation is at 2,565 m and is underlain by 5.1 m of good quality oil saturated reservoir in the J1-1 interval. An open hole test of this interval produced at a prorated inflow of 289 bopd. The oil is very high quality with an API gravity of 47.5 degrees. There were no other zones with hydrocarbon indications in the well.

Production casing was run in the well and a step rate DST was performed. Stabilised flow on an 8 mm choke was 176 bopd and the calculated productivity index indicates the well should produce around 400 bopd on pump without fracture stimulation. These are very good results and plans are underway to register the reserves and obtain a pilot production licence which will allow us to tie-in this new field to the Lineynoye central processing facility in 2012.

Ryder Scott is currently assessing the proved and probable reserves for the field. PetroNeft estimates the 2P reserves to be in the 10 to 15 million barrel range. It is expected that the Ryder Scott report will be published in early March 2011.

North Varyakhskaya Prospect

Based on the highly encouraging results of the Arbuzovskaya No. 1 well tests, which de-risks the surrounding area, the Board has approved the addition of the nearby North Varyakhskaya No. 1 exploration well to the 2011 drilling programme. If successful, this prospect, which is located 6 km north of Arbuzovskoye oil field, can easily be tied-in to the future Lineynoye to Arbuzovskoye pipeline and could be on production in 2012.

Drilling Tender Results – 2011 Development and Exploration drilling

PetroNeft plans to drill a total of 20 wells in Licence 61 during 2011. The programme will consist of two production rigs which will drill 17 development wells from two new pads at Lineynoye and three exploration rigs which will drill the Kondrashevskaya No. 2, North Varyakhskaya No. 1 and Sibkravevskaya No. 372 wells.

Based on drilling tender results the Board has approved the award of the 2011 Drilling Contracts to LLC “Tomskburneftegaz” (TBNG). TBNG is one of the largest drilling contractors in the Tomsk region. In accordance with AIM Rule 13 and ESM Rule 13, the drilling contracts are deemed to be a related party transaction as Vakha Sobraliev, a Non-Executive director of the Company, is principal owner of TBNG.

The Board of Directors, with the exception of Vakha Sobraliev who is involved in the transaction as a related party, having consulted with Davy, the Company’s Nominated Adviser and ESM adviser, have determined that the terms of the drilling contracts are fair and reasonable insofar as shareholders are concerned.

Dennis Francis, Chief Executive Officer of PetroNeft Resources plc, commented:

“While our well performance is good, it has been limited due to formation damage arising from the drilling and completion process. However, this will be resolved by the hydraulic fracturing programme and has not in any way changed our view of the reservoir quality or overall productivity of the field. We remain confident of achieving our long term production targets.

We are delighted with the results of the Arbuzovskaya No. 1 testing and have planned a very active 2011 development and exploration drilling programme in Licence 61. In particular, the addition of North Varyakhskaya prospect adds another quality prospect with near term production potential.”

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

Charles Berkeley/Henry Fitzgerald-O’Connor, Canaccord Genuity 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.



Proved and probable reserves according to SPE/PRMS standards

API gravity

The American Petroleum Institute gravity, or API gravity, is a measure of how heavy or light a petroleum liquid is compared to water.


Barrels of oil per day


Drill stem test; a procedure for testing the surrounding geological formation through the drill pipe