Reserves, Operations and Financing Update

March 10, 2011

PetroNeft Resources plc
(“PetroNeft” or the “Group” or the “Company”)
Reserves, Operations and Financing 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.


  • Group 2P reserves increase 36.8% to 96.9 mmbbls
  • Arbuzovskoye 13.2 mmbbls
  • Ledovoye 14.0 mmbbls (net to PetroNeft)
  • Hydraulic fracturing programme nearing completion
  • Production drilling programme has commenced
  • Exploration drilling programme to commence in early April
  • New Loan facility agreed with Macquarie Bank

Ryder Scott Report as at 1 January 2011

Independent reserve auditors, Ryder Scott has completed their assessment of Group petroleum reserves and resources as at 1 January 2011. The principal changes from the previous year’s report were the addition of proved and probable reserves at the Arbuzovskoye oil field which was discovered in November 2010 and their first assessment of the reserves and resources at Licence 67 which was acquired by PetroNeft in January 2010. Total proved and probable (2P) reserves net to PetroNeft have risen by 36.8% to 96.9 mmbbls.

Licence 61

The proved, probable and field related possible reserves at Licence 61 can be summarised as follows:

Oil Field Name Proved
Proved &
Probable &
Lineynoye 5.154 22.735 28.472
West Lineynoye 2.713 23.320 29.224
Kondrashevskoye 0.611 8.122 26.129
Tungolskoye 1.381 15.483 19.628
Total 11.812 82.904 120.008

Ryder Scott did not review the Exploration prospect inventory in Licence 61 because there were no significant changes in the data.

Licence 67

This is the first time Ryder Scott has reported on the petroleum reserves at Licence 67, which was acquired following an auction in December 2009. In January 2010, Arawak Energy exercised its right under the terms of the 2008 Area of Mutual Interest agreement to acquire a 50% interest in Licence 67 with PetroNeft remaining as operator.

Tomsk Geophysical Company was contracted to consolidate, reprocess and re-evaluate 4,432 km of 2D Seismic data acquired in and adjacent to Licence 67 between 1969 and 2001. They also digitised and reinterpreted the electric logs for 21 vintage wells located in the same region. The results of this study formed the basis for Ryder Scott’s report on Licence 67.

The field related proved, probable and possible reserves net to PetroNeft at Licence 67 can be summarised as follows:

Oil Field Name Proved
Proved &
Probable &
Ledovoye (Upper Jurassic) 1.538 14.024 17.418
Total 1.538 14.024 17.418

Ryder Scott has also considered seven other prospects and calculated net reserves and exploration resources to PetroNeft at the Upper Jurassic, Lower and Middle Jurassic intervals with gross potential reserves and resources of 92.55 mmbl in Licence 67. They can be summarised as follows:

Prospect Total,
Possible reserves (P3)
Cheremshanskaya 67.698
Exploration resources (P4)
Levo-Ilyakskaya 0.994
Syglynigaiskaya 1.847
North Grushevaya 12.127
Malostolbovaya 4.593
East Cheremshanskaya 1.983
East Ledovaya 1.888
Nizhenolomovaya 1.424

The above prospects all have well defined 4-way dip closure at the relevant seismic horizon. In the case of Cheremshanskaya, Possible (P3) reserves have been recognised due to the existence of a prior well on the structure with potential by-passed pay in the interval.

Licence 61 Hydraulic fracturing programme

The hydraulic fracturing of nine wells at Pad #1 at the Lineynoye oil field was completed in February 2011. Mechanical issues with the workover rigs and extremely cold weather in February have slowed getting the wells back on production; however, we are satisfied with the results to date. At present, seven of the fractured wells have come back fully online and are averaging over 400 bopd after clean-up and normal initial decline. We currently anticipate that production will be in the 3,500 bopd to 4,000 bopd range by early April when all wells are back on production and we will provide a further update at that time.

2011 Licence 61 Exploration programme

PetroNeft’s 2011 exploration programme will target over 60 million barrels across 3 prospects in Licence 61. The first of these, Kondrashevskoye No. 2 well, should spud in early April; site preparation is complete, the rig has been mobilised to location and rig-up is underway. The second well in the schedule at Sibkrayevskaya No. 372 will target the largest prospect in the programme at over 40 million barrels. At present, site preparation is 70% complete and the rig and materials will be moved to location in the second half of March for a planned May spud. The site for the North Varyakhskaya No. 1 well has also been prepared and the rig and materials are being moved to the site. This well will be the last exploration well drilled at Licence 61 in 2011 with a planned spud in late June.

2011 Licence 61 Development programme – Lineynoye oil field

Production drilling at Pad 2 has commenced with the 201 well and is expected to be completed next week. The rig for Pad 3 has been mobilised to site and rig-up is underway. The first well should spud on schedule in early April.

Revised Macquarie Bank loan facility

Following the successful commencement of production from Licence 61 negotiations with Macquarie Bank (“Macquarie”) have successfully concluded resulting in agreement for a longer term, scalable borrowing base facility with increased flexibility at lower cost. Under the three year loan the initial available amount will be US$30 million with potential to increase up to US$75 million through the addition of new discoveries and developments subject to credit approval. The borrowing base will be reviewed every six months. The US$30 million borrowing base has received full credit committee approval in Macquarie subject to the satisfaction of certain conditions precedent and routine legal documentation which is expected to be completed over the coming weeks.

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

“The Ryder Scott reserve reports reinforce the exploration and acquisition successes of 2010 by recognising material new commercial reserves at Arbuzovskoye and Ledovoye. We are very pleased to add quality reserves with demonstrated flow rates which will form an important element of our future development and production growth plans.

Over the coming years, PetroNeft anticipates a steady pipeline of new discoveries and developments including that from the 2011 five well exploration programme. We are also delighted to extend our already strong relationship with Macquarie through the conclusion of PetroNeft’s first borrowing base facility.”

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.


2P Proved and probable reserves according to SPE/PRMS standards
3P Proved, probable and possible 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.
bopd Barrels of oil per day
km Kilometres
mmbbl Millions of barrels
P1 Proved reserves according to SPE/PRMS standards
P2 Probable reserves according to SPE/PRMS standards
P3 Possible reserves according to SPE/PRMS standards
P4 Exploration resources according to SPE/PRMS standards