Operations update

February 17, 2012

17 February 2012

PetroNeft Resources plc


Operations update

PetroNeft Resources plc (AIM: PTR), the owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to announce an update on its operations.


· Year end production reached approximately 3,000 bopd; current production steady at 2,300 bopd

o Lineynoye Pad 1 responded to pressure maintenance

o Lineynoye Pad 2 fracture results below expectations

· Arbuzovskoye Development ahead of schedule

o Pipeline production expected to commence in Q2 2012

o Plans for 10 new production wells in 2012 progressing ahead of schedule

· Ledovaya 2a exploration well

o oil encountered in primary Upper Jurassic interval

o oil discovered in secondary Lower Cretaceous interval

· Cheremshanskaya No. 3 exploration well

o testing successfully completed; three separate oil pools discovered

o primary Upper Jurassic J1-3 interval tests good quality oil + water

o secondary Upper Jurassic J1-1 + Bazhenov interval tests high quality oil

Licence 61 – Lineynoye field development programme

Total production increased to approximately 3,000 bopd at the end of the year with the benefit of Pad 1 water injection and initial positive results from the Pad 2 fracture stimulation programme. In recent weeks production has declined to 2,300 bopd due to a number of issues at Pad 2.

Pad 1 wells have responded to the pressure maintenance programme (water injection) that we initiated last summer using three injection wells and the production decline has now halted in many wells and in some cases started to increase. We are encouraged with the water flood response on the Pad 1 wells.

A fracture stimulation programme for the Pad 2 wells was carried out in November 2011. The initial response was positive however, in recent weeks, production from Pad 2 wells has decreased due to higher than expected well decline rates and the clean-up of water associated with the Pad 2 fracture programme being less than expected.

The Pad 2 wells have not performed as well as those in Pad 1 following fracture stimulation. We have commenced a number of studies on the Pad 2 wells, including a field wide pressure transient test of individual wells in order to understand the difference in results.

In some of the Pad 2 wells the reservoir pressure has declined and is a factor in the production decline. We are currently converting one of the Pad 2 wells to a water injection well with the aim of restoring some of the reservoir pressure. Additional wells will be converted as part of a normal water injection and pressure maintenance programme.

We currently expect that it will take at least six months before we can complete these studies and work programmes. The five well fracture stimulation programme planned for the Lineynoye field in Q1 2012, has therefore been postponed until we can better understand these differences and how best to deal with them.

In the meantime development activities will be focused on the Arbuzovskoye field.

Licence 61 – Arbuzovskoye Pilot Development Programme

The Pilot Production Design for the Arbuzovskoye oil field was approved by the Russian State Central Development Committee in November 2011. Construction of a 10 km pipeline from the Lineynoye facilities to Arbuzovskoye and mobilisation of the drilling rig and supplies to drill up to 10 new production wells in 2012 is progressing ahead of schedule. Pipeline production is now expected to commence in Q2 2012. Arbuzovskoye contains 2P reserves of 13.2 million barrels of oil according to independent reserve auditors Ryder Scott. The Arbuzovskoye No. 1 discovery well demonstrated good reservoir properties and produced a stabilised flow of 176 bopd on an 8 mm choke and we expect good initial production that can be augmented later with fracture stimulation.

Licence 67 – Ledovaya No. 2a well

The Ledovaya No. 2a well was spudded on 5 December 2011. The well was targeting oil in both the Lower Cretaceous and Upper Jurassic intervals. Based on the initial evaluation of log and core data the primary Upper Jurassic J1/1-2 reservoir interval contains about 10 m of high quality sandstone. The top five metres of this are interpreted as oil bearing whereas the lower five metre zone is interpreted to be an oil plus water transitional zone. Testing of the interval is currently ongoing.

Based on the preliminary interpretation of core and log data the well has discovered a new oil pool in the secondary objective Lower Cretaceous interval. Data indicates that a sandstone interval from 2,515 to 2,523 m contains 1.6 m of net oil pay and 2.9 m of possible oil pay. The zone will eventually need to be flow tested behind casing for confirmation. However, at this stage we are pleased with the result given that the same interval is productive at the neighbouring Stolbovoye field which is located 24 kms to the south.

Licence 67 - Cheremshanskaya No. 3 well

Testing of the primary Upper Jurassic J1-3 interval has been successfully completed. The interval which was initially interpreted to be water bearing, has proved to be oil bearing. Based on the cased hole testing the interval is interpreted to contain 6.5 m of net pay (4.7 m of oil saturation and 1.8 m of oil+water saturation). Average inflow was about 44 bfpd consisting of 20.3% oil and 79.7 % formation water. The oil is good quality with a 34 degrees API.

The J1-3 interval was then isolated with a cement packer and the J1-1 + Bazhenov interval was tested. This interval consisted of 1.2 m of net pay in the J1-1 plus 3 m of fractured shale at the base of the Bazhenov Formation. Average oil inflow from the J1-1 + Bazhenov was about 12.6 bopd of high quality oil with a 40 degrees API.

In summary, three separate oil pools have been now discovered and established in the Cheremshanskoye oil field - the J14-15, the J1-3 and the J1-1 + Bazhenov. The area of the field is very large encompassing almost 40 square kilometres and further delineation and pilot testing will be required to assess the true size of the field and ultimate development plan. There are large producing fields nearby with similar characteristics and the strong indications are that Cheremshanskoye will prove to be a substantial discovery upon further delineation.

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

“We are disappointed with the results of the Pad 2 fracture stimulation programme, especially when compared to the improving Pad 1 results. We are now studying the results to see what can be done to manage the wells. Development focus will now turn to building the production profile at Arbuzovskoye and assessing other near term development opportunities.

The Ledovaya result is encouraging and we await the test results from the Upper Jurassic zone. We are delighted that testing at Cheremshanskoye has confirmed oil in our primary Upper Jurassic J1-3 interval and demonstrated three separate oil pools in the field. Given the large area of the structure and nature of the analogue fields nearby we feel that with further delineation Cheremshanskoye will prove to be a major oil field.”

For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc

+353 1 443 3720

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. No statement in this announcement is intended to constitute a profit forecast or profit estimate for any period.


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 fluid per day


Barrels of oil per day