Strategic & Operational Update

Caspian Sunrise plc

25 March 2024

 

Caspian Sunrise PLC

Strategic & Operational Update

Introduction

The Board of Caspian Sunrise is pleased to present the following strategic and operational update.

Corporate interest in BNG

The Board has in recent months entered into a number of discussions with potential buyers concerning the BNG shallow structures (excluding the BNG deep structures Airshagyl & Yelemes Deep) at indicative prices potentially significantly greater than its current carrying value. Any deal at these levels because of its size relative to the Group as a whole is likely to require the approval of Caspian Sunrise shareholders.

We consider the MJF and South Yelemes structures to be valuable assets. However, as with all of the Group's assets, there would be a price at which the Board would judge a sale of all or part of the BNG shallow structures to be in the best interest of the Group as a whole. In particular as it would provide funding for new development assets where the Board believes the Group has the greatest expertise.

At this stage no binding agreements have been entered into and there is no certainty these discussions will lead to either a firm offer for all or part of these assets or that if they did the Board would be minded to put such an offer before shareholders. Nevertheless, it demonstrates to the Board the commercial value in these assets.

We believe this heightened level of corporate interest in BNG's producing shallow structures is in part the result of the changes last year to the Kazakh oil trading regulations, which now require the production of oil to obtain a trading licence, and the relative scarcity of producing fields with full production licences. The sharp reduction in the discount for international sales referred to below may also have had an effect.

The receding impact of sanctions on oil prices

Recently the market discount on oil produced in Kazakhstan but transported via the Russian pipeline network has all but disappeared for international consignments of approximately 70,000 barrels per month and greater. While we are not yet producing at these levels on a monthly basis we can see a time in the near future when it would once again be in the Group's interest to sell as much oil on the international markets as our licences permit.

BNG Operational update

MJF

Production from Well 142, which was the best producing well before coming out of production in 2022 and which recommenced production in February 2024, continues to contribute to the structure's production but has yet to return to its former levels and we continue to monitor its performance.

At Well 155, which is the final shallow well to be drilled under the BNG shallow work programme commitments, drilling has reached a depth of approximately 1,000 meters of a Total Depth of 2,400 meters with an expected completion date before the end of Q2 2024.

South Yelemes

Work to drill new horizontal side tracks on the four existing Soviet era wells targeting oil in the Dolomites at depths between approximately 2,200 and 2,300 meters is underway. Well 805 was the first well in the programme and now produces at approximately 140% of its previous level.

Work is now underway at Well 806 with Wells 807 and 54 to follow.

Production volumes

Aggregate production from the MJF and South Yelemes structures is currently approximately 1,700 bopd.

BNG Deep Structures

Airshagyl

The rig is now in place to resume work at Deep Well A5, which remains in the Board's opinion the BNG deep well with the greatest potential.

At Deep Well A7 we are waiting on the outcome of the work planned at Deep Well A5 before resuming drilling, which was paused at a depth of 2,150 meters.

Yelemes Deep

Well 803 is the final deep well required under the BNG deep work programme commitment. Drilling has reached a depth of 1,250 meters without incident with the primary target at 3,950 meters and a secondary target at 4,200 meters.  Drilling to the secondary target would only be undertaken if the primary target proves uneconomic.

Discussions have started with a potential partner to seek to bring Deep Well 802 into production, although to date no agreement has been signed.

Licence upgrade

The technical information to be collected from Deep Well 803 is expected to be sufficient together with the information already gathered at the other BNG deep wells drilled to support an application to upgrade the BNG deep structures licence to a full production licence.

Block 8

The licence renewal remains the final substantive condition to the completion of the acquisition of Procyon Investments FZE, the UAE registered owner of EPC Munai LLP, which is the Kazakh registered owner of the Block 8 Contract Area.

The licence renewal is also required to allow the resumption of production at Block 8 and to allow testing of the two Block 8 deep wells completed in 2023.

Block 8 is approximately 160 km from BNG with three identified deep structures on which four deep wells have been drilled in recent times. The Block 8 purchase price is capped at $60 million payable from a royalty on future production from Block 8 at the rate of $5 per barrel.

3A Best

There has been no change to the position at 3A Best where once the licence is renewed we would seek a buyer.  The investment in the 3A Best Contract Area was fully impaired several years ago. Any sale proceeds would therefore constitute a profit on disposal.

Oil trading

The Group's oil trading activities started in January 2023 following a change in the Kazakh regulations. Since then, the contribution from our oil trading activities, which to date have been limited solely to our own oil, have added up to $10 per barrel to the price received on the domestic market.

Oilfield services

Onshore

CTS, the Group's wholly owned onshore drilling services company, continues to drill all the Group's wells and in addition has drilled wells at Block 8. We are also  in discussions with third parties to farm into their assets in return for future CTS drilling commitments.

With approximately 150 contractors and owning 5 rigs CTS has become a valuable part of the Group, generating income and minimising costs and drilling delays and is expected to facilitate a number of farm-ins over the coming years.

Offshore

Preparations for the Caspian Explorer's ENI drilling contract scheduled to commence in Q3 2024 remain on track.  Significant pre-contract expenditure has been incurred with the bulk of the associated revenues due in the current financial year.

The unique nature of the Caspian Explorer has also resulted in our inclusion in a number of ongoing discussions to participate in new much larger scale offshore drilling projects.

Summary

The corporate activities undertaken over the past few years, funded principally from the oil produced from the MJF structure and higher levels of short term debt, have transformed the Group from an early stage single asset / single structure entity to a more broadly based natural resources group with strong asset backing and earnings potential.

The Board believes the Group is now well placed to turn this potential into reality.

Comment

Clive Carver, Chairman said

"The Group is now far more than just the MJF structure on the BNG Contract Area. South Yelemes, the second shallow structure at BNG, has started to make meaningful contributions. Our onshore and offshore drilling services capabilities have reached the point where they should also produce meaningful profits and our successful start to oil trading is encouraging.

We look forward to further developing all of these business streams in the coming year."

Contacts:

Caspian Sunrise PLC

Clive Carver, Chairman                                                                [phone]

WH Ireland, Nominated Adviser & Broker

James Joyce                                                                            [phone]

James Bavister

Andrew de Andrade

Qualified person

Mr. Assylbek Umbetov, a member of the Association of Petroleum Engineers, has reviewed and approved the technical disclosures in this announcement.

This announcement has been posted to:

www.caspiansunrise.com/investors

The information contained within this announcement is deemed to constitute inside information as stipulated under the retained EU law version of the Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK law by virtue of the European Union (Withdrawal) Act 2018. The information is disclosed in accordance with the Company's obligations under Article 17 of the UK MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

END