Operations Update

RNS Number : 9295S

Petroneft Resources PLC

20 September 2010

 



PetroNeft Resources plc

("PetroNeft" or the "Company")

Operations Update and Analyst Visit to Tomsk

PetroNeft Resources plc (AIM: PTR) owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, announces that it is, from today, hosting a three day visit to the Company's assets and operations in Tomsk for a group of sell-side oil & gas financial analysts. Prior to the start of this visit, PetroNeft is providing the following operational update on its Licences 67 and 61. No additional new information will be released during the visit.

The visit will include a series of presentations on our activities in Tomsk, Russia. Copies of these presentations will be available on the Company's website (www.petroneft.com) from today, 20 September 2010.

Highlights:

Licence 67

·      Very encouraging initial results from reprocessing/reinterpretation work

·      Year End 2P reserves upgrade likely

Licence 61

·      Ninth production well successfully drilled encountering some of the thickest net pay to date

·      Development programme ahead of schedule

Licence 67

The first phase of work on Licence 67 involves a comprehensive study to re-evaluate the vintage seismic and well data located on the licence and adjacent areas including the reprocessing and reinterpretation of 4,430 km of 2D seismic data and 21 vintage wells.  All of the seismic data has now been reprocessed, correlation charts have been prepared and the wells have been tied to the seismic data.  An initial depth map at the top of the primary Upper Jurassic J1 reservoir has also been prepared.

The results of the well re-evaluation are very encouraging and indicate several zones of potential oil pay that were either not properly identified or not properly tested in the old wells.  Results of the re-evaluation of six wells located in Licence 67 are summarised as follows:

Well			Year drilled	Net Pay	Comments
	Interval			metres
Ledovaya No. 2			1973
	Cretaceous B16-17			10.9	potential pay
	Upper Jurassic J1			11.8	net oil pay
Total net pay Ledovaya No. 2				22.7
Ledovaya No. 5			1974
	Cretaceous B16-17			4.5	potential pay
	Upper Jurassic J1			4.9	net oil pay
Total net pay Ledovaya No. 5				9.4
Cheremshanskaya No. 1			1962
	Upper Jurassic J1			14.9	net oil pay
	Lower Jurassic J13			8.9	net oil pay
	Lower Jurassic J14-15			14.7	net oil pay
Total net pay Cheremshanskaya No. 1				38.5
Cheremshanskaya No. 2			1972	no net pay identified
Sklonovaya No. 21			2001
	Upper Jurassic J1			3.3	net oil/gas pay
Total net pay Sklonovaya No. 21				3.3
Bolotninskaya No. 5			2003	no net pay identified

Work to date has focussed on two potential development opportunities at Ledovoye and Cheremshanskaya.  

Ledovoye Field

In the Ledovaya No. 2 well, drilled in 1973, there was an open hole flow test of 5.5 m³ of oil in 36 minutes which prorates to over 1,000 bopd. However, after the production casing was run the interval tested water with an oil skim which we believe to be due to a poor cement job.  The oil zone in the Ledovaya No. 5 well indicates the oil water contact ("owc") for the interval is at about 2,553 m TVD subsea which also indicates the likelihood of a common owc with the producing North Ledovoye field located in the licence area immediately to the north.  North Ledovoye is being developed by Matyushkinskaya Vertikal a subsidiary of the Hungarian MOL Group.

Cheremshanskaya Structure

The Cheremshanskaya No. 1 well was drilled in 1962. Oil shows were evident while drilling, but the well was not properly tested at that time. Due to the poor quality cementing of the production casing, the primary objective Upper Jurassic J1 interval was not tested. The Lower Jurassic interval at Cheremshanskaya has some of the best reservoir properties for this interval anywhere in the region and the newly interpreted total net oil pay of 38.5 m for the well is exceptional.

Reserve Potential and Further Work

The results of the log and seismic analysis are very encouraging.  Based on this data we calculate that just the primary objective Upper Jurassic J1 interval reserves for the two fields could be significant - Ledovoye C1+C2 of around 30 million bbls [PetroNeft net 15 million bbls] and at Cheremshanskaya C3 of around 60 million bbls [PetroNeft net 30 million bbls]. 

Following preliminary discussions with Ryder Scott, we believe we will be able to book some 2P reserves at Ledovoye at this year end, but we will need to flow test the oil intervals in the Cheremshanskaya structure before we can recognise any 2P reserves there. Such a test would be likely to occur in conjunction with a wider drilling programme on the structure and licence.

In addition to these two potential fields, PetroNeft has also identified material further structural and stratigraphic exploration upside potential in Jurassic and Cretaceous prospects elsewhere on Licence 67.

As the re-evaluation programme progresses over the coming months the Company will update shareholders as appropriate and expects to be able to provide details of the planned 2011 Licence 67 work programme by the end of November 2010.

Licence 61 Development Drilling

Drilling of the ninth of the planned nine production wells at the Lineynoye oil field has now been completed ahead of schedule. Preliminary log and survey data indicate that this well has encountered some of the thickest net pay to date in the development programme.  The top of the reservoir interval is 6 metres higher than prognosis which will benefit future reservoir stimulation and recovery of reserves. 

Well No.	Top of reservoir vertical depth subsea metres	Gross hydrocarbon interval metres	Net oil pay metres	Comments
111	2,382	20.2	16.0	Interval is completely saturated with oil.

Production casing has been run in well No. 111 and cemented. The drilling rig has been moved along its rails and drilling of the water source well has commenced. A work-over rig has commenced the process of perforating and installing electrical submersible pumps in wells 111 and 117. This will complete the first year of development drilling on Licence 61 except for the fracture stimulation programme which is planned for the 1^st Quarter of 2011.

Production, which began in late August 2010, has reached 1,500 barrels of oil per day ("bopd") from eight wells. The best well is now producing around 400 bopd where other similar wells have not yet cleaned up significantly. Clean up is expected to occur gradually over the coming weeks and months and may include some basic well stimulation procedures. We expect to have a total of 11 wells producing by the end of October and will provide further updates in early November.

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

"We are very pleased with the initial results of the comprehensive re-evaluation of the Licence 67 data.  This work confirms our high expectations for the Licence area and indicates that both Ledovoye and Cheremshanskaya have the potential to become significant new oil fields in the region. The combined development and exploration opportunities in Licences 61 and 67 provide a solid base for both the near and long term development of the Company''     

For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc	[phone]
Paul Dowling, CFO, PetroNeft Resources plc	[phone]
John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)	[phone]
Henry Fitzgerald-O'Connor/Filip Bavenholm, Canaccord Genuity Limited (Joint Broker)	[phone]
Martin Jackson, Citigate Dewe Rogerson	[phone]
Joe Murray/Ed Micheau, Murray Consultants	[phone]

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.

Glossary

2P	Proved and probable reserves according to SPE/PRMS standards
bopd	Barrels of oil per day
C1	Proved resources according to Russian standards
C2	Probable resources according to Russian standards
C3	Possible resources according to Russian standards
km	Kilometres
Owc	Oil water contact
TVD	Total vertical depth

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 ESM 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 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.

On 28 May 2010, PetroNeft announced a US$30 million debt facility with Macquarie Bank.

In August 2010, following the completion of a 60 km pipeline and of the construction of oil storage and processing facilities, PetroNeft announced the commencement of year-round oil production from the Lineynoye oil field.

 

END

 

 

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