Operations Update

RNS Number : 9600H

Petroneft Resources PLC

07 June 2011

 



PetroNeft Resources plc

("PetroNeft" or the "Group" 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.

Highlights:

·      Kondrashevskoye No. 2 well successfully tests oil

·      Four additional wells completed in the Lineynoye Development Drilling Programme

·      Drilling establishes interconnection between Lineynoye and West Lineynoye fields

·      New structural interpretation of Lineynoye shows thicker pays extend significantly further north

·      Facilities construction to expand capacity from 7,400 bopd to 14,800 bopd is on schedule for completion in July

Licence 61 Exploration / Delineation Programme

PetroNeft's high impact 2011 exploration programme, which has the potential to more than double our reserves, is targeting over 60 million barrels on three prospects in Licence 61.

The first well in the programme, the Kondrashevskoye No. 2 delineation well, has been drilled and has confirmed 2.3 m of net pay in the J1 interval.  This is consistent with the No. 1 well which discovered the oil field in 2008.  The well tested high quality 41⁰ API gravity crude oil at a prorated inflow rate of 32 bopd on a short open hole test (without stimulation).  The well was then drilled to basement and a core taken to meet government regulations. 

Neither Kondrashevskoye well has encountered the oil water contact for the field so we will now sidetrack the No. 2 well down-dip to locate the oil water contact and determine the full reserve potential of the field. This process in now underway and is expected to be completed by the end of June.

The second 2011 exploration well will be at Sibkrayevskaya, the largest prospect in the programme at over 40 million barrels.  Site preparation and mobilisation of the rig and materials is complete and rig-up operations are well advanced.  Drilling should start in late June, following completion of the Kondrashevskoye No. 2 sidetrack.

The site for the third exploration well, North Varyakhskaya No. 1, has also been prepared and the rig and materials have been moved to the site for a planned spud in August 2011 following Sibkrayevskaya .

 

2011 Licence 61 Development programme - Lineynoye oil field

Production drilling continues with three additional wells successfully drilled from Pad 2, making a total of 5 thus far and the first well from Pad 3.  Preliminary log and survey data for the development wells on Pads 2 and 3 are shown below, with Well 204 having the largest gross sand interval in the J1 section to date.

Well No.	Top of reservoir vertical depth subsea metres	Gross hydrocarbon interval metres	Net oil pay metres	Comments
203s (sidetrack)	-2,414	2.0	2.0	Interval is completely saturated with oil in J1-1 but J1-2 sandstone missing
204	-2,415	16.2	11.5	Oil-water-contact at       -2,431 m TVD; contains 23.2 m of gross sandstone in J1 interval
205	-2,416	16.1	10.9	Interval is completely saturated with oil.
334	-2,418	2.2	2.2	Interval is completely saturated with oil.

The primary objective for Well 203 was encountered deeper than anticipated and close to the oil-water contact for the field.  The well was then side-tracked up-dip to the planned 204 location.  The sidetrack well (203s) contained 2.0m of oil in the J1-1 interval with good oil saturation (65%), but the J1-2 sandstone interval was not developed in this location.

As a result of the information learned from Wells 203 and 203s, we have re-evaluated the seismic data for the Lineynoye Field.  The resulting new interpretation clearly connects Pads 1 and 2 to the West Lineynoye field to the north where previously it had been thought they were separate structures. While this has positive implications for reserve and production performance from these areas of the field, the data also suggests that net pay in the planned Pad 3 wells is likely to be thinner than previously anticipated.  Wells 204 and 205, which were drilled after the new structural interpretation have confirmed the revised mapping and shown that the area of thicker pays extends significantly further north than originally thought. This, together with the results of Well 334, will likely add extra wells to the Pad 2 programme and reduce the number of wells to be located at Pad 3.

Due to the poor condition of the well bore in the original Lineynoye No. 1 discovery well (drilled in 1972) and the high quality reservoir characteristics at this location we have decided to drill a new production well adjacent to the L-1 location from Pad 2 at the end of the Pad 2 programme. A modern well will allow effective production and drainage of this portion of the field through the use of a modern electric submersible pump and the application of hydraulic fracturing.

Production is currently about 2,500 bopd with the primary contribution coming from 7 of the 9 wells drilled last year with workovers to be carried out on the two poorest performing wells later in the year.  New wells will now be tied-in but we do not anticipate significant production increases until some of the new wells can be fracture stimulated later this summer by a heli-frac crew.

Licence 61 Facilities Construction and Tie-in

The connection of Pads 2 and 3 to the existing central processing facility is complete and new wells being prepared for tie-in to the process facilities. Work to expand the central processing facility from 7,400 bfpd to 14,800 bfpd is expected to be completed on schedule by mid July.

2011 Licence 67 Exploration programme

The drilling tender for the two exploration wells to be drilled in 2011 in Licence 67 has been completed and the contract was awarded to LLC "Tomskburneftegaz" (TBNG). 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.

The two exploration wells, Cheremshanskaya No. 3 and Ledovoye No. 2a, are located close to existing all year round roads and will be drilled in the second half of the year following the Licence 61 exploration wells, utilising the same drilling crew.  We have already mobilised equipment and completed construction of the Cheremshanskaya site and the rig is now being mobilised by barge to a nearby river port. Construction of the site for the Ledovoye No 2a well will begin shortly and drilling will commence following completion of Cheremshanskaya No. 3.

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

"We are delighted that the Kondrashevskoye No. 2 well has further proved up the Kondrashevskoye oil field and look forward to the additional data that the deviated portion of the well will provide. This oil field is one of the candidates for production drilling and tie-in during 2012.

The development programme is well underway and we have learned a lot from the drilling to date. The Lineynoye oil field extends further north and has thicker oil pays than previously thought whereas the Pad 3 area has some thinner pays. We will continue to dynamically adjust the drilling and completion programme to ensure the optimum long term reserve and production outcome for Lineynoye and the surrounding discoveries."

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]
Charles Berkeley/Henry Fitzgerald-O'Connor, 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

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.
bfpd	Barrels of fluid
bopd	Barrels of oil per day

 

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