PetroNeft provided an update on its operations in Licenses 61 and 67, Tomsk Oblast, Russian Federation.
Ryder Scott Report as at January 1, 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 License 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.
This is the first time Ryder Scott has reported on the petroleum reserves at License 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 License 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 License 67 between 1969 and 2001. They also digitized 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 License 67.
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 recognized due to the existence of a prior well on the structure with potential by-passed pay in the interval.
License 61 Hydraulic fracturing program
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 License 61 Exploration program
PetroNeft's 2011 exploration program will target over 60 million barrels across 3 prospects in License 61. The first of these, Kondrashevskoye No. 2 well, should spud in early April; site preparation is complete, the rig has been mobilized to location and rig-up is underway. The second well in the schedule at Sibkrayevskaya No. 372 will target the largest prospect in the program 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 License 61 in 2011 with a planned spud in late June.
2011 License 61 Development program - 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 mobilized to site and rig-up is underway. The first well should spud on schedule in early April.
Works to tie-in Pads 2 and 3 to the existing central processing facility are ongoing and it is expected these will be completed by June 2011 thereby allowing new wells to be brought swiftly into production.
Revised Macquarie Bank loan facility
Following the successful commencement of production from License 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 recognizing 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 program. We are also delighted to extend our already strong relationship with Macquarie through the conclusion of PetroNeft's first borrowing base facility."
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