On January 28th Ramco reported that pressure declines from the field since it commenced production in December 2003, had been greater than expected. Since then a detailed technical review of the Seven Heads reservoir has commenced in order to identify the cause of the pressure drop and to consider any potential remedial action. Ramco has employed the services of respected independent specialists in petroleum and production engineering to advise on, and critically review, all aspects of the investigative work. It is already clear that data monitoring over a period of a number of weeks at least, will be required before we are able to say with certainty what the longer term performance of the field will be.
Over the period from Wednesday January 28th to Thursday February 5th excluding February 3rd, gas production from the Seven Heads field averaged 54.5 mmscf/d, (Ramco 86.5% - 47.1 mmscf/d). This production level is slightly short of that required to meet Ramco's obligations under its Gas Sales Agreement (GSA). Ramco has covered its average shortfall over this period, of 2.7 mmscf/d, by purchasing gas in the UK and transporting it to Ireland.
Production data for February 3rd has been excluded from the above figures as normal production from the field was deliberately interrupted on that day to allow the acquisition of additional individual well pressure and production data to assist the ongoing technical work.
The current GSA volumes apply until the end of September 2004; thereafter Ramco can adjust nominations for the next gas year, to match the field's expected performance. Ramco has back up transportation arrangements in place for the period ending September 30th 2004, which cost approximately £1.15 million or £4,700 per day for volumes of up to 6.4 mmscf/d. If Ramco's shortfall volume were to increase above 6.4 mmscf/d additional backup transportation would require to be arranged.
Ramco is also exposed to any difference in the gas price, receiving its GSA price from its buyer and paying the UK price for the shortfall gas. From past experience we expect to be able to manage our gas purchases such that we incur little or no net cost. Over the six day period to February 2nd, UK prices for gas were lower than Ramco's GSA price and a small profit was realized to partially offset the transportation costs.
The Company anticipates making a further statement on this issue when the results of the data monitoring are available or if there is a material change in the situation.
The Seven Heads partners are Ramco (Operator) 86.5%, Island Petroleum Developments Limited 12.5% and Sunningdale Oils (Ireland) Limited 1.0%.
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