Egdon's 2H 2011 Production 'Below Expectations'

Egdon Resources plc provided an update on production operations ahead of its interim results which are due for release in late April.

Production for the six months to 31 January 2012 was 29,624 barrels of oil equivalent ("boe"), an increase of 67 percent over the same period last year (17,671 boe). This equates to 161 boe per day ("boepd") for the period (H1 2011- 96 boepd). Revenues from oil and gas sales during the period were £1.54 million, a 71 percent increase on 2011 (£0.9 million).

While showing significant improvement on the same period last year, production is below our expectations for the period. This has been as a result of the previously reported continuing issues with production at both the Ceres and Kirkleatham gas fields.

Ceres has continued to suffer from issues with the production infrastructure and has contributed only minor amounts of production during the period. The field is currently shut-in. The main issue relates to the reliability and performance of the methanol injection system. The operator has been actively working on this issue and it is hoped that the problems can be resolved in the near future. When on production, the Ceres well performs as expected with pre-back-out rates of 20 million cubic feet of gas per day ("mmcfg/d") and post back-out of 1.2 mmscfg/d net to Egdon (c. 200 boepd). Notwithstanding the difficulties with Ceres we do not believe that the long term value is affected.

We reported at the time of the 2011 Annual Results that increased water production had been observed at the Kirkleatham gas field (PEDL068 - Egdon 40 percent) and that in November the well was shut-in awaiting a work-over. A work-over in early December was successful in clearing water from the tubing and production was re-established during December and January. However, overall gas flow rates had to be reduced to balance water production. In February following an unplanned shut-down of the GT2 gas turbine we were again unable to restart flow due to fluid loading in the tubing. An initial nitrogen displacement was unsuccessful and a further work-over last week failed to restore flow. Consequently the well will remain shut-in while the joint venture partners consider options aimed at resolving the water production issue and returning the well to production. These options include running production logs to determine the location of the water inflow, recompletion to isolate part of the perforated zone, installation of artificial lift and, ultimately, possibly drilling a sidetrack from the existing well to an up-dip area of the field.

As a result of the problems at Kirkleatham we intend to make a precautionary impairment of the Kirkleatham gas field asset of £1.0 million at our interim reporting.

The Keddington oil field in Lincolnshire License

PEDL005(Remainder) (Egdon 75 percent) suffered from a reduction in production in December due to wax build-up in the production tubing. Hot washes were performed in January on both producing wells and the down-hole pumps were replaced. It is anticipated that production will stabilize at around 100 -125 bopd for the coming period. We have made further progress in developing the gas to electricity project for Keddington and are currently awaiting final detailed costs and timings from the local distribution network for the building of a 1.4 MW grid connection.

Environmental consents have recently been received for the Dukes Wood oil field in Nottinghamshire license PEDL118 (Egdon 50 percent) and we now expect to commence production during April from the Dukes Wood-1 and Kirklington-3Z wells at initial rates of around 40 barrels of oil per day gross.

Until the issues associated with Ceres and Kirkleatham are resolved we anticipate a reduction in overall production and cash flow for the coming period. A prudent estimate of production for the next period is 125-150 boepd from Keddington, Avington and Dukes Wood/Kirklington. Once Ceres resumes production in a sustained manner this will increase to 300-350 boepd and should we be able to restore production from Kirkleatham we would anticipate being back at around 400 boepd.

Commenting on production performance during the period Mark Abbott Managing Director of Egdon said, "Our production volumes during the period, whilst showing significant improvement on the same period last year, are below our expectations. Given the problems being experienced at the moment we expect reduced production and cash flow over the coming period. We anticipate that the current issues with Ceres will be resolved in a timely manner and are actively working on the issues at Kirkleatham.

"We remain committed to our planned drilling program in the UK and are making good progress with site agreements and submission of planning applications across these projects."


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