Over the past year, the management has pursued an active exploration and development programme, participating in the drilling of four new wells: two exploration, one development and one appraisal. These included the discovery well, Fratauti-1 and the successful appraisal well, Bilca-2, both of which are in Romania. This drilling success further enhances Europa's strong drilling track record.
Currently, the Company continues to benefit from its UK onshore oil production operations with steady production and high oil prices. This distinguishes the Company from many of its peers who are focused on exploration and lack development and production activities.
The successful wells, Fratauti-1 and Bilca-2, now form part of the Bilca Area Gas Development. This production is due onstream in 2006 and will add significantly to Europa's daily production. At a time of high commodity prices this production, combined with the UK onshore production, will generate significant cashflows in the coming year to enable us to fulfil our current exploration and development programme from existing cash reserves.
A third Romanian well, the Costisa-1 well, spudded in February 2005 is currently drilling. The prospect remains well-defined at the main Badenian target with other secondary potential.
Europa has an excellent acreage position in the Romanian Carpathians, an area which has produced 5 billion barrels of oil and 3 trillion cubic feet (tcf) of gas to date and is still relatively underexplored. The Company is planning to acquire seismic data in 2006 to assess the southern extension of the proven Bilca play. Further drilling in the second half of 2006 is anticipated.
The Company drilled the West Firsby Field WF8 development well in the UK in March 2005, targeting an unproven area of the field. Due to operational difficulties, the results were inconclusive and hence disappointing. The West Firsby Field offers undeveloped reserves potential and management is working to resolve this situation.
Elsewhere, work in the UK onshore is progressing apace. The Directors believe that Holmwood is one of the strongest undrilled onshore prospects in the UK. Work is ongoing on planning the drilling operation which we hope can go ahead in 2006. The recent farm-out of a proportion of the Company's interest in the Whisby Area Exploration Acreage allows the work programme to be undertaken at a significantly reduced cost to Europa. The excellent terms obtained on the farm-out demonstrate the quality of the Whisby Area Exploration Acreage and work has already begun to identify a drilling location.
The Company, now recognised as an offshore operator by the DTI, will be drilling an appraisal well on the Quad 41 licence during the next two years. The Quad 41 discoveries produced at rates up to 35 mmscf/d (approximately 5,800 boe/d) and development of these fields would put Europa firmly in a new peer group.
In Ukraine the Company continues to produce and sell gas and awaits the transition to a full production licence. Further low risk but high reward opportunities are being pursued in the region.
The Directors are committed to adding further assets to Europa's portfolio, with both discovered and undiscovered resources. Currently, applications have been lodged in two EU countries for new exploration acreage and a number of other new venture and acquisition opportunities are actively being pursued in the region.
The Directors are very pleased with the results of the last year. The activity has increased reserves with production set to increase significantly in 2006. The Directors are confident that the coming year will be as successful and that shareholder value will continue to grow.
The Costisa-1 well, the culmination of over five years of exploration effort on the EPI-3 Block, was spudded in February. Difficult drilling conditions have led to much slower progress than originally envisaged and, as at 31 October, the well was at a depth of 4,034 metres. The target is estimated to lie at around 4,250 metres. Nothing seen in the drilling data to date downgrades the primary target prospectivity.
The Bilca Project, situated in the EIII-1 Brodina Block is on track to achieve commercial gas production in the first half of calendar year 2006. In this reporting period, Europa has participated in two wells, a successful appraisal of the western part of the Bilca feature and the nearby Fratauti-1 discovery well, the latter flowing at an aggregate rate of 12.7 mmscf/d from three zones. As a consequence, there are three gas wells, including the Bilca-1 well drilled in 2004, ready to supply the planned Bilca facilities.
In August 2005, the Romanian Government approved the construction of the Bilca facilities and, following a tender process, the construction contract was awarded in October 2005 to Condmag and Inspet. Construction of the facilities began immediately following the contract award. In parallel, gas sales arrangements are being finalised and will be announced shortly. The Brodina Block consortium, in which Europa has a 28.75% interest, is committed to the commencement of production in the first half of 2006 and maximising sales volumes. To this end the consortium has obtained permission to drill a fourth Bilca area well on a strong Bilca-style prospect.
On the Brodina Block 200km of seismic is planned in 2006 in order to evaluate a large area devoid of seismic and well data between the Bilca area and the producing Todiresti gasfield to the south.
A seismic acquisition programme is also planned in 2006 over the Bacau and Cuejdui Blocks, to the south of the Brodina Block. These blocks are relatively unexplored, though the limited data available indicates that the Bilca play along with deeper plays are present. It is hoped the 2006 seismic programme will define at least one drilling location for 2007.
UK North Sea
Europa holds 100% equity in licence P1131, containing the 41/24 and 41/25 discoveries, near shore gas condensate accumulations which flowed on test at rates of up to 35mmscf/d (approximately 5,800 boe/d). The Company has recently agreed terms with the DTI to move into the next phase of the licence. It is anticipated that a high angle appraisal well will be drilled during the current licence phase and if successful, it will be retained as a future producer in the field development.
In the East Midlands Oil Province, the W4 well on the Whisby field produced over 60,000 barrels (bbls) in the year with a continued low water cut, demonstrating the long term durability of the production stream. On the surrounding Whisby exploration licence (PEDL150), a geochemical survey undertaken in early 2005 highlighted areas of prospectivity for further work. This work will take the form of 40 km of new 2D seismic in the second quarter of 2006 followed by an exploration well. The Company has successfully farmed out a 50% interest to Valhalla Oil & Gas Limited in return for funding the acquisition of the seismic and 75% of the well cost.
Pre-planning work, including ecological, archaeological and engineering surveys, has been undertaken on the Holmwood licence (PEDL143) in the Weald Basin. Planning permission to drill a well on the Holmwood Prospect, a robust four-way dip closure at Portland Sandstone level, is expected to be submitted in the fourth quarter of 2005 and it is hoped that the well will be drilled in 2006.
During the financial year, Europa drilled the West Firsby field WF8 well, a sidetrack of a watered-out producer. This sidetrack encountered significant reservoir sands, but produced water when put onto production. Remedial work was undertaken to shut off the water zone, but operational difficulties prevented the work from being completed. Further remedial options are being evaluated.
The Europa-operated pilot production scheme on the Horodok gas field produced 80 million cubic feet (mmcf) over the period. The Company has applied to convert the pilot production on the Horodok gas field to a full production licence giving the right to operate the field for the next 15 years. The field is currently producing 35 boe/d, net to Europa, and further drilling is planned to realise the full potential of the field following granting of the long term licence.
The Company is looking forward to another active year, primarily in Romania and the UK. We expect to be participating in at least two wells, and potentially as many as four, in 2006, along with seismic surveys and other exploration activity. A key milestone will be first gas from the Bilca Project, which is expected to take the Company towards the 1,000 boe/d mark by the end of 2006.
The Company continues to pursue new venture opportunities. Currently applications for new acreage have been lodged in several jurisdictions with more pending. The Company is focused on the Europe/North Africa region for these new venture opportunities.
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