"I am pleased to be able to report that your Company continued to grow significantly in 2005, with rising production generating substantial increases in both revenues and profits. We have embarked on this current year with the objective of again lifting production, and utilizing our strong balance sheet and cash flow to broaden our asset portfolio and increase our reserve base.
"Ukraine remains the Company's main area of production and investment. The drilling program is moving at an accelerated pace on our Poltava licenses with the addition of a second drilling rig from the turn of the year. We have recently reported the positive results of the drilling and completion of two further development wells on the Ignatovskoye and Molchanovskoye Fields respectively; these have lifted current production rates above 12,000 boepd. The larger of our two rigs has completed the deep, high pressure gas Well R101 on the Rudenkovskoye Field, and is now returning to Molchanovskoye to drill the next oil targeted development well. I anticipate that we will be in a position to release initial indicative results in the early part of next month from the extended test program planned for Well R101. Our smaller rig has just successfully completed a re-entry and sidetrack on Well I101 on the Ignatovskoye Field, and testing is scheduled for next month. This rig is now moving to drill our first exploration well in the Zaplavskoye license which lies to the south of our production licenses at Poltava. We are also out for tender for a large rig to drill the Devonian section at 5,000m plus in the northern part of Rudenkovskoye Field.
"The Company continues to seek to increase its license portfolio in Ukraine and welcomes the recent introduction of open license auctions. I am hopeful that future license offerings will include both exploration and development acreage.
"Throughout 2005, the Company actively pursued new opportunities in and around its core area of activity, the results of which include the addition of two new exploration licenses in Ukraine and recent farm-ins to projects in Bulgaria and Turkey; work programs are underway on all projects. The Company is continuing to evaluate other potential opportunities in the region, including onshore projects in the Russian Federation. I remain confident that the management team will add meaningful assets to our portfolio in the current reporting period.
"Increase in reserves remains the strategic objective for this year, with Ukraine continuing as our prime area of investment, expansion and development. Despite the current delay in formation of a new government, your Board is of the view that market economy forces are well entrenched in Ukraine and further privatization of the oil and gas sector can reasonably be expected in the medium term. Your Board continues to remain committed to delivering shareholder value. We have recommended a doubling of the dividend for 2005, and I can confirm that the Board will be reviewing the absolute dividend level to be paid in the forthcoming period.
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