Solid financial performance in first 6 months --17% increase from H1 2005 in group working interest production to 33,900 bopd --40% increase from H1 2005 in weighted average realized oil price of US$60.90 --Significantly reduced average realized price discount to Brent in Congo from US$6.90 per barrel in 2005 to US$1.22 per barrel in H1 2006 --Cash balance at June 30, 2006, almost doubled to US$215 million from US$125 million at Dec. 31, 2005.
Exploration success and operational progress in Turkmenistan --Encouraging results from two exploration wells in South Burun:
Congo on track for exploration and water injection in H2 2006 --First half average production up 49% at 57,000 bopd but forecast to stabilize at 53,000 in H2 2006 --Drilling of water injection wells underway --Five exploration wells to be drilled in H2 2006
Outlook --15-well appraisal and exploration program in H2 across Congo, Turkmenistan, and India.
TRADING OVERVIEW AND OUTLOOK
Group working interest production for the first half of 2006 averaged 33,900 bopd, a 17% increase over the first half of 2005. Of this, Turkmenistan accounted for 15,000 bopd, virtually unchanged from H1 2005, and Congo accounted for 18,900 bopd, up 35%. On an entitlement basis, Burren’s net production was 19,000 bopd in the first half, equally apportioned between Turkmenistan and Congo.
Working interest production for the rest of the year is forecast to remain fairly flat between 33,000 bopd and 34,000 bopd, with a higher proportion of rig time being deployed in drilling exploration and water injection wells relative to development oil wells.
The weighted-averaged realized price in H1 06 was US$60.90. In Congo, as a result of new blending and throughput arrangements at the Djeno terminal that came into effect at the beginning of the year, the average realized price discount to Brent was US$1.22, a material improvement compared with the average discount of US$6.90 suffered in 2005. In Turkmenistan the discount was $8.90 but has reduced to US$8 with effect from July 1 under a new offtake contract. No hedge contracts are in place in 2006.
Capital expenditure forecast for the full year including contribution to associate remains unchanged at $230 million.
Cash balances at June 30 had risen to US$215 million from US$125 million at Dec. 31, 2005.
Turkmenistan Gross production in the first half averaged 18,700 bopd, down slightly from the 19,000 in H1 2005. This reflects the shift in focus in 2006 to date from development to exploration, with both of the heavy rigs and one of the workover rigs primarily devoted to drilling exploration wells. The one development well, B250, on the eastern boundary of the Burun field, encountered a new 120-meter-thick oil pool and flowed at an initial rate of 2000 bopd.
The two deep South Burun exploration wells both logged hydrocarbons with B062 just starting its test program. A 7-meter zone was perforated and, although the well is still cleaning up, oil has flowed to surface at increasing rates. Combined with the results of well B250, these wells provide very positive indications for the Nebit Dag Deep exploration play beneath the Nebit Dag field to the east of Burun. During the rest of the year Burren intends to drill a series of appraisal wells to the east of Burun--within the exploration area of the Nebit Dag PSA--to appraise the extension to oil pools found in wells B250 and B062.
Well B064 encountered exceptionally high pressures approaching 12,000 psi, and an 18-meter zone is to be tested shortly. Further appraisal drilling will be planned based on pressure and test data.
Shallow exploration drilling enjoyed mixed results. The Kara Tepe and Urundzhuk prospect toward the eastern end of the Nebit Dag PSA area did not yield any hydrocarbons, but a small discovery was made at Nebit Dag East for which early production approval has been obtained and the discovery well is on production at a rate of 250 bopd.
Water injection has commenced into both deep and shallow reservoirs at an aggregate rate of 5000 bwpd with three injector wells in operation.
Congo Twelve development wells have been drilled in 2006 to date on the M’Boundi field; eight of these have been completed and are on production. Among these were four wells on the perimeter of the field. They helped to more accurately delineate the field’s northern and southern limits, but they encountered a thin or unproductive reservoir and could not be completed as producers.
Gross M’Boundi production averaged 57,000 bopd during H1 06, up 49% compared with H2 05. However, it is expected to stabilize at around 53,000 bopd in the second half due to natural field decline and a less active development program as the focus shifts to the water injection program that is forecast to impact production in 2007.
Four drilling rigs and a workover rig are in operation in the M’Boundi field . The drilling of water injection wells is now underway, and the workover rig is preparing to drill shallower water source and salt leaching wells.
Five exploration prospects have been identified for drilling, with a well planned on each. Three of these--Loufika, Tioni, and Kingila--are in the Kouilou license area (Burren 35%) to the southeast of the M’Boundi field. The first well, on Loufika, is expected to spud in August. The two remaining prospects are to the northwest of the M’Boundi field: Nanga, in the Kouilou license area, and Dongou, at the southern end of the Noumbi license (Burren 37%).
The third of the Cretaceous exploration wells on the East Kanayis license (Burren 100%) did not find hydrocarbons. Like the previous two wells, it has been plugged and abandoned. The focus will now shift to the deeper Jurassic potential, where 3D seismic acquisition has been completed and is being processed. Drilling is expected to resume in 2007 once the seismic has been interpreted. As a result, the rig has been subcontracted to a third party for the intervening period.
In the North Hurghada Marine license (Burren 100%) an aeromagnetic survey has been carried out and the data are undergoing processing. Detailed re-mapping of the area from existing data is also underway.
The North Lagia license award (onshore northern Gulf of Suez, Burren working interest 90%) was ratified by Parliament in May.
The award of Block 6 (Burren working interest 92%) has now been ratified by Parliament, and the PSA became effective in June. Collection of existing 2D seismic data has commenced. A tender for a new 3D seismic campaign is being organized.
Formal government approval to Burren’s farm-in to 40% of the offshore block 50 is expected in the near future. The operator, Hunt, is preparing for seismic acquisition in Q4.
India (HOEC 26%)
The London arbitration tribunal hearing the case between HOEC (inter alia) and Hardy Oil & Gas plc in relation to the latter’s claim to certain rights under a shareholder’s agreement reached its conclusions in June in a ruling against Hardy. This means that Hardy has no claim to any pre-emption rights over Burren’s 26% holding in HOEC.
Operationally, a three-well drilling program on the PY-1 license and the neighboring CY-OSN-97/1 license (HOEC 80%) is expected to commence in August. HOEC has announced a rights issue to fund this expenditure, in which Burren intends to participate.
“Burren has had an encouraging start to 2006 with increased production and exploration success, especially with Burun south flank wells B062 and B064 in Turkmenistan,” said Finian O’Sullivan, the company’s CEO. “We look forward during an active second half to testing and appraising these discoveries as well as starting water-injection in Congo.”
Burren Energy is an independent oil and gas exploration and production group, headquartered in London. It is focused on four regions: the Caspian region of the former Soviet Union, West Africa, Middle East and, through a strategic investment stake in the Hindustan Oil Exploration Co., India. The company is listed on the London Stock Exchange (BUR.L).
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