JKX Oil & Gas plc has made good progress across all its license areas in the first quarter of 2008 and has continued to benefit from rising oil and gas prices. The Company is focused on its development programs in both Ukraine and Russia in addition to its exploration activities across its broadening portfolio.
Development activity is primarily focused on increasing gas production capacity ahead of the Soyuz tie-in and further development and appraisal of the Tournasian carbonate reservoir. The latter program is proceeding, although production figures for the period reflect the regulatory requirement to test even modest deeper reservoirs if they appear to be hydrocarbon bearing before testing and completion of the overlying carbonate. Lower liquids production in the quarter reflects the concentration during the period on the gas appraisal program.
An acid fracture stimulation program has been developed for lower permeability Tournasian carbonates in parts of the Ignatovskoye and Molchanovskoye field extensions and, as a precursor to implementation of the program in the field, injectivity tests on Well I131 and Well M162 have been completed successfully.
On the Rudenkovskoye Field, the special core analysis (SCAL) program is reaching completion and a production logging run is imminent. Once these are complete, the fracture programs will be finalised and equipment mobilised to commence testing towards the end of the third quarter.
Delivery of outstanding equipment for the connection to the Soyuz gas pipeline is expected in June. Time has been allocated in the schedule for State inspectors to complete all regulatory aspects and approve the final connection. Subject to the foregoing, commissioning is currently scheduled to commence in August.
Poltava Petroleum Company has drilled two new development wells and one new appraisal well this year.
Well M164, a horizontal development well in the northern area of the Molchanovskoye Field, flowed gas at 7.4 MMcfd with 1,200 bpd of condensate at a well head pressure of 1,460 psi from the Devonian sandstone.
Well I136, a development well drilled on the north flank of the Ignatovskoye Field, failed to produce oil from the depleted lowermost carbonate section and will be recompleted in the overlying gas reservoir. Well I134, an appraisal well to the west of the main Ignatovskoye Field, tested water from the lowermost Tournasian sandstone and is awaiting recompletion, stimulation and testing of the overlying gas-bearing Tournasian carbonate.
The Skytop rig is now drilling development Well I163 and will continue drilling activity in the field area through 2008 and 2009. A new workover rig has been purchased and will commence operations in late May with a full program of well repairs and re-completions planned for the remainder of 2008.
Yuzhgasenergie ("YGE"), JKX's wholly owned subsidiary, completed the full 105 sq km 3D seismic over the Koshekhablskoye Field, and processing has now commenced. The objective is to select a target for the deeper Callovian reservoir exploration well by mid August, with more detailed evaluation of the overlying Oxfordian carbonate reservoir features to follow. Early results from the processing indicate a successful survey revealing much useful data.
The Kremco 900 rig has been contracted for the Oxfordian reservoir workover program. The first well pad is ready and the second is under construction with workover operations due to commence towards the end of June.
A coiled tubing unit has also been contracted from Poland and is due on the field around the end of July to commence stimulation and production testing of the wells as soon as they have been rehabilitated and recompleted.
Following detailed inspection of the existing gas processing facilities, a decision has been made to replace rather than refurbish the facility at the field. Initial design of the replacement facilities is nearing completion and purchase orders for the first long lead items have been placed. Some elements of the sour gas removal plant have been found to have much longer than anticipated delivery times which may affect YGE's fast track target of sales gas delivery by the year-end.
Evaluation of the Zaplavskoye license which adjoins the southern part of PPC's production license areas has continued with two wells planned for the second half of the year. The 42 sq km 3D seismic program on the Chervonoyarske East License is in progress. Regrettably, no progress has been achieved in negotiations with the state oil and gas company to date on access to the three existing wells on our Elizavetovskoye license.
South East Bismil Licenses, Turkey:
As reported in January, JKX acquired a 20% interest in the two Bismil South licenses covering an area of 590 sq km and lying just to the south of the Koyunlu-1 heavy oil discovery south of Batman in southeast Turkey. The licenses are operated by the private Turkish company Arar Petrol Ve Gaz Aup AS. The acquisition of 120 km of 2D seismic has been completed and the Koyunlu-2 well drilled to a TD of 1,310m. The well came in about 70m up-dip of the existing discovery well with oil shows in the Cretaceous Garzan limestone reservoir at 1,130m. However, no oil was recovered in the DST. The well was deepened to the secondary Mardin objective but a second DST proved that this too was tight. The well will now be plugged and abandoned. Evaluation of the seismic in the remaining parts of the block will now continue, encouraged by the discovery of light oil in the adjacent block to the west in deeper Palaeozoic sediments.
Karakilise Licenses, Turkey:
The Hakan Yilmaz-1 well is currently drilling in the north of the Karakilise license area in southeast Turkey. The operator is Aladdin Middle East and JKX holds a 30% interest in the licenses.
The 350 sq km 3D survey acquired in late 2007 has been processed and the first drillable targets identified. The initial well is expected to spud in the second quarter. The Hernad licenses cover an area of 5,420 sq km in northeast Hungary and JKX holds a 50% interest.
As reported in April, JKX farmed into three blocks in the Slovakian Carpathian fold belt covering a total of 2278 sq km. The operator is Aurelian Oil & Gas plc and JKX's interest is 25%. A 238 km 2D seismic survey is planned for later in 2008.
Newfield Exploration has taken over operatorship in the West Huxley Deep Unit in east Texas and intends to spud a new well in this quarter. JKX holds a 34.3% interest but does not view this holding as core to its program and expects to seek an exit at an appropriate time.
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