Capsian Completes Zhengeldy Field Production Capacity Study

Caspian reports the preliminary results of the Schlumberger Central Asia ("SCA") comprehensive field evaluation and logging program. The Company has commenced a detailed production improvement program, based on the results, involving workover of existing wells, drilling of five new wells and upgrades in field infrastructure.

The first stage of the program is estimated by SCA to result in oil production from at least six and potentially all nine new wells drilled this year at a rate of 150-210 barrels per day based on the six wells being in production. Following evaluation of the workover program, Caspian plans to implement a second stage five well drilling program targeting an estimated additional 300 barrels a day targeting a total estimated field production of 450-510 barrels a day from 11 wells.


During the September Quarter Caspian, with the assistance of SCA, completed an extensive field evaluation and logging program to identify options significantly to increase production from the nine oil wells drilled in the last 12 months and to assess the production capacity of the Zhengeldy license area.

To complete this program a number of producing wells were temporarily shut in, resulting in production for the September quarter 2005 reducing to 8,900 barrels compared with 9,400 barrels in the June Quarter.

The program had two components - extensive evaluation and re-logging of the existing wells and the construction of a new geological and reservoir model built from the core data collected from the nine new wells and three reactivated wells drilled and logged since commencement of operations. From this base, recommendations have been made to significantly increase the production from existing wells and to drill five identified high potential wells.

Production Improvement Program

The production improvement program has four components:

1. Workover program to deliver production from six and possibly all nine new wells. Three currently shut in wells (107, 106, 114) will be brought back into production following completion of remedial cement work and new perforations. Additional perforations will be added to two existing production wells (111, 112) following the identification of significantly larger oil pay zones and pumping rates will be increased at well 113. Testing will also commence on three wells (115, 116, 123) previously considered "dry" following identification of prospective oil bearing zones.

2. Drilling of up to 5 new high potential wells on the lake and northern license area. The SCA review has recommended the drilling of five new wells - three on the dry salt lake and two to the north of the license area. The new geological model and reservoir review provides for improved targeting of well locations. A 414m road has been constructed across the dry salt lake area at a cost of US$250,000 to allow drilling of the three target wells on the dry salt lake.

3. Improved field operations infrastructure
Pumping rates at the wells are set to increase following the installation of environmentally approved water disposal facilities. Prior to the winter freeze all wells have been connected by covered flow lines to the central gathering station to remove winter production constraints and a new sweet water well has been brought on line. Water disposal, absence of light water, and flow lines have previously been a significant limitation on production.

4. Export facilities and logistics
Export facilities are near completion with the installation of a heater and additional storage tanks. Ministerial approval has been received to allow exports.

Caspian will take a cautious and staged approach to implementation of this program. Field infrastructure is complete. The workover program will be carefully implemented during November, for shut in wells, and December for the producing wells (111,112, 113). Once the results of the workover program are confirmed, Caspian will commence the new drilling campaign

Production Capacity

Based on the reservoir model, the history of oil production from the field and implementation of the proposed production improvement program, SCA has made an assessment of the production rate that could be achieved from the six existing production wells once the previously shut in wells are brought back into production (106, 107, 111, 112, 113, and 114) and the proposed five new wells. No production estimate has been made for wells 116, 115 and 123 which have the potential to yield results.

It is estimated that following the proposed workover program, the six existing production wells, could produce on average 25-35 barrels a day for a total estimated rate of 150-210 barrels a day by the end of December 2005. Subject to the normal risks associated with oil and gas exploration, it is estimated that the five new wells, properly cemented and completed, could produce on a most probable estimate basis 60 barrels a day for a total estimated rate of 300 barrels a day for five wells. In total this program brings the improvement in production to 450-510 barrels a day.

This rate of production is significantly lower than the rate of production estimated by the Competent Person Report ("CPR") in the Company's AIM admission document of 4 November 2005. On the basis of the original Soviet geological model and the log results from the old production wells drilled between 1934 and 1945, the competent person estimated that the first stage of development of Zhengeldy could produce at a rate of 1,400 to 2,100 barrels a day from five successful wells. The competent person further estimated that if the first stage were successful, production could be increased further to around 4,300 barrels a day from investment in a further 10 wells.

With the benefit of 12 months operating history and the modern log results of nine new wells it is now clear that the daily production rates per well indicated in the CPR were too high and cannot be realized. There are a number of reasons for this variance:

• Production management.
The SCA review has identified up to eight oil bearing levels in the Zhengeldy oil field. The levels are thinner than the 4 levels analyzed in the CPR. Current production techniques allow for production from one level at a time. We are exploring how production from multiple levels can be achieved cost effectively.

• Sand/Shale changes within levels.
The CPR was based on the assumption of homogeneous sand levels - the operating experience has been that there are material changes in the shale sand mix within productive levels limiting rates;

• Limited drilling success in the deeper "Triassic" levels.
The deeper higher pressure levels (400-800m) were expected to produce higher daily rates than the shallower levels. Caspian has had limited success in the Triassic level and the carboniferous nature of the deeper levels has to date not produced good flow rates. A reserve update will be provided at the conclusion of the SCA review following assessment of the workover program results. The company, based on this advice, will continue to investigate the Triassic level but in the interim it is prudent to downgrade the Triassic reserves to probable

Michael Masterman, Executive Chairman of Caspian, commented: "In the current 1.5 sq km license area, we have a solid operating oil field which, subject to the successful workovers, should provide steady cash flows to allow the Company to further develop the field whilst pursuing other opportunities in the region. The field is not the low capital-high production rate that was indicated in the competent persons report. Instead we have a field similar to the shallow Western Siberian oil fields, which can generate healthy overall production rates from a large number of low capital cost shallow wells. Our immediate priority is to increase production from the existing wells and then move to the new well locations selected by SCA and the management team. In parallel we are awaiting the Kazak Government regulatory approval of the companies license extension application which if approved will open up new expansion opportunities for Caspian.

The Company is also looking to further strengthen the board with the appointment of a Technical Director, and an announcement will be made on this in due course when the appointment is confirmed."