PetroNeft Slows Pace for Lineynoye Development Project
PetroNeft, owner and operator of License 61, Tomsk Oblast, Russian Federation, is pleased to provide an update on its operations.
In June 2008, the Board of PetroNeft sanctioned the first phase of development for License 61, with the overall objective of achieving first pipeline production in mid year 2009. Since then, there has been continued deterioration in world financial markets and unprecedented volatility in oil pricing.
The Board of PetroNeft has decided to slow the pace of the Phase I Development Project which includes the Lineynoye and West Lineynoye Fields. This will allow time for further asset and capital expenditure optimization, enactment of proposed favorable Russian Oil and Gas tax adjustments and most importantly time for stability to return to the global financial and oil markets.
PetroNeft continues to work with Standard Bank, who remain committed to their mandate subject inter alia to final documentation and credit approval, and with other banks to complete the debt package when recent banking liquidity shortages are resolved in early 2009. The Company has no debt drawn down, has sufficient cash resources through next year and will incur no financial or other contractual penalties as a result of the proposed delay. All existing facilities and equipment will be retained; in particular, the pipe for the export pipeline which has now been purchased and transported to a staging area near the Bashneft Lukpaiskaya field while two production pads at the Lineynoye oil field are substantially complete.
This decision was made to ensure the medium and long term financial stability of PetroNeft. Given that capital expenditure costs are yet to align with reduced oil prices, the Board believes that the delay is in the best long term interest of the Company and its shareholders. The delay will allow the Board to reassess the situation once markets have stabilised and therefore create the best possible long term value for shareholders.
Reserve Upgrade on Lineynoye and West Lineynoye fields
Petroleum Consultants' Ryder Scott have updated the reserves for the Lineynoye and West Lineynoye Fields based on the Lineynoye No. 8 well which was drilled this summer. This revised report based on SPE criteria is required for the project financing for the field development. The total Proved (P1) reserves associated with the two fields has increased from 5.2 to 8.4 million barrels and the total Proved and Probable (P1+P2) reserves has increased from 45.1 to 47.2 million barrels.
This upgrade confirms the high quality of reserves at Lineynoye and West Lineynoye, which support the proposed debt facility. PetroNeft will work with the revised reserves to optimize the development plan and adjust the overall project schedule in early 2009.
Other Prospects and Reserves
The Reserve upgrade does not include the currently booked Proved and Probable reserves of 15.5 million barrels at Tungolskoye or the reserves associated with the newly discovered field at Korchegskaya. The reserves from these fields, along with further upside from emerging and potentially material Cretaceous and Lower Jurassic plays within License 61 will also be updated at year end and included in a full new Competent Persons' Report.
The Company's long term strategy remains focused on bringing the Lineynoye and West Lineynoye fields into production and developing the nearby northern fields and prospects.
Secondary to this objective is determining the full value and hydrocarbon potential of the Prospects in the southern part of the License area, including an excellent opportunity at the Lower Cretaceous level which recently tested over 1,500 bopd at the neighboring Kiev-Eganskoye oil field.
The Company will actively seek opportunities and new partnerships to accelerate these exploration and evaluation activities but as all exploration licence obligations in respect of the full 25 year term of License 61 have now been met, PetroNeft is under no obligation to undertake further drilling.
Dennis Francis, Chief Executive Officer of PetroNeft Resources plc commented, "We are confident that we have made the right decision for our shareholders long term interests. Downturns in the financial and crude oil markets have created a challenging environment for the planning, funding and execution of major projects and dictate that a slower pace is the prudent course of action for the Company at this time.
"We retain 100% equity in a highly valuable set of assets of proven oil fields, complemented by development and exploration plays that will give a long and valuable development lifetime.
"PetroNeft has the cash in hand to maintain efficient operations and expertise to adjust quickly to market changes and while conditions are challenging, we believe the current market environment will also create opportunities to develop effective alliances and extend our business beyond License 61."
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