(Sharecast News) - Caspian Sunrise said in an operational update on Tuesday that while neither the UK nor the EU had imposed sanctions on oil produced in Kazakhstan and transported via the Russian pipeline network, sanctions on Russia were having a significant impact on its operations.
The AIM-traded firm said the disruption caused by the need to source drilling consumables from China had affected day-to-day operations.
However, the discount for oil produced in Kazakhstan and sold internationally via the Russian pipeline network had narrowed from an initial $35 per barrel to about $10 per barrel.
One notable challenge was the two-month lag in receiving payment for internationally sold oil, associated costs and taxes.
Despite Brent oil prices reaching $90 per barrel, Caspian Sunrise said it was more profitable to sell to the traditional domestic market and the newer domestic mini-refinery market, where prices stood at around $32 and $34 per barrel, respectively.
The company estimated that the headline Brent price would be $100 per barrel to make switching to international sales worthwhile.
Regarding its BNG contract area, Caspian said it planned to use a horizontal drilling approach on older wells at the MJF and South Yelemes structures to target oil.
After completing the mandated drilling programme, it intended to bring as many deep wells as possible into production.
However, no additional wells had returned to production since its last update in September, and production levels remained at around 2,000 barrels of oil per day.
In the shallow structures of MJF, well 142 was almost ready for testing, with potential contributions to increased production from mid-November.
Well 155 was scheduled to be spudded by the end of November, while well 141 would be worked over with a horizontal sidetrack starting in December.
In the South Yelemes structure, wells 54, 805, 806, and 807 would be worked over starting in the first quarter of 2024, targeting the previously unexplored Dolomite formation.
Regarding deep structures, efforts at well 802 had been paused due to a stuck pipe, with the rig to drill well 803 - the last deep well in the BNG work programme.
Caspian Sunrise said it was in early-stage discussions with specialist international drilling companies to bring well 802 into production on a success basis.
Work at Deep Well A5 was planned to begin in November, and drilling at Deep Well A7 would continue to a maximum depth of 4,750 metres.
Caspian Sunrise hoped that the work planned for shallow structures would significantly improve production levels by the end of the year.
The acquisition of Block 8 was progressing, and drilling at two deep wells by the group's subsidiary CTS was complete, with testing pending completion of the Block 8 acquisition.
Caspian also reported positive developments in its oil trading activities, although it remained cautious and was limiting trading to its own assets.
Preparations for the Caspian Explorer for the summer 2024 ENI contract continued, and discussions with potential partners for contracts in 2024 and beyond were underway.
In other projects, Caspian Sunrise said it was evaluating onshore and offshore opportunities, including acquisitions and drilling partnerships, and exploring opportunities in the minerals sector.
Regarding dividends, the company suspended payments in June due to factors including the impact of sanctions.
Despite some improvements, the board said it considered the resumption of dividend payments in the near future unlikely.
"We are getting to the point of discovering the outcome of sustained drilling campaigns at both the BNG and Block 8 contract areas," said chairman Clive Carver.
"Success in the shallow structures would significantly increase day-to-day production volumes - success in any of the deep structures would significantly impact the group's longer-term value.
"We therefore look forward to updating shareholders with developments in the coming weeks and months."
At 1106 BST, shares in Caspian Sunrise were down 11.46% at 2.7005p.
Reporting by Josh White for Sharecast.com.
Caspian Sunrise (CASP)