Pjsc Tatneft Regulatory News (ATAD)

27 Jun 2006 12:05

O.A.O. Tatneft27 June 2006 June 27, 2006 On June 27, 2006 OAO Tatneft published on its web site at www.tatneft.ru theevaluation of its reserves as of January 1, 2006 (with attachments) prepared byMiller and Lents, Ltd., independent international oil and gas consultants("Miller and Lents Report"). Miller and Lents Report without attachments isattached hereto. (Miller & Lents, Ltd. Letterhead) June 27, 2006 Mr. Shafagat F. TakhautdinovGeneral DirectorTatneft Joint Stock Company75 Lenin Str.Almetyevsk 423400Republic of Tatarstan, Russia Re: Evaluation of Reserves For Tatneft JSC Reserves and Future Net Revenues Forecast As of January 1, 2006 Constant Price Case Dear Mr. Takhautdinov: At your request, we estimated the net oil and gas reserves andfuture net revenues as of January 1, 2006, for the oil fields owned by TatneftJSC (Tatneft). The properties evaluated are located in the Volga-Ural Oil Basinand include approximately 120 developed and producing oil fields containingapproximately 28,200 active completions and 6 undeveloped oil fields.Attachment 1 is a location map of the Republic of Tatarstan that shows theproducing areas. We performed our evaluations, which are designated as the ConstantPrice Case, using the prices and expenses provided by Tatneft. The ConstantPrice Case assumes no future escalations of oil or gas prices, operatingexpenses, capital, or taxes above the respective January 1, 2006 values. Theaggregate results of our evaluations for Tatneft are as follows: Net Reserves Future Net Revenues Reserve Category Crude and Gas, Undiscounted, Discounted at Condensate, Bcf MM$ 10% Per Year, MM$ MMBbls.Proved Developed Producing 3,589.6 883.1 38,121.6 14,719.0Proved Developed Nonproducing 2,000.8 492.2 19,280.8 3,187.5Proved Undeveloped 260.7 64.1 2,139.1 457.8Additional Capital and Property Taxes 0.0 0.0 -3,817.8 -1,632.9 Total Proved 5,851.1 1,439.4 55,723.8 16,731.4Probable 2,230.0 548.6 39,012.8 4,885.5Possible 394.7 97.1 2,307.3 313.3 Proved, probable, and possible reserves were estimated in accordancewith standards of the Society of Petroleum Engineers, Inc. and World PetroleumCongresses as defined on Attachment 2. The unified tax (previously acombination of royalty, mineral replacement tax, and crude oil excise tax) wasdeducted from gross revenues in determining net revenues but was not deductedfrom gross reserves in determining net reserves. Reserves were projected forthe economic life of the field, without consideration of production orexploration license terms. Tatneft also provided us with license term dates. These dates foreach field are shown in the Appendix. We estimate the proved reserves andfuture net revenues as of January 1, 2006 for the time period until the licenseterm date are as follows: For the Time Period Until the License Term Date Reserve Category Net Reserves Future Net Revenues Crude and Gas, Undiscounted, Discounted at Condensate, Bcf MM$ 10% Per Year, MM$ MMBbls.Proved Developed Producing 1,168.8 287.5 13,825.6 9,710.5Proved Developed Nonproducing 116.6 28.7 1,485.5 875.0Proved Undeveloped 56.1 13.8 500.2 256.4Additional Capital and Property Taxes 0.0 0.0 -1,108.5 -805.1 Total Proved 1,341.5 330.0 14,702.8 10,036.8 The estimated proved reserves and future net revenues forecast forthe time period following the current license expiration dates are as follows: For the Time Period After the License Term Date Reserve Category Net Reserves Future Net Revenues Crude and Gas, Undiscounted, Discounted at Condensate, Bcf MM$ 10% Per Year, MM$ MMBbls.Proved Developed Producing 2,420.8 595.5 24,296.0 5,008.5Proved Developed Nonproducing 1,884.2 463.5 17,795.3 2,312.5Proved Undeveloped 204.6 50.3 1,638.9 201.4Additional Capital and Property Taxes 0.0 0.0 -2,709.3 -827.8 Total Proved 4,509.6 1,109.3 41,021.0 6,694.6 Future net revenues as used herein are defined as the total grossrevenues less unified tax, operating costs, and capital expenditures. The totalgross revenues are the total revenues received by Tatneft after deduction oftransportation costs, export and customs duties, port expenses, excise tax,value added tax, and special taxes. The oil and gas prices employed in thecomputations of gross revenues were provided by Tatneft and are shown onAttachment 3. Future net revenues do not include deductions for either federalor local taxes on net profit. The operating expenses employed in estimating future net revenuesare the average operating expenses for the year 2005 that were provided byTatneft. We removed from the operating expenses the depreciation, wellrestoration costs, and the unified tax. Restoration costs were included ascapital for the portion of the proved nonproducing reserves attributed to therestoration of shut-in wells. The operating expenses for Tatneft are shown onAttachment 4. We allocated a portion of the operating expenses to the number ofactive wells on a per-well basis and the remainder to the oil production rateson a per-barrel basis, employing the allocations provided to us by Tatneft. Weassumed that the number of active wells for the large waterfloods would declineto approximately one-half the fully developed well count as the fields declinedin production and approached their economic limit. Future capital costs for drilling and workover operations are basedon 2005 costs provided by Tatneft and are shown on Attachment 5. The forecastsfor capital expenditures, other than drilling and completions, were based ondata provided by Tatneft through the year 2022 and are shown on Attachment 6. The proved developed producing reserves and production forecastswere estimated by production decline extrapolations, or in a few cases, byvolumetric calculations. For some reservoirs with insufficient performancehistory to establish trends, we estimated future production by analogy withother reservoirs having similar characteristics. Production declines wereextrapolated to economic limits based on operating cost and oil price data. Thepast performance trends of many reservoirs were influenced by productioncurtailments, workovers, waterfloods, and/or infill drilling; extrapolations offuture performance are based, whenever possible, upon the average performancetrend of active wells during periods of stable field activity. The estimated proved developed nonproducing reserves can be produced from existing well bores but require capital costs for workovers, recompletions,or restoration of shut-in wells. For wells shut in awaiting mechanical repair,we assumed that the wells producing at rates greater than the economic limit atthe time of shut in will be returned to production at pre-shut-in levels andwill decline in production at the average reservoir decline rate. For wellsrequiring recompletion, the estimates of reserves and producing rates are basedon volumetric calculations and analogies with other wells that commerciallyproduce from the same formation in the same field. The estimated proved undeveloped reserves require significantcapital expenditures, such as (1) costs for future development and infill wellsand (2) surface facilities. The proved undeveloped reserves are expected to beproduced from undeveloped portions of known reservoirs that have been adequatelydefined by wells. Reserve estimates are based upon volumetric calculations thatemploy recovery factors based on the performance of analogous reservoirs.Producing rates are based upon analogy. The estimated probable and possible reserves are mainly undevelopedand require significant capital expenditures. As new wells are drilled,portions of these probable and possible reserve quantities will be eitherupgraded to a higher reserve category or dropped entirely. The estimatedprobable reserves are expected to be produced from undeveloped portions of knownreservoirs not adequately defined to be classified as proved. Another componentof probable reserves was included for reservoirs with water-oil ratio trendsthat indicated higher reserves than calculated from linear production declinecurve analyses. For these reservoirs, future production was assumed to declineat rates less than used for proved reserves, and the incremental productionabove the proved reserve decline was classified as probable. The estimatedpossible reserves are expected to be produced from undeveloped portions of knownreservoirs (1) where the reservoir is thin and uncertain to be developed or (2)where subsurface control is limited. Estimates of reserves for undevelopedportions of known reservoirs were estimated by volumetric methods. Possiblereserves also include bitumen reserves that Tatneft is now developing. Thesereserves may be upgraded to probable and/or proved in the future as theuncertainty regarding economics is reduced. Reserve estimates from volumetric calculations and from analogiesare often less certain than reserve estimates based on well performance obtainedover a period during which a substantial portion of the reserves was produced. The probable and possible reserve volumes and the estimated futurenet revenues therefrom have not been adjusted for uncertainty. None of theproved, probable, or possible reserve volumes, nor the revenues projectedtherefrom, should be combined with either of the other without adjustment foruncertainty. Estimates of future net revenues and discounted future netrevenues are not intended and should not be interpreted to represent fair marketvalues for the estimated reserves. Future costs of abandoning facilities andwells and any future costs of restoration of producing properties to satisfyenvironmental standards were not deducted from total revenues as such estimatesare beyond the scope of this assignment. Estimated net gas reserves are based upon the past ratio of salesgas to produced oil. Net gas reserves do not represent the total volumes of gasexpected to be produced with the net oil reserves. Structural maps, isopach maps of net oil sand, well status maps,seismic data, cross sections, oil and water production data, well logs and coreinformation on key wells, and the Tatneft interpretation of key reservoirparameters were provided by Tatneft. These were reviewed and were generallyfound to be acceptable interpretations. In certain cases, where appropriate,original maps were prepared. The reservoir maps were employed to estimateoriginal oil in place and to classify the potentially productive areas as eitherproved developed producing, proved developed nonproducing, proved undeveloped,probable, or possible. Volumetric methods were employed to estimate theoriginal oil in place for each classified area. Attachments 7a and 7b show a composite production forecast forTatneft in barrels and tonnes, respectively. These figures show thecontribution of production from each proved reserve category. Following theattachments are one-line summaries in both barrels and tonnes that show reservesand cumulative future net revenues for each evaluated field. Tatneft assignedfields to specific groups, which are also identified in the one-line summaries. Following the one-line summaries are exhibits that are projectionsof future production and net revenues for each reserve category and group. In conducting this evaluation, we relied upon (1) productionhistories, (2) accounting and cost data, (3) ownership, (4) geological,geophysical, and engineering data, and (5) drilling, recompletion, and workoverschedules supplied by Tatneft. These data were accepted as represented, asverification of such data and information was beyond the scope of thisassignment. The evaluations presented in this report, with the exceptions ofthose parameters specified by others, reflect our informed judgments based onaccepted standards of professional investigation but are subject to thosegenerally recognized uncertainties associated with interpretation of geological,geophysical, and engineering information. Government policies and marketconditions different from those employed in this study may cause the totalquantity of oil or gas to be recovered, actual production rates, pricesreceived, or operating and capital costs to vary from those presented in thisreport. Miller and Lents, Ltd. is an independent oil and gas consultingfirm. No director, officer, or key employee of Miller and Lents, Ltd. has anyfinancial ownership in Tatneft or any related company. Our compensation for therequired investigations and preparation of this report is not contingent on theresults obtained and reported, and we have not performed other work that wouldaffect our objectivity. Preparation of this report was supervised by an officerof Miller and Lents, Ltd., who is a professionally qualified and licensedProfessional Engineer in the State of Texas with more than 20 years of relevantexperience in the estimation, assessment, and evaluation of oil and gasreserves. Yours very truly, MILLER AND LENTS, LTD. By__/s/__________________________ James C. Pearson Chairman JCP/mk This information is provided by RNS The company news service from the London Stock Exchange