Pjsc Tatneft Regulatory News (ATAD)

28 Mar 2006 07:39

O.A.O. Tatneft28 March 2006 March 28, 2006 On March 24, 2006 OAO Tatneft published on its web site at www.tatneft.ru thefollowing revised evaluation of its reserves as of January 1, 2005 prepared byMiller and Lents, Ltd., independent international oil and gas consultants. (Miller & Lents, Ltd. Letterhead) March 20, 2006 Mr. Shafagat F. TakhautdinovGeneral DirectorTatneft Joint Stock Company75 Lenin Str.Almetyevsk 423400Republic of Tatarstan, Russia Re: Revised Evaluation of Reserves For Tatneft JSC Reserves and Future Net Revenues Forecast As of January 1, 2005 Constant Price Case Dear Mr. Takhautdinov: At your request, we revised our estimate of the net oil and gasreserves and future net revenues as of January 1, 2005, for Tatneft JSC(Tatneft) in certain oil fields of Tatarstan. The revised evaluation changedthe oil price from $21.53 per barrel to $17.47 per barrel and changed theownership interest in the Stepnoozerskoye and Yelginskoye Fields from 49 percentto 3.5 percent. The properties evaluated are located in the Volga-Ural OilBasin and include 73 developed and producing oil fields containing approximately27,800 active completions and 7 undeveloped oil fields. Attachment 1 is alocation map of the Republic of Tatarstan that shows the producing areas. We performed our evaluations, which are designated as the ConstantPrice Case, using the prices and expenses provided by Tatneft. The ConstantPrice Case assumes no future escalations of oil or gas prices, operatingexpenses, capital, or taxes above the respective January 1, 2005 values. Theaggregate results of our revised evaluations for Tatneft are as follows: Net Reserves Future Net Revenues Reserve Category Crude and Gas, Undiscounted, Discounted at Condensate, Bcf MM$ 10% Per Year, MM$ MMBbls. Proved Developed Producing 3,453.9 732.2 26,908.6 10,581.2Proved Developed Nonproducing 2,075.9 440.1 14,840.9 2,402.0Proved Undeveloped 271.2 57.5 1,551.0 211.0Additional Capital and Property Taxes 0.0 0.0 -3,266.0 -1,363.0 Total Proved 5,801.1 1,229.8 40,034.4 11,831.2Probable 1,237.8 262.4 8,671.9 584.0Possible 153.5 32.5 692.4 -8.4 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. Our revised estimates of the provedreserves and future net revenues as of January 1, 2005 for the time period untilthe license term 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 1,285.5 272.5 11,060.8 7,487.1Proved Developed Nonproducing 145.0 30.7 1,342.4 737.1Proved Undeveloped 45.6 9.7 233.2 86.2Additional Capital and Property Taxes 0.0 0.0 -1,078.8 -725.9 Total Proved 1,476.0 312.9 11,557.6 7,584.5 The revised estimated proved reserves and future net revenuesforecast for the time period following the current license expiration dates areas 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 2,168.4 459.7 15,847.8 3,094.1Proved Developed Nonproducing 1,930.9 409.4 13,498.5 1,664.9Proved Undeveloped 225.6 47.8 1,317.8 124.8Additional Capital and Property Taxes 0.0 0.0 -2,187.2 -637.1 Total Proved 4,325.1 916.9 28,476.8 4,246.7 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 2004 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 estimated in lastyear's evaluation as the fields declined in production and approached theireconomic limit. Future capital costs for drilling and workover operations are basedon 2004 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 2021 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 fromexisting well bores but require capital costs for workovers, recompletions, orrestoration of shut-in wells. For wells shut in awaiting mechanical repair, weassumed that the wells producing at rates greater than the economic limit at thetime of shut in will be returned to production at pre-shut-in levels and willdecline 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 declinehyperbolically, and the incremental production above the linear decline wasclassified as probable. The estimated possible reserves are expected to beproduced from undeveloped portions of known reservoirs (1) where the reservoiris thin and uncertain to be developed or (2) where subsurface control islimited. Estimates of reserves for undeveloped portions of known reservoirswere estimated by volumetric methods. 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 in detail and weregenerally found to be acceptable interpretations. In certain cases, whereappropriate, original maps were prepared. The reservoir maps were employed toestimate original oil in place and to classify the potentially productive areasas either proved developed producing, proved developed nonproducing, provedundeveloped, probable, or possible. Volumetric methods were employed toestimate the original 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______________________________ James C. Pearson Chairman JCP/mk This information is provided by RNS The company news service from the London Stock Exchange