Caspian Sunrise Regulatory News (CASP)

Roxi Petroleum PLC

("Roxi" or the "Company")

Operational Update

Roxi, the Central Asian oil and gas company with a focus on Kazakhstan, is pleased to further update the market with news of progress at its BNG asset and also to set out its corporate strategy for the medium term.

BNG

Background 

The BNG Contract Area is located in the west of Kazakhstan 40 kilometers southeast of Tengiz on the edge of the Mangistau Oblast, covering an area of 1,561 square kilometers of which 1,376 square kilometers has 3D seismic coverage acquired in 2009 and 2010. 

Roxi has a 58.41 per cent interest in the BNG Contract Area.

Deep Well A5

Well Status

The well was drilled to a total depth of 4,442 meters. Casing was set to a depth of 4,077 meters and the core sampling revealed the existence of a gross oil-bearing interval of at least 105 meters from 4,332 meters to at least 4,437 meters.

The well will be tested on an open-hole basis. This is principally because there is a stuck pipe in the interval between 4,322 and 4,401 meters. The stuck pipe is not expected to affect the outcome of the test and we will seek to remove it following the completion of the test.

Current position

Earlier this month we announced that commencement of the 30-day well test at Deep Well A5 was dependent upon the removal from the sub-surface of fluids used in the drilling of the well, so that the oil may flow to the surface; an operation known as "cleaning-up" the well.

The extremely high-pressure in the well (7,000 psi at surface) required the use of drilling fluids with a high density (2.16 g/cm3). Removing this high density drilling fluid has been problematic.

Some of the excess drilling fluids were ejected due to these high well pressures, but it became clear that intervention would be required to complete the operation.

As previously announced it was decided the best way to "clean-up" the well for testing would be using coil tubing equipment. This was sourced and transported to the well site and has speeded the clearing of the excess fluids.

However, as also previously announced, the generator powering the coil tubing equipment failed necessitating a delay while a replacement generator was sourced.

The majority of the drilling fluid is now thought to have been recovered to surface. We estimate there are a further 25 cubic meters of remaining excess drilling fluid to be cleared from the well before testing can commence.

Due to the high pressure in the well, the coil tubing equipment has become stuck at a depth of 2,996 meters. The coil tubing has been cut at a depth of 30 meters at wellhead and we are working with new contractors to remove it.

Despite the stuck equipment and excess drilling fluid, oil has recently flowed to the surface naturally. There remains the possibility that the natural high pressure in the well will continue to expel the excess drilling fluid, making the recovery of the coil tubing easier.

Should we not be able to remove the stuck pipe we would, as a last resort, seek to sidetrack the well from a depth of 4,320 meters running a 4.5 inch liner to the bottom of the well and then continue to test on a conventional basis. We expect this would to take up to a further 3 months to complete.

Findings to date

As previously announced the quality of the oil, which has flowed to the surface, is very light with 0,81 g/cm3 oil gravity (an API of 43). The oil produced has low sulphur content and is emerald green in colour.

When the well was first opened oil flowed to the surface for a short period at the rate of 10 cubic meters per hour which, had that rate continued for the whole day, would approximate to a rate of some 2,000 bopd.

Shareholders are advised that such a short observation is not a reliable indication of the true flow rate of the well or that the well will continue to produce at these rates. This information will not be known until the results of the 30-day flow test have been processed and published. It does however, in the opinion of Roxi management, indicate the potential of the well and more importantly the potential for the field as a whole.

Timing impact on the well testing

The Company has decided a better use of the crew working on Deep Well A5 would be to spud and drill further wells. Accordingly, in the absence of the well pressure expelling the remaining excess drilling fluid without further intervention, we would now expect to defer commencement of the 30-day well test until February 2015.

Further announcements will be made as the position becomes clearer.

Deep Well 801

Roxi is pleased to announce that Deep Well 801 is due to be spudded on 15 December 2014 and is to be drilled to a total depth of 4,700 meters targeting the Lower Carboniferous. The well is expected to reach Total Depth by mid April 2015. The well is being drilled on a turnkey basis by Sinopec, the Chinese multinational, at a fixed cost of $11 million.

Deep Well 801 is located approximately 8 kilometres from Deep Well A5 and will be targeting the same structure as Deep Well A5 in the Lower Carboniferous

Deep Well A6

Roxi plans to spud Deep Well A6 following the completion of the A5 well test in Q1 2015. The well is also planned for a Total Depth of 4,700 meters targeting the Lower Carboniferous. The contract for drilling the well has yet to be finalised but is expected to be similar to that for Deep Well A5, which has a fixed price of some $10 million.

Deep Well A6 will be located some 1,800 meters from Deep Well A5 and will be targeting the same oil-bearing formation revealed in A5 in the Lower Carboniferous.

Corporate strategy

Overview

Over the past 12 months the Roxi board's confidence in the potential of the BNG field and in particular its deep prospects has increased significantly.

We believe that within our BNG licence area, extending to a total of 1,561 square kilometers, there is an area of up to 350 square kilometers in which we believe may exist large pockets of oil bearing structures. This belief is based on the previous Soviet 2D seismic information and test data and our own 3D seismic information and the findings from our drilling activities.

Our development philosophy at BNG is to seek to maximise the size of the P1 and P2 reserves at the least dilution to Roxi shareholders. Your board believes that Roxi shareholder value will best be realised by focusing on the deep prospects and where appropriate selling the Company's interests in other assets as an alternative to funding the development of BNG solely via dilutive equity related methods.

Licences and future well plans

Our current exploration licence at BNG runs to 6 June 2015. As we have already discovered oil deposits we are able to extend the exploration licence to allow a up to a further 4 years for appraisal. We do however expect to apply for a full production licence from June 2017..

Between now and June 2017 we plan to drill a further 10 deep wells. The income from sales of oil from the earlier wells would help fund later wells. The principal purpose of these wells is to provide the data required to allow the levels of P1 and P2 reserves to be maximized before the commencement of a full production licence in June 2017.

Other assets

BNG Shallow

Our shallow wells at BNG are located in the South Yelemes portion of the BNG Contract Area extending over an area of 800 sq. km, a few kilometers from the deep prospects.

We have drilled 12 wells in this area with depths varying between 2,500 and 3,000 meters. Aggregate production from these wells is currently 450 bopd (263 bopd net to Roxi) predominantly from Wells 54, 805 and 806.

The quality of oil produced from our shallow wells is not as good as from the deeper prospect, as it has higher sulphur content. Over the medium term we plan to blend this oil with the higher quality oil to be produced from the deeper horizon to maximise overall BNG sales proceeds.

We are particularly interested in the Valanginian horizon, which we believe may extend to some 200 square kilometres and our approach has been to drill several wells to prove the size of this area.

Wells 54, 805 and 806 were all drilled to depths between 2,500 and 3,000 meters and have all produced oil from either the Valanginian or Jurassic, and are considered by Roxi to be commercial.

Recent test results from the Valanginian horizon of Well 143 and Jurassic horizon of Well 807 have been inconclusive and testing in these wells is moving to the Jurassic horizon for Well 143 and the Valanginian horizon for Well 807.

We plan to drill a further 6 shallow wells in the South Yelemes area.

Galaz

The Galaz field is producing at the rate of 1,000 bopd (342 bopd net to Roxi)

Background

The Galaz block is located in the Kyzylorda Oblast in central Kazakhstan. The Contract Area was extended on 10 January 2011 to 179 square kilometres and now includes significant exploration upside on the east side of the Karatau fault system, as well as the NW Konys development.

Pilot production commenced on 19 January 2012 following approval of the NW Konys Pilot Production Plan from the Ministry of Oil and Gas, with emissions and flaring permits received from the relevant authorities.

Since 2008 17 wells have been drilled at Galaz, a significant number of which are or indicate they will be commercial. Wells NK-3, NK-5, NK-7, NK-8, and NK-9 are on extended test producing in aggregate 1,000 bopd on average. Additionally, Wells NK-4, NK6, NK-12 and NK-31 are being prepared to commence test production.

Roxi's interest

Roxi has an effective 34.22 per cent interest in the Galaz Contract Area

Licence, which runs on an exploration basis until 14 May 2016.

Operator status

The operator is LGI, the Korean multi-national, which has invested US$34.4 million by way of loans into the project and paid a further US$15.6 million in return for 40 per cent of the asset. A total of 30 square kilometres 3D seismic has been acquired and processed.

Operational activity to date in 2014

The focus of our drilling activities at Galaz in 2014 had been the drilling and testing of Deep Well NK-31 and Well NK-22.

In June 2014 Well NK-31, was spudded targeting the middle Jurassic on the main Contract Area. The well was drilled to a total depth of 2,642 meters with casing set to its full length.

Well NK-22 was drilled to a depth of 2,840 meters in 2010. The interval between 1,439 and 1,451 meters was perforated and following nitrogen injection the well produced water with oil.

Core samples taken from NK-31 and NK-22 were encouraging. However to date this has not been supported by a number of perforation tests at intervals of interest. 

Testing continues at other levels and an announcement of the results will be made in due course.

Munaily

The Munaily field is producing at the rate of 120 bopd (70 bopd net to Roxi).

Background

The Munaily field is located in the Atyrau Oblast approximately 70 kilometers southeast of the town of Kulsary. The field was discovered in the 1940s and produced from 12 reservoirs in the Cretaceous through to the Triassic.

Roxi has an effective 58.41 per cent interest in the Munaily Contract Area.

Munaily's has a full production licence which runs until 2025.

Production volumes

Production to date has been from one well, Well H1. Preparations for testing a second well, H39, continues.

Beibars

Roxi acquired a 50 per cent interest in Beibars Munai LLP in 2007, which operates the 167 square kilometres Beibars Contract Area on the Caspian shoreline south of the city of Aktau.

While acquiring 3D seismic in 2008, the license was put under Force Majeure when the acreage was allocated as a military exercise area (Polygon), by the Ministry of Defence. Since then no operations have been carried out, and Roxi operates a care and maintenance administrative budget on the project.

The Company expects to resolve the access issue with the army in due course and then seek farm-in partners to explore the Beibars Contract Area.

Outlook

Despite the delays in commencing the 30-day well test at Deep Well A5 we remain optimistic about the outcome from the drilling and testing programme at BNG. A new drilling methodology to cope with high pressures will be used on Deep Well 801.

Comment:

Clive Carver, Chairman said

"The continuing delays to the commencement of the 30-day well test at Deep Well A5 are clearly frustrating. It would be good to be able to demonstrate what we believe to be the case at BNG with solid numbers and also to start banking the revenues from the sale of test production oil.

Nevertheless based on what we have seen to date at Deep Well A5 we believe the deep prospects at BNG contain a substantial reservoir of low sulphur, light grade oil with limited associated gas.

Based on this we plan to work steadily over the next two and half years to drill the wells required to maximize the reserves associated with BNG at the least dilution to Roxi shareholders."

Enquiries:

Roxi Petroleum PLC Clive Carver, Chairman

+7 727 375 0202

WH Ireland Ltd James Joyce / James Bavister

+44 (0) 207 220 1666

Qualified Person

Mr. Nurlybek Ospanov, Roxi's senior geologist who is a member of the Society of Petroleum Engineers ("SPE"), has reviewed and approved the technical disclosures in this announcement.