2 Nov 2012 07:00
Exillon Energy plc
Drilling and Production update and Interim Management Statement
2 November 2012
Exillon Energy plc (EXI.LN), a London Premium listed oil producer with assets in two oil-rich regions of northern Russia, Timan-Pechora ("Exillon TP") and West Siberia ("Exillon WS"), today issues its Interim Management Statement, Drilling Update and October Production Report.
Data are for the period from 1 July 2012 to 30 September 2012 unless otherwise stated.
October Production Update
·; Our average daily production1 was 14,119 bbl/day during the period.
·; Average daily production for Exillon TP was 3,382 bbl/day, and for Exillon WS it was 10,737 bbl/day during the period.
·; Our peak daily production2 was 15,279 bbl/day during the period.
We expect to make our November production announcement by 5 December 2012.
Publication of Monthly Production Data
We recently consulted with our major shareholders about the merits of publishing monthly production data. A large majority felt that monthly publication was excessive, and that quarterly publication would result in less volatility in our share price. We have therefore decided that from next year we will publish production data once a quarter. Our final monthly announcement will relate to December 2012, and will be published in early January 2013.
Drilling Update ETP IV - 5
Development well ETP IV - 5 was spudded on 7 May 2012 and drilled and cemented in 64 days on the northern part of the ETP IV field. The well encountered Lower Silurian reservoir at 3,249 metres, confirming 11.1 metres of absolute effective net oil pay. In addition, the well encountered the Domanic reservoir at 3,181 metres, confirming an additional 2.9 metres of absolute effective net oil. Due to the angled trajectory of the well bore, this well exposed 26.6 metres of effective net oil pay.
The well produced water-free oil with a production rate of 461 bbl/day from the Silurian reservoir alone. The Domanic reservoir has not yet been tested. The well results support our geological understanding of the ETP IV field.
The well was drilled vertically from well Pad 5, and is now connected to existing production facilities. The drilling rig used for Well ETP IV - 5 has subsequently drilled Well ETP V - 6001, which is currently being tested, and has also now spudded Well ETP V - 5001 targeting the northern part of the ETP V field. We expect to announce results of well ETP V - 6001 upon completion of testing.
Interim Management Statement
During the 3rd quarter of 2012 Exillon made significant progress. The following were all announced throughout the 3rd quarter:
·; Average production increased from 12,131 barrels per day (bpd) in June to 13,796 bpd in September
·; Completed 6 new wells (Wells 52, 54, 53, 571 and 60 in EWS and 2003 in ETP)
·; Commissioned our own Transneft Entry Point in WS
·; Quadrupled our licence size in Timan Pechora by acquisition
·; Continued to reduce central overhead costs
We remain on track to reach our target for 2012 of an exit rate of 17kbpd of oil production.
2013 Reserves Report
We have begun work on an updated reserves report. Our last report was published in February 2012 and we currently expect to publish the next report in April 2013, at around the same time as our financial results for 2012. A significant amount of work is required in order to process the following new information, all of which are likely to have a positive impact on reserves:
- The LLC Venlockneft acquisition in Timan Pechora, which quadrupled the acreage of Exillon TP's licence area. No audited reserves have yet been booked in these substantial new licence areas.
- The changes to our understanding of the extent of the northwestern area of the EWS I field following the recently announced results from Well 60. As announced on 25 October 2012, Well 60 is an exploration well drilled into a northern extension of the EWS I field. The results from this well were very positive and may lead to a remapping of this area of EWS I.
- Further analysis of the results of Well 10274, drilled in 2011. As announced on 26th August 2011, exploration well 4 (EWS-10274) was designed to test an area between the EWS I and EWS II fields. This will also contribute to our understanding of the extent of these fields.
- The excellent results from Well Pad 5 in Exillon WS throughout 2012, where the oil water contact was consistently shown to be substantially lower than assumed by our reserves auditors.
Financials
During the period, we exported 1,222,049 barrels of oil at an average realised price of approximately US$ 105.8 per barrel, and sold 2,048,551 barrels within Russia at an average realised price of US$ 42.6 per barrel. The difference in the sales price of exports and domestic sales is principally a function of export duty. We are free to sell either for export or domestically, and our netbacks for domestic and export sales are similar.
The average selling price for our oil continues to be higher than our budgeted level of US$95/ barrel Urals (and the equivalent level for domestic sales).
Our cash balance was US$ 135.1 million at 30 September 2012. We have US$ 100.2 million of debt so our net cash position as at that date was US$ 34.9 million. US dollars account for approximately 84% of our liquid assets with the remaining 16% held in Russian Rubles.
Capital expenditure in the 3 month period to 30 September 2012 was approximately US$ 16.6 million (3Q 2011: US$ 27.2 million). Of total capital expenditure, US$ 9.5 million was attributable to drilling, US$ 7.0 million to infrastructure and US$ 0.1 million to seismic data acquisition and interpretation. In addition, US$2.5m was deployed to secure the acquisition of LLC Venlockneft.
Transneft Entry point
On 12 July 2012 we announced the commissioning of our own Entry Point to the Transneft pipeline network. 100% of production from Exillon WS is now transiting via this facility.
We previously transported oil approximately 200km by road to reach an entry point owned by a third party. The new Entry Point is approximately 100km from our oil fields, and transportation costs will fall accordingly.
Transneft JSC is the state controlled trunk oil pipeline network of the Russian Federation. Once submitted to the Transneft network, oil can be sold for either export or domestic sale.
Acquisition of Venlockneft
On 10 September 2012 we announced that the we had secured the purchase of LLC Venlockneft, which more than doubles our contiguous licence area in ETP (and more than quadrupled our total licence area) in that region. The purchase price was approximately US$2.5m.
Reductions in Overhead
It remains our strategy to invest in our operating businesses in Urai and Usinsk, whilst minimising central overhead in Moscow.
On 29 August 2012 we announced that we had appointed Ernst & Young LLP ("E&Y") as our new auditors, significantly reducing the costs of our financial audit. We also outsourced our company secretarial function during the period.
Media Contact
Tom Blackwell Blackwell@mcomgroup.com
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Source: Average production data is based on monthly production reports submitted to tax authorities for MET payment purposes. Peak production is based on internal operational reports.
1 The Company records production in metric tonnes. Barrelization ratios are used for illustrative purposes only and are calculated based on the Company's estimate of the typical API of oil produced from specific fields. The barrelization ratios used are 7.67 bbl / tonne for Exillon WS and 7.44 bbl / tonne for Exillon TP. Total production was 43,394 tonnes for Exillon WS, 14,090 tonnes for Exillon TP and 57,484 tonnes for the Group during the 31 day period.
2 "Peak daily production" represents the Company's estimate of aggregate production on the day on which aggregate production reached its maximum during the period. It does not represent the combined peak production of each separate field on different days, which may be higher.