22 Oct 2008 07:00
PetroNeft Resources plc
Operations Update
PetroNeft Resources plc ('PetroNeft' or 'the Company'), owner and operator of Licence 61, Tomsk Oblast, Russian Federation, is pleased to provide an update on its operations.
Highlights
Board elects to slow pace of field development given unstable markets
Reserve Upgrade on Lineynoye and West Lineynoye Fields
Expected further upgrades on newly discovered assets illustrate the strong value of PetroNeft's portfolio
Pursuing farmout of high potential prospects in southern part of Licence area to accelerate activities and spread risk
Development Schedule
In June 2008, the Board of PetroNeft sanctioned the first phase of development for Licence 61, with the overall objective of achieving first pipeline production in mid year 2009. Since then, there has been continued deterioration in world financial markets and unprecedented volatility in oil pricing.
The Board of PetroNeft has decided to slow the pace of the Phase I Development Project which includes the Lineynoye and West Lineynoye Fields. This will allow time for further asset and capital expenditure optimisation, enactment of proposed favourable Russian Oil and Gas tax adjustments and most importantly time for stability to return to the global financial and oil markets.
We continue to work with Standard Bank, who remain committed to their mandate subject inter alia to final documentation and credit approval, and with other banks to complete the debt package when recent banking liquidity shortages are resolved in early 2009. The Company has no debt drawn down, has sufficient cash resources through next year and will incur no financial or other contractual penalties as a result of the proposed delay. All existing facilities and equipment will be retained; in particular, the pipe for the export pipeline which has now been purchased and transported to a staging area near the Bashneft Lukpaiskaya field while two production pads at the Lineynoye oil field are substantially complete.
This decision was made to ensure the medium and long term financial stability of PetroNeft. Given that capital expenditure costs are yet to align with reduced oil prices, the Board believes that the delay is in the best long term interest of the Company and its shareholders. The delay will allow the Board to reassess the situation once markets have stabilised and therefore create the best possible long term value for shareholders.
Reserve Upgrade on Lineynoye and West Lineynoye fields
Petroleum Consultants' Ryder Scott have updated the reserves for the Lineynoye and West Lineynoye Fields based on the Lineynoye No. 8 well which was drilled this summer. This revised report based on SPE criteria is required for the project financing for the field development. The total Proved (P1) reserves associated with the two fields has increased from 5.2 to 8.4 million barrels and the total Proved and Probable (P1+P2) reserves has increased from 45.1 to 47.2 million barrels.
Upgraded reserves for Lineynoye and West Lineynoye oil fields:
| Proved (P1) mmbo | Probable (P2) mmbo | Proved and probable (2P) mmbo | |
| Lineynoye and West Lineynoye | 8.4 | 38.8 | 47.2 |
This upgrade confirms the high quality of reserves at Lineynoye and West Lineynoye, which support the proposed debt facility. PetroNeft will work with the revised reserves to optimise the development plan and adjust the overall project schedule in early 2009.
Other Prospects and Reserves
The Reserve upgrade does not include the currently booked Proved and Probable reserves of 15.5 million barrels at Tungolskoye or the reserves associated with the newly discovered field at Korchegskaya. The reserves from these fields, along with further upside from emerging and potentially material Cretaceous and Lower Jurassic plays within Licence 61 will also be updated at year end and included in a full new Competent Persons' Report.
Group Strategy
The Company's long term strategy remains focused on bringing the Lineynoye and West Lineynoye fields into production and developing the nearby northern fields and prospects.
Secondary to this objective is determining the full value and hydrocarbon potential of the Prospects in the southern part of the Licence area, including an excellent opportunity at the Lower Cretaceous level which recently tested over 1,500 bopd at the neighbouring Kiev-Eganskoye oil field.
The Company will actively seek opportunities and new partnerships to accelerate these exploration and evaluation activities but as all exploration licence obligations in respect of the full 25 year term of Licence 61 have now been met, PetroNeft is under no obligation to undertake further drilling.
Dennis Francis, Chief Executive Officer of PetroNeft Resources plc commented:
"We are confident that we have made the right decision for our shareholders long term interests. Downturns in the financial and crude oil markets have created a challenging environment for the planning, funding and execution of major projects and dictate that a slower pace is the prudent course of action for the Company at this time.
We retain 100% equity in a highly valuable set of assets of proven oil fields, complemented by development and exploration plays that will give a long and valuable development lifetime.
PetroNeft has the cash in hand to maintain efficient operations and expertise to adjust quickly to market changes and while conditions are challenging, we believe the current market environment will also create opportunities to develop effective alliances and extend our business beyond Licence 61"
For further information, contact:
Dennis Francis, CEO, PetroNeft Resources plc,
+1 713 988 2500
Paul Dowling, CFO, PetroNeft Resources plc
+353 1 4433720
Desmond Burke, Director Investor Relations, PetroNeft Resources plc
+353 52 53226
John Frain/Brian Garrahy, Davy - Nomad and Joint Broker
+353 1 679 6363
Jonathan Marren/Matt Goode, KBC Peel Hunt - Joint Broker
+44 207 418 8900
Nick Elwes/Paddy Blewer, College Hill
+44 207 457 2020
The information contained in this announcement has been reviewed and verified by Mr. Dennis Francis, Director and Chief Executive Officer of PetroNeft, for the purposes of the Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in March 2006. Mr. Francis holds a B.S. Degree in Geophysical Engineering and a M.S. Degree in Geology from the Colorado School of Mines. He has also graduated from the Harvard University Program for Management Development. He is a member of the American Association of Petroleum Geologists and the Society of Exploration Geophysicists. He has over 35 years experience in oil and gas exploration and development.
Forward Looking Statements
This announcement contains forward-looking statements. These statements relate to the Company's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.
The forward-looking statements in this announcement are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of this announcement.