24 Feb 2009 07:00
PetroNeft Resources plc
Announcement of Independently Audited Reserves and Operational Update
PetroNeft Resources plc ('PetroNeft' or 'the Company'), is pleased to announce a significant increase in Reserves on Licence 61, Tomsk Oblast, Russian Federation, following completion of a Ryder Scott Petroleum Consultants independent reserves audit of the Licence area.
Highlights
16 % increase in 2P reserves to 70.0 million bbls
51% increase in 3P reserves to 530.0 million bbls
Ryder Scott report net reserves under SPE classification of:
1P: 10.2 million bbls
2P: 70.0 million bbls (P1+P2)
3P: 530.0 million bbls (P1+P2+P3)
Development costs drop by 40%
Long term test/pilot production continues
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Ryder Scott Reserves Report
Following the successful exploration and appraisal programme undertaken in Licence 61 during 2008, PetroNeft's net proved and probable (2P) oil reserves as of January 1, 2008 increased by 16% to 70.0 million barrels of oil ("mmbo"). Proved (1P) oil reserves increased to 10.2 mmbo and proved plus probable plus possible (3P) reserves increased to 530.0 mmbo. A total of 4 oil fields and 24 prospects were included in the report. A more detailed breakdown of the reserves is as follows:
| Oil Field and Prospect Type | Proved | Proved and probable | Proved , probable and possible |
| 1P | 2P | 3P | |
| mmbo | mmbo | mmbo | |
| Lineynoye field | 5.69 | 23.82 | 28.74 |
| West Lineynoye field | 2.71 | 23.30 | 29.30 |
| Kondrashevskoye field | .39 | 8.11 | 26.42 |
| Tungolskoye field | 1.42 | 14.77 | 18.99 |
| Total | 10.21 | 70.00 | 103.45 |
| Upper Jurassic - 24 prospects | 207.29 | ||
| Cretaceous - 10 prospects | 156.17 | ||
| Lower to Middle Jurassic - 11 prospects | 63.06 | ||
| Total | 10.21 | 70.00 | 529.97 |
| % increase on 2007 Ryder Scott report | + 52% | + 16% | +51% |
PetroNeft's reserves have been revised following the recent independent reserve appraisal conducted by Ryder Scott Petroleum Consultants in accordance with reserve definitions approved by the Society of Petroleum Engineers (SPE) and World Petroleum Congress.
The 2P reserve increase is primarily related to the new field discovery at Kondrashevskoye (formerly Korchegskaya) which has 8.11 million bbls of oil. The oil water contact for this field has yet to be defined and the Company believes the 2P reserves are likely to increase significantly with further delineation. If the oil water contact is defined by the structural spill point, which is the case for the nearby Lineynoye, West Lineynoye and Tungolskoye fields, then the 2P reserves at Kondrashevskoye could approach 20 million bbls.
The significant increase in 3P reserves is based on the detailed reinterpretation of vintage well logs at a number of prospects within Licence Area 61, by Tomsk Geophysical Company (TGK) and also the result from the West-Korchegskaya no. 1 well which encountered a 25 metre sandstone interval, with hydrocarbon potential in the Lower Jurassic section. The log reinterpretation study was undertaken last year following the successful testing of by-passed Cretaceous pay by Imperial Energy at the Kiev-Eganskoye field on adjacent block 80. TGK is the same petrophysical contractor that identified the by-passed Cretaceous pay at Kiev-Eganskoye and they identify potential by-passed pay in the Cretaceous, Upper Jurassic and Lower to Middle Jurassic intervals in several of the old wells drilled in Licence 61. Ryder Scott has incorporated the results of this study into their reserve calculation of the Cretaceous and Lower to Middle Jurassic possible reserves which were not previously calculated for Licence 61.
The Russian Registered (GKZ) reserves for Licence 61 were updated in December and the C1+C2 booked reserves now equal 95 million bbls. These reserves are not calculated on exactly the same criteria as the SPE reserves, but there should be general alignment between the C1+C2 and 2P numbers.
Update on Financing Activities
The Company is continuing discussions with financial institutions with regard to the funding for the development of the Lineynoye and West Lineynoye oil fields. The Company acquired the pipe required for the 62 km pipeline in 2008 and this pipe is in secure storage.
The movement in the price of oil over the last number of months had an impact on the financing of the project. However the recent depreciation of the Russian Rouble and a softening of actual Rouble prices for goods and services in Russia mean that the dollar cost of the project has fallen by about 40% since summer 2008. Consequently the Company's dollar funding requirement for the development of the Lineynoye oil fields is significantly lower than previous estimates.
Update on Production Testing
The long term test/pilot production of the Lineynoye No. 1, No. 6 and No. 7 wells is progressing as planned. All wells are currently flowing and the testing will continue as long as winter roads are in place to truck the oil to market. In addition to generating a modest profit over the period, the production data will assist in planning the optimal well fracture programme to stimulate production and enhance long-term reserve recovery from the fields, which should also help to firm up project economic estimates and to secure project financing at the earliest date possible.
Dennis Francis, Chief Executive Officer of PetroNeft commented:
"This reserves increase shows continuing progress in our understanding and appraisal of Licence 61.
PetroNeft has not only proved a significant reserve base for development, but has also built up a high quality inventory of prospects which offer upside through exploration over the medium and long term. The addition of quality Cretaceous and Lower to Middle Jurassic prospects this past year significantly enhances the upside potential of the Licence area.
We will continue to maintain our focus on optimising and accomplishing the development of the Lineynoye and West Lineynoye fields as soon as practical in today's economic climate, whilst continuing to consider ways to accelerate the evaluation of the numerous remaining prospects on License 61 and to consider acquisitions or other opportunities which will enhance the value of the Company. "
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 34 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.
Glossary
Proved Reserves (P1) - Proved reserves are those quantities of petroleum which, by analysis of geological and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from know reservoirs and under current economic conditions, operating methods, and government regulations.
Probable Reserves (P2) - Probable reserves are those unproved reserves which analysis of geological and engineering data suggests are more likely than not to be recoverable. In this contest, when probabilistic methods are used, there should be at least a 50 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable reserves.
Possible Reserves (P3) - Possible reserves are those unproved reserves which analysis of geological and engineering data suggests are less likely to be recoverable than probable reserves. In this context, when probabilistic methods are used, there should be at least a 10 percent probability that the quantities actually recovered will equal or exceed the sum of estimated proved plus probable plus possible reserves.