Urals Energy Plc Regulatory News (UEN)

23 Jan 2007 07:01

Urals Energy Public Company Limited23 January 2007 FOR IMMEDIATE RELEASE: Urals Energy Public Company Limited Operational Update Urals Energy ("Urals Energy" or the "Group") (LSE:UEN) a leading independentexploration and production company with operations in Russia announces anoperational update. Highlights Production • Current production 11,600 BOPD increased from 10,100 in September 2006.• On track to achieve 15,000 BOPD by third quarter 2007 and 19,000 BOPD by year end.• Completed nine successful producing wells in second half 2006. Exploration • Exploration well to test 60 million barrel potential Nadezhdinsky prospect in Timan Pechora expected to spud in April.• Re-entry of well 29 at Arcticneft to test deep Permian horizon begun.• Acquisition of approximately 300 kilometres of new 2D seismic over the Dinyu field area. Dulisma • Receipt of written confirmation from Irkutsk Oblast Tax Inspectorate verifying a ten year production tax holiday for the Dulisminskoye field (1 January 2007 - 31 December 2016).• Dulsima oil development plan approved by Russian Central Field Development Committee.• Successful completion of innovative new $US130 million debt finance facility provided by Goldman Sachs International to fund the development of the oil reserves at the Dulisminskoye field.• Development plans accelerated and field development advancing rapidly.• Project is now funded to achieve peak production of 30,000 BOPD by 2011. Financial • Dulisma capex for 2007 is expected to include $17 million for drilling and $25 million for pipelines, infrastructure and facilities.• Total capex for 2007 expected to be $90 million.• As a result of funding and continued production growth, the Group is in a strong financial position. Outlook • Progress across all its areas of operation with an intensive development, drilling and exploration programme underway this year.• Following approval of Dulisma financing and development, on target to reach overall Group production of 50,000 BOPD by 2011. William R Thomas, Chief Executive of Urals Energy commented: "2007 will be an important year for Urals Energy and the progress we continue tomake across all areas of the business is creating a solid platform for growth. We have made significant progress at Dulisma, which is a key asset. Financingfor the project has been secured, a ten year production tax holiday has beenofficially confirmed by the tax authorities, and our field development plan hasbeen approved by the Russian Government. All this is further indication of theprogress we are making." 23 January 2007 Pelham PRJames Henderson 020 7743 6673Gavin Davis 020 7743 6677 Production Oil production has increased from a maximum productive rate of 10,100 BOPD inlate September 2006 to 11,600 BOPD today. A combination of weather relateddelays in drilling, which are not unusual for this time of year, and a delay inlaunching our fracture stimulation programme resulted in year-end productionbeing slightly lower than initially anticipated. We are confident of achieving15,000 BOPD by the third quarter and we continue to target group production of19,000 BOPD by year end 2007. Overall we completed a total of nine producing wells in the second half of 2006,lower than expected due to both timing delays and poor equipment. We havesubsequently invested in new equipment which is already producing positiveresults. At Petrosakh, the frac fleet and associated equipment has now been delivered tothe field site and is being readied to begin fracturing the first four wells ofa planned eight well program. We should know the results of this initial fourwell program by the end of the first quarter. Once we fracture stimulate theremaining suitable wells at Petrosakh, we will move the equipment to Komi andbegin fracture stimulating our fields at CNPSEI, Dinyu and Nizhne OmrinskayaNeft, of which all have excellent stimulation potential. We had excellent results at the Potapovskoye field in Urdmurtia where we drilled3 new producing wells with all producing above plan. Exploration We drilled one exploration well at the Dinyu field in the Komi Republic in thethird quarter of 2006. This well, DN-48, was drilled to test an extension ofthe Dinyu field to the Southeast. The well encountered a previouslyunidentified reef structure with over 60 meters of permeable limestonereservoir. After extensive testing, the well produced only small quantities oflive oil perhaps indicating the oil has migrated up-structure. As a result, we have recently completed the acquisition of approximately 300kilometres of new 2D seismic over the Dinyu field area, and we will be lookingto identify several new drilling locations with this new data. The potentialincludes the new reef trend we encountered while drilling DN-48, and a newlyidentified eastern lobe that has excellent potential. We have signed contracts, purchased equipment and materials, and begun sitepreparation for the Nadezhdinsky No. 1 exploration well in Timan Pechora.Located approximately 60 kilometers southwest of the port of Varendey on thenorthern coastline of Russia, this prospect is our highest rated explorationtarget of the five licenses we hold there. With a target potential of 60million barrels recoverable, the well is expected to spud in April 2007 and hasan AFE dry hole cost of approximately $8 million for a target depth of 3,200meters. At Petrosakh, we continue to re-process and re-interpret our 3D seismic database that covers the offshore license area, Pogranichny. We expect to completethis new analysis in the second quarter and will then be in position to refineour exploration drilling plans for this high-potential area. At Arcticneft we are now re-entering well 29 to begin a deep sidetrack toexplore the Permian horizon. If successful, this well test would have asignificant impact on our development plans at Arcticneft. Dulisma We have today separately announced the completion of a new debt finance facilityfor the development of the Dulisminskoye field in Irkutsk Oblast, EasternSiberia. Goldman Sachs International and Standard Bank are providing a total ofUS$130 million of subordinated debt which is expected to fund Urals Energy'scommitment to develop the oil reserves at the Dulisminskoye field. This loan will provide Urals Energy with the debt capital necessary to developthe Dulisminskoye field to its peak oil production level of 30,000 BOPD by 2011while at the same time accelerating our development plan to meet Transneft's newpipeline construction timetable. In addition, on 22 January 2007, we received written confirmation from theIrkutsk Tax Inspectorate verifying that the Dulisminskoye field qualifies for aten year, zero production tax rate for the period beginning 1 January 2007 andending 31 December 2016. Production taxes paid by Urals Energy's other Russianproducing subsidiaries for the 11 month period ending 30 November 2006 averagedapproximately $11.50 per barrel. Based on the Dulisminskoye field reservereport by DeGolyer & MacNaughton dated 31 March 2006, Urals Energy estimatesthat the gross tax savings provided by this ten year production tax holiday willapproximate $308 million and result in an approximate $191 million increase inthe project's present value discounted at ten percent. Development activity at Dulisminskoye has already begun with the arrival of aworkover rig, two gas-electric generators, drilling tubulars, bulldozers andexcavating equipment. We have purchased a new 100-man field camp which will bedelivered and constructed shortly, and ordered the manufacture of vessels for acentral processing facility ("CPF"). The early manufacture and delivery of theCPF vessels this winter will allow us to complete construction of the CPF intime for delivery of pipeline quality oil when the ESPO is commissioned in 2008. A Chinese-manufactured mobile drilling rig is now clearing customs and isexpected in the field next month. We plan to spud the first Dulisminskoyedevelopment well in early April. We also expect to order pipe for theconstruction of our approximate 80 kilometer ESPO interconnect in the secondquarter of this year. Our capex budget for Dulisma in 2007 is expected to include $17 million fordrilling and $25 million for pipelines, infrastructure and facilities. Finally, development progress has been further solidified by the approval of theRussian Central Committee for Field Development of Urals Energy's fielddevelopment plan for the Dulisminskoye field. The combined result of full fielddebt financing, official development plan approval, and continued progress byTransneft in constructing the ESPO, now provides Urals Energy with a clear pathfor the successful development of the Dusliminskoye field. Financial While the industry wide impact of increases in Russian export taxes and lowercrude prices in the fourth quarter of 2006 will have a short term impact on ournet realisations, we are confident that as a result of the current oil priceenvironment there will be a reversal of this trend by mid year. Overall, as a result of the Dulisma financing announcement and continuedproduction growth, the Group expects to fund the development of theDulisminskoye field and our overall 2007 activity from existing cash andinternally generated cash flow. Outlook The Group is making progress across all its areas of operation and has anintensive development, drilling and exploration programme underway this year. Weexpect to drill 22 development wells and at least one high-impact explorationwell. Our fraccing programme has the potential to materially increaseproduction across all the Group's fields. Total capital expenditures for 2007are expected to total approximately $90 million. With the approval of the Dulisminskoye development plan by the RussianGovernment, confirmation of a ten year production tax holiday, and thesuccessful Dulisma project financing also announced today, Urals Energy iscurrently targeting Group production of 50,000 BOPD by 2011. We continue to develop several excellent new acquisition opportunities in Russiaand the FSU. The market continues to increase in terms of number of dealsoffered, but we remain careful about identifying and closing acquisitions thatare accretive and will have a material impact. We hope to close one or more newand important deals in 2007. This information is provided by RNS The company news service from the London Stock Exchange