Urals Energy Plc Regulatory News (UEN)

15 Aug 2007 07:01

Urals Energy Public Company Limited15 August 2007 Urals Energy Public Company Limited ('Urals Energy' or the 'Company') Management Appointments and Operational and Financing Update Urals Energy, a leading independent exploration and production company withoperations in Russia, today announces the appointment of three senior levelmanagers and provides an operational and financing update. Highlights New appointments • Appointment of Kerry Kendrick as Chief Operating Officer, VladimirSidorovich as Chief Financial Officer and Viatcheslav Rovneiko as Senior VicePresident for Business Development to strengthen operational and managementteams. Operations • Acquired second drilling rig for the Dulisma field - deliveryexpected March 2008. • Technical conditions received to tie the Dulisma field into TransneftESPO pump station No.8. • Water and gas injection begun at Sakhalin to maintain reservoirpressure. • Frac trucks and equipment en-route from Sakhalin to Komi Republic tobegin 25 well fracturing program. Production • Production increased from 8,900 bopd in Q1 to current average of9,300 bopd during July. • Production expected to resume at Dulisma by September followingrepairs to temporary oil evacuation route. • Production at Sakhalin Island below target due to low reservoirpressure - program to rectify initiated through gas and water injection. • Production now expected to surpass 12,000 bopd before the year end. Financing • As of 3 August 2007 the Company has repaid in full the remainder ofthe outstanding $45 million principal of the senior reserve based loan facilityand the $12 million mezzanine facility. • The Company has entered into a five-year, $50 million revolvingworking capital facility. Leonid Dyachenko, Chief Executive, commented: "We have an intensive development programme underway aimed at increasingproduction and we are committed to achieving our stated goals. Our long termoutlook remains strong and we are now focused on developing Dulisma to its fullpotential. The appointment of a COO is an important step in the development of Urals Energyand, given Kerry's extensive experience in major oil projects, including inRussia, he will be able to drive the development of the important Dulisminskoyefield and help Urals move closer to becoming a significant Russian producer. Wewelcome him to the team. Similarly, we welcome Vladimir Sidorovich as the CFO to the Group. Hisexperience in Russia and knowledge of international business practices furtherstrengthens our management team and will enable Urals Energy to operate in thebest possible way in Russia. And, we thank Stephen Buscher for his valuablecontribution to the Company to date, and for his remaining with the Company forthe transition. In turn, Mr. Rovneiko has played an instrumental role in the Company's successto date and his appointment as Senior Vice President for Business Developmentwill continue to help the Company source new opportunities in Russia." 15 August 2007 Enquiries:Pelham PRJames Henderson 020 7743 6673Gavin Davis 020 7743 6677Evgeniy Chuikov 020 3008 5506 Appointment of Chief Operating Officer Mr Kerry Kendrick has been appointed Chief Operating Officer of the Company witheffect from 1 August 2007. Mr Kendrick, 52, is a registered petroleum engineerand an experienced manager of large international E&P projects. Most recently hewas the resident Director General of Vanyoganneft LLP, formerly a joint venturebetween TNK/BP and Occidental Petroleum with production of over 45,000 bopd inNizhnevartovsk, Russia. Mr Kendrick has also been in management positions asboth the General Manager and Operations Manager with Hunt Oil Company (Peru andYemen), and with Halliburton (Algeria and Venezuela), WellDynamics BV (a Shelland Halliburton joint venture) and Occidental Oil and Gas. Mr Kendrick'sexperience in senior positions at major international companies and inoverseeing substantial upstream projects will be instrumental in acceleratingthe Company's development of the Dulisminskoye field as well as deliveringoperational management expertise across all other exploration, production andacquisition efforts. Mr Kendrick is a member of the Society of PetroleumEngineers and will be working from the Company's Moscow office. Appointment of Chief Financial Officer Mr. Vladimir Sidorovich has been appointed Chief Financial Officer of theCompany and has taken over from Mr. Stephen Buscher with effect from 10 August2007. Mr. Sidorovich has extensive experience in the commercial banking,investment, power utilities and oil and gas sectors in Russia. Most recently,he was Director of Strategy at Tambeyneftegas, and was responsible forprogramming and budgeting for upstream and downstream development of gas andcondensate fields on Yamal peninsula. At the end of 2006 and in early 2007,while at Yamal LNG, he coordinated the sale of South Tambey, one of the largestnatural gas fields in Russia. From 1997 to 1999, Mr. Sidorovich was the CFO anda member of the Management Board of the United Energy Systems of Russia (RAOUES), where he was responsible for the Company's corporate finance, investmentsand investors relations. During the period 1992-1997 he held senior positionswith Batterymarch Financial Management and the European Bank for Reconstructionand Development. Since 2000 Mr. Sidorovich has been a Board member of "Energia"(a Russian corporation engaged in launching satellites and manned spaceflights), and has also held senior management positions in a number of otherRussian industrial companies. As the Company's CFO, Mr. Sidorovich will beresponsible for financial management, reporting and operations and will beworking from the Company's Moscow office. Mr. Buscher will remain with the Company for a transition period to ensure asmooth handover of responsibilities to Mr. Sidorovich and will also assist theCompany on other financial matters. Appointment of Senior Vice President - Business Development Mr. Viatcheslav Rovneiko has been appointed as Senior Vice President of theCompany responsible for Business Development with immediate effect. Mr.Rovneiko, 48, was formally Chairman of the company and is one of the co-foundersof Urals Energy. He has been a consultant to the Company since September 2006,involved in the Company's business development and M&A activities, which willremain his core focus. Operational Update Urals Energy also announces an update on the Dulisminskoye field, commencementof the fracture stimulation programme on its producing Komi fields and an updateon its other operations. East Siberia At Dulisminskoye, the new mobile drilling unit delivered to the field in Aprilsuccessfully underwent operational testing by drilling a water source (at 350m)required for the drilling program. The surface hole for the first developmentwell was spudded June 26, drilled and cased with pipe to 303m. The drill rig wasskidded on the drilling pad and the surface hole for the second well was spuddedJuly 18. Upon completion of electrical power to the site, the rig will begindrilling the first horizontal well below the surface casing. In addition, theCompany has entered into an agreement to acquire a second Chinese-manufacturedrig for the Dulisma Field to accelerate its drilling programme. This is expectedto be delivered to the field in March 2008. The Irkutsk Oil Company, which owns and operates a field nearby Dulisminskoye,has completed repairs and has received all regulatory approvals to operate itspipeline from Yaraktin to Ust-Kut. This is the temporary oil evacuation routefrom the field until it is tied into Transneft's East Siberia Pacific OceanPipeline (ESPO). While these repairs were taking place the Company temporarilyhalted production at Dulisminskoye, however it anticipates resumingDulisminskoye oil production by no later than the end of Q3 2007. Regarding longer term oil evacuation plans, the Company has received thetechnical conditions to tie into the ESPO pump station No. 8. The Companyestimates the Dulisminskoye Field will be connected to the ESPO during the Q12009. Surveying works are ongoing and a contract has been signed withGiprong-Ekom to begin project works on this. Procurement for the Company's linepipe will start in August for delivery in Q4 2007. Sakhalin Island At the Okruzhnoye Field (Petrosakh), onshore Sakhalin Island, despite anincrease of 372 bopd from the fracturing program, which commenced in late 2006,a decrease in reservoir pressure in other parts of the field has resulted in anoverall decline of 1,140 bopd from the 2007 forecast. To remedy the reservoirpressure decline, the Company recently began a combined program of gas and waterinjection in certain wells to provide additional pressure maintenance and reducethe production decline rate. In July, the Field produced an average of 2,522bopd. The Field's new 10,000m(3) storage tank is undergoing final pressuretesting and will be operational by year-end; thus giving the Company increasedstorage capacity at Petrosakh ready to support the anticipated productionincrease from the new wells currently being drilled there. Komi Republic The Urals Energy fleet of frac trucks and equipment is en-route from SakhalinIsland to Komi Republic where it will begin a 25-well fracture stimulationprogram at Dinyu, CNPSEI, South Michayu and Nizhny Omrinskoye. The Companyestimates the fracturing program will result in an increase of over 1,000 bopdabove the current Komi oil production level (4,732 bopd average in July). The Company has initiated a new reservoir pressure maintenance strategy at theDinyu-Savinoborskoye field, where three producing wells have been converted intowater injection wells. As a result of these well conversions, the Company'sproduction from the Field has increased by an average of 900 bopd over the last6 months. Other operations Three development wells have been drilled in the Potapovskoye field in Udmurtia.The first two wells had a combined initial production rate of 133 bopd and thethird well is undergoing completion. Current production from the Field averaged355 bopd during July. In Timan Pechora, the Company commenced drilling of its first exploration wellat Urals Nord in the Nadezhdinsky block. The target depth for the well is 3,750meters, and to date 3,114 meters have been drilled. DeGolyer & MacNaughtonascribes up to 58.6 million barrels of un-risked potential resources to thisblock. On Kolguyev Island, the Company has begun side-tracking a well atArcticneft in order to test the lower Permian basin, for which it received theright to explore and produce in Q1 2007. In the 1980's, a Soviet test well wasdrilled to this depth, and indicated the presence of flowing oil. With thisside-track, the Company hopes to attain an initial indication of the resourcebase in this lower horizon. Results of drilling at both Timan Pechora andArticneft will be known in September. Financing As of 30 March 2007 the senior debt of the Company was composed of $45 millionof principal under the company's 5-year, amortizing senior reserve based loanfacility, and $12 million of principal under a 5-year, bullet mezzaninefacility. As of 3 August 2007, the Company repaid both facilities in full. Thesources were internal cash and proceeds from a five-year, revolving workingcapital pre-payment facility from Petraco Oil Company Ltd., the Company's crudeoil export purchaser. This facility, entered into on 30 July 2007, is priced ata cost lower than the debt that was retired. It is management's intent torefinance the senior debt with shorter tenor, non-amortizing funding in duecourse, and both Russian and non-Russian lending sources are being considered. Outlook The Company's gross oil production has increased from 8,900 bopd in Q1 2007 to acurrent average of 9,300 bopd during July. However, given the unexpectedshortfall in production at Petroaskh and the production disruption at Dulisma,the Company's new year-end production guidance has been adjusted. The managementis confident the Company will achieve a minimum of 12,000 bopd before the end ofDecember 2007. Further, the Company now expects to achieve its previouslystated year-end goal of 15,000 bopd by mid-year 2008. Production is expected toincrease significantly once the company's key asset, Dulisma, is connected tothe ESPO pipeline, allowing full-scale development drilling to be expedited withthe two mobile rigs. It is anticipated that the Dulisminskoye field will beproducing 5,000-7,000 bopd when initially connected to the ESPO in early 2009,and a peak rate of 30,000 bopd is targeted by 2013. While focusing on increasing production from existing assets, the Companycontinues to assess complementary acquisition opportunities within the region. 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