WRES.L Regulatory News (WRES)

4 Nov 2005 10:08

Caspian Holdings plc04 November 2005 4 November 2005 Caspian Holdings Plc ("Caspian" or "the Company") Zhengeldy Oil Field Production Capacity Caspian announces the preliminary results of the Schlumberger Central Asia("SCA") comprehensive field evaluation and logging programme. The Company hascommenced a detailed production improvement programme, based on the results,involving workover of existing wells, drilling of five new wells and upgrades infield infrastructure. The first stage of the programme is estimated by SCA to result in oil productionfrom at least six and potentially all nine new wells drilled this year at a rateof 150-210 barrels per day based on the six wells being in production. Followingevaluation of the workover programme, Caspian plans to implement a second stagefive well drilling programme targeting an estimated additional 300 barrels a daytargeting a total estimated field production of 450-510 barrels a day from 11wells. Background During the September Quarter Caspian, with the assistance of SCA, completed anextensive field evaluation and logging programme to identify optionssignificantly to increase production from the nine oil wells drilled in the last12 months and to assess the production capacity of the Zhengeldy licence area. To complete this programme a number of producing wells were temporarily shut in,resulting in production for the September quarter 2005 reducing to 8,900 barrelscompared with 9,400 barrels in the June Quarter. The programme had two components - extensive evaluation and re-logging of theexisting wells and the construction of a new geological and reservoir modelbuilt from the core data collected from the nine new wells and three reactivatedwells drilled and logged since commencement of operations. From this base,recommendations have been made to significantly increase the production fromexisting wells and to drill five identified high potential wells. Production Improvement Programme The production improvement programme has four components: 1. Workover programme to deliver production from six and possibly all nine newwells. Three currently shut in wells (107, 106, 114) will be brought back intoproduction following completion of remedial cement work and new perforations.Additional perforations will be added to two existing production wells (111,112) following the identification of significantly larger oil pay zones andpumping rates will be increased at well 113. Testing will also commence on threewells (115, 116, 123) previously considered "dry" following identification ofprospective oil bearing zones. 2. Drilling of up to 5 new high potential wells on the lake and northern licencearea. The SCA review has recommended the drilling of five new wells - three onthe dry salt lake and two to the north of the licence area. The new geologicalmodel and reservoir review provides for improved targeting of well locations. A414m road has been constructed across the dry salt lake area at a cost ofUS$250,000 to allow drilling of the three target wells on the dry salt lake. 3. Improved field operations infrastructurePumping rates at the wells are set to increase following the installation ofenvironmentally approved water disposal facilities. Prior to the winter freezeall wells have been connected by covered flow lines to the central gatheringstation to remove winter production constraints and a new sweet water well hasbeen brought on line. Water disposal, absence of light water, and flow lineshave previously been a significant limitation on production. 4. Export facilities and logistics.Export facilities are near completion with the installation of a heater andadditional storage tanks. Ministerial approval has been received to allowexports. Caspian will take a cautious and staged approach to implementation of thisprogramme. Field infrastructure is complete. The workover programme will becarefully implemented during November, for shut in wells, and December for theproducing wells (111,112, 113). Once the results of the workover programme areconfirmed, Caspian will commence the new drilling campaign Production Capacity Based on the reservoir model, the history of oil production from the field andimplementation of the proposed production improvement programme, SCA has made anassessment of the production rate that could be achieved from the six existingproduction wells once the previously shut in wells are brought back intoproduction (106, 107, 111, 112, 113, and 114) and the proposed five new wells.No production estimate has been made for wells 116, 115 and 123 which have thepotential to yield results. It is estimated that following the proposed workover programme, the six existingproduction wells, could produce on average 25-35 barrels a day for a totalestimated rate of 150-210 barrels a day by the end of December 2005. Subject tothe normal risks associated with oil and gas exploration, it is estimated thatthe five new wells, properly cemented and completed, could produce on a mostprobable estimate basis 60 barrels a day for a total estimated rate of 300barrels a day for five wells. In total this programme brings the improvement inproduction to 450-510 barrels a day. This rate of production is significantly lower than the rate of productionestimated by the Competent Person Report ("CPR") in the Company's AIM admissiondocument of 4 November 2005. On the basis of the original Soviet geologicalmodel and the log results from the old production wells drilled between 1934 and1945, the competent person estimated that the first stage of development ofZhengeldy could produce at a rate of 1,400 to 2,100 barrels a day from fivesuccessful wells. The competent person further estimated that if the first stagewere successful, production could be increased further to around 4,300 barrels aday from investment in a further 10 wells. With the benefit of 12 months operating history and the modern log results ofnine new wells it is now clear that the daily production rates per wellindicated in the CPR were too high and cannot be realised. There are a number ofreasons for this variance: • Production management. The SCA review has identified up to eight oil bearing levels in the Zhengeldy oil field. The levels are thinner than the 4 levels analysed in the CPR. Current production techniques allow for production from one level at a time. We are exploring how production from multiple levels can be achieved cost effectively. • Sand/Shale changes within levels. The CPR was based on the assumption of homogeneous sand levels - the operating experience has been that there are material changes in the shale sand mix within productive levels limiting rates; • Limited drilling success in the deeper "Triassic" levels. The deeper higher pressure levels (400-800m) were expected to produce higher daily rates than the shallower levels. Caspian has had limited success in the Triassic level and the carboniferous nature of the deeper levels has to date not produced good flow rates. A reserve update will be provided at the conclusion of the SCA review following assessment of the workover programme results. The company, based on this advice, will continue to investigate the Triassic level but in the interim it is prudent to downgrade the Triassic reserves to probable Michael Masterman, Executive Chairman of Caspian, commented: "In the current 1.5sq km licence area, we have a solid operating oil field which, subject to thesuccessful workovers, should provide steady cash flows to allow the Company tofurther develop the field whilst pursuing other opportunities in the region. Thefield is not the low capital-high production rate that was indicated in thecompetent persons report. Instead we have a field similar to the shallow WesternSiberian oil fields, which can generate healthy overall production rates from alarge number of low capital cost shallow wells. Our immediate priority is toincrease production from the existing wells and then move to the new welllocations selected by SCA and the management team. In parallel we are awaitingthe Kazak Government regulatory approval of the companies licence extensionapplication which if approved will open up new expansion opportunities forCaspian. The Company is also looking to further strengthen the board with the appointmentof a Technical Director, and an announcement will be made on this in due coursewhen the appointment is confirmed." Ends Enquiries: Caspian Holdings Plc Hoodless Brennan Parkgreen CommunicationsMichael Masterman Luke Cairns Justine Howarth / Ana RibeiroT: +44 (0) 7791288381 T: +44 (0) 20 7538 1166 T: +44 (0) 20 7493 3713 This information is provided by RNS The company news service from the London Stock Exchange