Urals Energy, the independent exploration and production company with operations in Russia, provides the following operational update.

Drilling at South Dagi

The Company announces that the drilling of the Group's planned exploration well (Well 1) at the South Dagi field on Sakhalin Island has reached the target depth of 2,207 meters. The casing of Well 1 has been completed and the next stage of the well's development is the testing of the discovered object layers. Nine object layers have been discovered in accordance with core samples and logging data (from depths between 965 meters to 2,092 meters). The Board anticipates that the full testing of Well 1 will be completed in the next two months and the Company will provide more detailed updates as this process is progressed. 

In line with the Company's strategy for the development of the South Dagi licence area, as announced on 19 June 2018, following the completion of Well 1, the Company's drilling rig will be moved for the drilling of Well 2, which is an exploration well.

Tanker shipment and pre-export short term loan finance arrangement

The Board anticipates that the second 2018 tanker loading for Articneft will be in November 2018. At present, the Board expects that up to 20,000 tons of special light crude oil (up to 158,000 barrels) will be shipped from Kolguev Island.

Ahead of the anticipated November 2018 tanker shipment, the Company has entered into a pre-export short term loan finance arrangement with Petraco Oil Company Limited ("Petraco"), under which Petraco has advanced the sum of US$5.0 million to the Company (the "Loan").

The key terms of the Loan are that:

• it is repayable immediately following the loading of the tanker shipment, scheduled for November 2018;
• interest is chargeable at a margin of 5% over two months US$ LIBOR up to the date of the bill of lading of the tanker, after which it reduces to 2% over US$ LIBOR; and
• it is secured by way of a pledge by Urals Energy over the shares that Urals Energy holds in JSC Articneft.

The proceeds of the Loan will be used by the Company for general working capital financing.

Partnership strategy

Discussions continue with potential partners and contractors for the next stage of exploration drilling at Komi and for the further development of the Group's reserves on Kolguev Island.

Kholmsk seaport

On 6 August 2018, the Company announced that it had acquired a 23% voting interest in the Kholmsk commercial seaport, which is situated on the Western side of Sakhalin Island. In conjunction with support from other shareholders in the seaport the Company has secured the election of five of the Company's representatives as directors to the seaport's board (out of a total board of seven directors). 

The Company intends to work with its partners, which include the local government and other stakeholders, to enhance the management and administration of the seaport. The seaport has bunkering facilities to supply fuel oil to local fishing fleets and ferries, which are the main users of the seaport. The Group's refinery at Petrosakh on Sakhalin Island refines all of the Company's crude oil production on the island, including producing fuel oil, and the Board believes that the investment in the seaport will allow the Group to market its fuel oil directly to clients of the seaport and therefore enhance the margins of its bunker fuel sales operations at Kholmsk. The Board also believes that the investment in the seaport will provide the Group with greater strategic flexibility in terms of storage capacity relating to both the importation and exportation of products from Sakhalin Island.