PetroNeft, an oil & gas exploration and production company, operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 announces the successful re-entry of the C-4 well on the Cheremshanskoye field in Licence 67 and commencement of oil sales for all oil produced from Licence 67.

Highlights

• Successful re-entering of the C-4 well, flowing naturally at up to 476 bopd of good quality 100% oil from the Upper Jurassic J1-1 & J1-3 reservoirs.
• Negotiated attractive long-term oil sales contract for all oil produced from Licence 67. Approximately 1,200 bbls of oil already sold and transferred to the refinery. These are the first commercial sales from Licence 67.
• High value barrels attracting lower MET rate.
• Work over rig now moving from C-4 to the C-3 well on the southern margin of the Cheremshanskoye field to test the deeper Jurassic J-14 reservoir.

Operations Update

Licence 67
The C-4 well is located on the northern margin of the Cheremshanskoye field and was successfully re-entered on the 17th of February; the project was delayed due to the unusually warm weather delaying construction of the winter road to the well. The Upper Jurassic J1-1 & J1-3 clastic reservoirs from 2630.8m-2633.8m and 2644m-2655m were re-perforated and tested at various choke sizes flowing naturally up to a maximum 476 bopd on a 10mm choke. We could only produce on a 10mm choke size for two hours due to storage tanks becoming full at the well. A previous longer test on an 8mm choke size produced 290bopd of stabilised flow. To date the well has produced 100% good quality 35º API oil with no formation water; a total of 1,200 bbls of oil has already been trucked.

Eventually we will place an Electric Submersible Pump (ESP) into the well to enhance production, however with the well flowing above initial expectations the decision has been taken to let the well continue to produce naturally at an excellent rate until the winter roads start breaking up at the end of March/beginning of April. The expected initial flow rate using an ESP is at least 400 bopd.

The current production information is now being analysed and a decision will shortly be taken on whether to build an all-season road to the C-4 well to enable year round production.

In addition to the well testing, the Company has successfully negotiated an attractive long-term oil sales contract with a local refinery for all oil produced from Licence 67. This agreement provides additional certainty in the current volatile market. To date over 1,200bbls of oil has been sold and delivered to the refinery.

The workover rig is now being moved from the C-4 to the C-3 well, which is located on the southern part of the Cheremshanskoye field to test the deeper Jurassic J-14 horizon, and potentially other productive zones. If this second well re-entry is successful, then we expect to produce from this well all year round as it is close to an all season road.

The Cheremshanskoye field reserves of 19.26mmbbls C1+C2 were approved by GKZ (Russian State Reserves Committee).

Whilst we are experiencing success with our Licence 67 well re entry program, we are also very conscious of the current turbulence in the international markets and in particular the significant fall in the oil price. Fortunately the tax regime for oil companies in Russia works as a partial hedge against movements in either direction in the oil price. As prices rise and fall, the tax is adjusted so that the amount of tax paid as a percentage stays relatively consistent at about 60% of gross price. Despite this we will continue to focus on rigorous cost control and continue to review our capital allocation model to optimize investments.

David Sturt, Chief Executive Officer of PetroNeft Resources plc, commented:
“We are extremely pleased with the C-4 well re-entry results. The ability for the well to produce good quality oil from the Upper Jurassic reservoirs at such rates without the need for a downhole pump is very encouraging and demonstrates the considerable potential of this field

In addition to the successful re-entry, the ability to be able to sign an attractive oil offtake contract at competitive prices and discounted Mineral Extraction Tax rate applicable to this field further enhances the value of oil produced from this Licence.

The success of the C-4 well re-entry has demonstrated that carefully chosen, relatively low level investment can add value to our portfolio. We believe Licence 67 contains significant immediate and long term upside potential and look forward to working with partners to continue to unlock this value”

We are now looking forward to the testing of the C-3 well.”

Link to PetroNeft Russia country profile