PetroNeft Resources strong operational cash flows from Cheremshanskoye field

PetroNeft Resources

PetroNeft Resources plc (LON:PTR) an oil & gas exploration and production company, operating in the Tomsk Oblast, Russian Federation, and 90% owner and operator of Licences 67 and 50% owner and operator of Licence 61, has announced the following operational news.

Highlights

o Production from the Cheremshanskoye field has provided the Company with strong operational cash flows. The well has shown virtually no decline since the start of production. The choke size was recently increased to 10mm and the rate increased to 320 bopd.

o Workover operations on the L-2a well at the Ledovoye field also at Block 67 have been carried out successfully, producing an oil flow through a perforated liner which should enable the Company to book Russian state reserves, leading to the creation of development options for this field.

Cheremshanskoye Update

Production from the C-4 well on the Cheremshanskoye field remains strong with virtually no decline.  The rate has also been increased from 300 bopd to 320 bopd by increasing the choke size to 10mm. Since bringing the field on stream at the end of February it has produced a total of over 27,000 bbls from the C-4 well through May. Production in May was over 9,000 bbls. The oil produced from this field benefits from a partial exemption of the Mineral Extraction Tax, with the continued improvement in oil price, this reduction in Mineral Extraction tax is estimated to now be over $4/bbl in May alone.

The forward plan is to continue to monitor reservoir performance and at an appropriate time install a pump to optimise production and further increase revenue.

The C-4 well, which is located on the northern margin of the Cheremshanskoye field, was drilled during 2018 and tested oil at a combined 179 bopd from Upper Jurassic J1-1 and J1-3 clastic reservoirs from 2,630.8 m to 2,633.8 m and 2,644 m to 2,655 m.

The well was successfully re-entered in Q1 2020 to perform an extended well test. During this test, the well flowed at various choke sizes from the same Upper Jurassic J1-1 & J1-3 clastic reservoirs and flowed naturally at up to a maximum 476 bopd on a 10mm choke size.

The Cheremshanskoye field reserves are 19.26 mmbbls C1+C2 which were approved by GKZ (Russian State Reserves Committee) January 2019.

Ledovoye Update

The L-2a well is located along the northern margin of the licence at the Ledovoye field. This L-2a well was drilled by the Company in 2011 and was designed to twin the successful L-2 well which was drilled in 1973 and flowed oil to surface during a short open hole test recovering 34.5 bbls of oil in 40 minutes, equivalent to more than 1,000 bopd. The L-2 well suffered from operational problems that prevented a cased hole test.

At the time of drilling of the L-2a well (2011), 5 m of net oil pay was identified within the Upper Jurassic J1-1 and J1-2 reservoir intervals. The well flowed 8.3 m3/day (52 bopd) on a small 3 mm choke, but did not have a cased hole test, this being a requirement for reserves to be approved by GKZ (Russian State Reserves Committee) and for development of the field.

The well was successfully re-entered in recent weeks and a liner cemented in place. The Upper Jurassic J1-1 and J1-2 intervals were perforated from 2645.5 m to 2627.5 m and 2630 m to 2632 m. During several swabbing cycles the well started to flow a mixture of oil and water. A total of approximately 132 bbls of oil was recovered with a gravity of 33 API along with 306 bbls of water from 4 swab cycles. Inflow from the formation ranged from 100 bopd to 300 bopd. The high water content currently precludes oil from being produced at this field as there are no separation facilities on site. A decision was therefore made to suspend the well until separation facilities are in place.

This successful re-entry and test through a liner now should provide sufficient data to enable the company to seek GKZ approval of the field reserves. Once we receive this approval, we will review possible options for the future development of this field.

Strong Cash Flow and the AOR Refinery Loan Facility

In December 2020, an Offtake contract was signed with the Alexandrovskoye Oil Refinery that included a circa $1M of advance payment against future oil shipment from the C-4 well on the Cheremshanskoye field to cover infrastructure development on Licence 67. 

AOR is a company located at Alexandrovskoye town in the north-western part of the Tomsk region located 230 km from the Cheremshanskoye oil field. In 2020 AOR purchased all the oil produced from the C-4 well during the extended well test at competitive market rates. 

Due to a combination of strong performance from the C-4 well at Cheremshanskoye combined with the improving oil price, the Company did not need to call the advance payment for the Offtake Contract thereby saving financing charges.

The $1M advance payment under the Offtake Contract remains in place should the Company decide to utilize this capital.

The Company recently increased its interest in Licence 67 from 50% to 90%.

David Sturt, CEO PetroNeft Resources commented:

“The production from the Cheremshanskoye field is extremely encouraging, and clearly demonstrates the quality and potential of this asset.

It is satisfying to now have a cased hole test at the Ledovoye field. This successful re-entry crucially enables us to be able to seek State Reserves Committee (GKZ) approval – a major necessary milestone before we can progress development of the field.

Licence 67 continues to deliver following our successful acquisition of an additional 40% interest taking us from 50% to 90%.

The strong operational performance, combined with the improving oil price, has significantly improved the finances of the Company which has enabled us to fund construction of the road and re-entry of the Ledovoye L-2a well without the need to call down agreed financing arrangements which now remain in place should we need the capital in the future.

While we remain at the early stages of rebuilding, this achievement is a tangible demonstration of our improved financial position over the last 12 months.  This progress has been based on a laser-like focus on reducing costs and harnessing local expertise to maximise the return from our assets.  This approach will continue in the months ahead.”

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PetroNeft Resources plc

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