South Dagi drilling and reserves updates

21 December 2017

The Board of Urals Energy (AIM:UEN), the independent exploration and production company with operations in Russia, is pleased to provide the following drilling and reserves updates in respect of the Company's South Dagi licence.

Spudding of the first well at South Dagi

The Company has spudded its first well, a planned exploration well, at the South Dagi field on Sakhalin Island. The well's target pay horizons are the Okobycay horizon and the Daginsky neogenic horizon, with the target depth being 2,200 meters. It is anticipated that this depth will be reached in the second quarter of 2018.

The Board intends for this well to be the first well in a programme of three exploration wells at South Dagi over 2018 and 2019, which are to be drilled by Urals Energy's own team using the rig that was recently acquired from Jereh Group.

Any oil production from South Dagi can be transported by road tanker to the Company's refinery at Petrosakh, a distance of 400 kms, which would increase the utilisation rate of the Company's refinery. The refinery will not need additional investment to process both the heavy and light oils expected from South Dagi.

Further announcements in respect of progress with the Company's first well at South Dagi will be made in the New Year as appropriate.

South Dagi reserves update

Urals Energy was awarded a 25-year exploration and development licence for the South Dagi oil field in June 2016, following an auction by the Russian State Authorities. The South Dagi licence covers an area of 28.8 sq. kms and was the subject of an earlier exploration and appraisal programme in the 1970s, followed by additional seismic work done in the middle of 1990s and 2007. During these periods two exploratory and six appraisal wells were drilled.

The South Dagi field produced oil in the Soviet Union era and detailed data was acquired. More recently, a micro-seismic survey has been conducted in order to grade hydrocarbon potential and optimise well locations.

As announced on 15 June 2016, the Russian State Registered reserves of C1 plus C2, equivalent to 2P (proven and probable), on the South Dagi license area are 17.7 million barrels, with C3 or possible reserves of 9.0 million barrels. At shallow levels, the oil is relatively heavy (23.5 - 25.5°API), with light oil (36.5 - 37.5°API), similar to the oil at the Company's Petrosakh operation, at lower horizons.

The available data on South Dagi has been reviewed by Blackwatch Petroleum Services as part of the Competent Person's Report commissioned by the Company. The Board is pleased to announce that Blackwatch Petroleum Services has estimated the mean total 2P reserves at South Dagi to be approximately 23.5 million barrels of oil across six reservoirs, when assessed under the international Society of Petroleum Engineers classification.

Further details of Blackwatch Petroleum Services' probabilistic volumetric analysis can be found in the table below.

(All in barrels) Probabilistic
P10 P50 Mean P90
Total - South Dagi 38,341,692 20,916,095 23,466,880 11,518,015

The Board anticipates that the full Competent Person's Report will be available in the early part of 2018. Further announcements will be made as appropriate.

Andrew Shrager, Chairman of Urals, commented:

"The spudding of this first well at South Dagi is extremely important for our Company, as it opens the possibility to increase the production at our Petrosakh refinery, thus continuing to take advantage of having the only refinery on Sakhalin Island. The Blackwatch Report will be a comprehensive review of all data, including detailed maps which will be of great assistance to the Company, and for this reason has taken somewhat longer than anticipated originally, which is understandable as we have built our portfolio of licences significantly in the last two years."

Mr Vasily Nikoluk, Urals Energy's Chief Geologist, a graduate of the Ivano Frankivsk University and the former head of the geology department at Gazpromneft, who meets the criteria of a qualified person under the AIM Guidance Note for Mining, Oil and Gas Companies, has reviewed and approved the technical information contained within the 'Spudding of the first well at South Dagi' section of this announcement.

Mr Radwan Hadi, who meets the criteria of a qualified person under the AIM Guidance Note for Mining, Oil and Gas Companies, has reviewed and approved the technical information contained within the 'South Dagi reserves update' section of this announcement. Mr Hadi is a BSc graduate and was awarded an MSc in Chemical Engineering from the University of Bradford in 1979. He is Deputy Managing Director of Blackwatch Petroleum Services and has over thirty five years of experience in the international oil industry.

Glossary of Technical Terms

2P: Proved plus probable

P90 resource: reflects a volume estimate that, assuming the accumulation is developed, there is a 90% probability that the quantities actually recovered will equal or exceed the estimate. This is therefore a low estimate of resource.

P50 resource: reflects a volume estimate that, assuming the accumulation is developed, there is a 50% probability that the quantities actually recovered will equal or exceed the estimate. This is therefore a median or best case estimate of resource.

P10 resource: reflects a volume estimate that, assuming the accumulation is developed, there is a 10% probability that the quantities actually recovered will equal or exceed the estimate. This is therefore a high estimate of resource.

For further information, please contact:

Urals Energy Public Company Limited
Andrew Shrager, Chairman
Leonid Dyachenko, Chief Executive Officer
Sergey Uzornikov, Chief Financial Officer
Tel: +7 495 795 0300, www.uralsenergy.com

Allenby Capital Limited, Nominated Adviser and Broker
Nick Naylor / Alex Brearley
Tel: +44 (0) 20 3328 5656, www.allenbycapital.com

 

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