By Stewart Dalby
Throughout the bruising few years when PetroNeft was battling against going under because of a pile of suffocating debt, seemingly unsatisfactory production growth and takeover threats, the management was working on a plan on how to go forward if the group should find some form of bail-out.
Two thousand and fourteen marked the beginning of the turnaround, with the Russia focused E&P signing up Oil India as a 50 per cent farm-in partner for Licence 61 in the Tomsk Oblast.
This was a breakthrough transaction for AIM-quoted PetroNeft, delivering a US$35 million upfront cash sum that has allowed it to clear the debt pile and, importantly, unlock a US$45 million spend on exploration and development across the key 4,991 sq km block 61 which hosts audited reserves of 117 million barrels of oil.
The block has a number of fields and instead of going immediately back to one of the two producing fields, Arbuzovskoye which was producing 800 bopd out of a total of under 2,000 bopd (which stalled at this level when the company ran out of money) to drill new wells, it has decided to start a new operation on the yet- to- be developed Tungolskoye field.
Two wells have been drilled here, one in the Soviet era and the other five years ago by PetroNeft. As a result of these wells the field is thought to host 20 million barrels in 2P reserves.
The Tungolskoye No 5 well, which is costing US$3.5 million to drill, is PetroNeft’s first horizontal well with a pilot vertical hole followed by a short horizontal. The previous wells were vertical wells. Also, Tungolskoye No 5 has been drilled higher up then field than the two previous wells, thus avoiding any danger of running into water cuts which so bedevilled output at the two existing producers Arbuzovskoye and Lineynoye.
The idea of a horizontal well was that it could yield flow a rate of 500 bopd instead of the 120 bopd or so that vertical wells habitually produce in this part of the world.
As it happens this turns out to be an under-estimate. The company has recently announced that the Tungolskoye No5 well tested at over 600 bopd and is now in production. The horizontal segment of T-5 well was just over 350 metres of which over 80 per cent was located in the J1-1 and J1-2 Upper Jurassic intervals.
At present production is 604 bopd. The oil is currently being trucked 25 km to the Lineynoye central processing facility. Development of Tungolskoye is to proceed immediately. An eleven well drilling programme is to start in April 2015 and continue into 2016.
Having started off with Tungolskoye, PetroNeft has also quickly picked up the reins at Arbuzovskoye. The Arbuzovskoye 103 vertical well, the first in two years on this field has been completed and brought into production at an initial rate of 125 bopd. The well encountered 5.0 m of oil saturated pay in the J1-1 Upper Jurassic interval at a depth of around 2,460 metres in the TVD and confirms the southern lobe of the Arbuzovskoye field. Current plans are to develop the southern portion of the field with a combination of horizontal and vertical wells starting in 2016.
The A-104 well has now been drilled in the northern part of the field and is adjacent to the A106 well. The logs indicate that the well has a 5.4 m of net oil pay in the J1-1 Upper Jurassic interval at a depth of 2,467m TVD and look similar to the A-106 well which is currently producing about 175 bopd. The company is currently completing the A-104 well and anticipates bringing it on production within a week.
The Arburovskoye 107 was spudded on February 2015and is expected to take approximately four weeks to drill. It is located north –west of the A-103 well. In all total production from licence 61 is currently about 2,450 bopd.
On the large Sibrayevskoye field where there could be more than 50 million barrels of oil the drilling rig for Sibrayevskoye No373 well is currently being erected. It is expected that drilling will start next later this month. The company is highly incentivised to bring this field online: the Oil India farm-in terms include an additional U$5 million performance bonus if production from the field hits 7,500 bpd within the next five years.
Work is well underway on the programme to acquire 1,000km of high quality 2D seismic data across the Sibrayesvskoye oil field and other fields and prospects in the northern portion of Licence 61. This will help formulate the company’s work programme beyond the current drilling campaign at Tungolskoye and Arbuzovskoye in order to develop the Sibrayevskoye.
So there is a lot going on the company looks to be in a recovery mode but the activity has clearly yet to excite investors in the poor trading climate. The shares are currently trading at Euros 0.05 against a 52 week high of Euros 0.09.