PetroNeft Resources plc (LON:PTR) an oil and gas exploration and production company, operating in the Tomsk Oblast, Russian Federation and 90% owner and operator of Licence 67 and 50% owner and operator of Licence 61, has provided the results of the reserves and resource audit, the first undertaken since 2016 for Licence 61, and 2011 for Licence 67.
Highlights
· Miller & Lents, an independent oil and gas consulting firm, have completed the 2021 Reserves & Resource audit for both Licences 61 and 67, link available at: http://petroneft.com/investor-relations/reserve-reports/ This is the first review of reserves and resources in five years on Licence 61 and a decade for Licence 67.
· Updated 2P reserves of 48.655 Mbbls and a 2P NPV10 valuation across Licences 61 and 67 of $522.2M net to PTR
| All figures in Mbbls | Gross | Gross | Gross | Net Attributable | Net Attributable | Net Attributable |
| Asset Name | Proved | Proved & Probable | Proved Probable & Possible | Proved | Proved & Probable | Proved Probable & Possible |
| Licence 67 | 4.78 | 27.214 | 79.646 | 79.646 | 4.302 | 24.493 |
| Licence 61 | 24.345 | 48.325 | 70.95 | 70.95 | 12.173 | 24.163 |
| Total = | 29.125 | 75.539 | 150.596 | 16.475 | 48.655 | 107.156 |
| NPV10 $(US)M | Gross | Gross | Net Attributable | Net Attributable |
| Asset Name | Proved | Proved & Probable | Proved | Proved & Probable |
| Licence 67 | 50.186 | 281.895 | 45.167 | 253.706 |
| Licence 61 | 266.302 | 536.998 | 133.151 | 268.499 |
| Total = | 316.488 | 818.893 | 178.318 | 522.205 |
· Additional 3C Net contingent resource – 23.74 Mbbls
| All figures in Mbbls Asset Name | Gross 1C | Gross 2C | Gross 3C | Net Attributable 1C | Net Attributable 2C | Net Attributable 3C |
| Licence 67 | 0.566 | 3.387 | 24.512 | 0.509 | 3.048 | 22.061 |
| Licence 61 | 0.499 | 1.471 | 3.369 | 0.250 | 0.736 | 1.685 |
| Total = | 1.065 | 4.858 | 27.881 | 0.759 | 3.784 | 23.745 |
· Significant low risk prospective resource estimate for Licence 61 – Emtorskaya prospect, Gross Pmean 96.19 Mbbls with a geological Chance of Success of 49.7%, and Gross P10 upside of 253.35 Mbbls
· The M&L report underlines the importance and value of License 67 for the Company’s future, with the 2P and 3P gross reserves largely driven by the newly producing Cheremshanskoye field and further upside now recognised, supporting the Company’s new strategy, and added forward focus on License 67
M&L has completed its assessment of the Group’s petroleum reserves and resources with an effective date of 30th July 2021, in accordance with the standards of the Petroleum Resources Management System, prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE-PRMS). This is the first reserves and resource audit since Ryder Scott completed their assessment in 2016 for Licence 61 and 2011 for Licence 67.
The following is a comparison between the legacy audits carried out by Ryder Scott and the current Miller & Lents report. Such a comparison is partly complicated by updates to the PRMS standards, which have impacted the categorisation of the Emtorskaya prospect in Licence 61.
Table 1: Net reserves comparison between legacy (Ryder Scott) and 2021 (Miller & Lents) audits
| All figures in Mbbls Asset Name | Ryder Scott 2011/16 Proved | Ryder Scott 2011/16 Proved & Probable | Ryder Scott 2011/16 Proved Probable & Possible | Miller & Lents 2021 Proved | Miller & Lents 2021 Proved & Probable | Miller & Lents 2021 Proved Probable & Possible |
| Licence 67 | 1.500 | 14.000 | 17.400 | 4.302 | 24.493 | 71.681 |
| Licence 61 | 14.170 | 49.390 | 86.810 | 12.173 | 24.163 | 35.475 |
| Total = | 15.670 | 63.390 | 104.210 | 16.475 | 48.655 | 107.156 |
Miller and Lents have also estimated additional net additional Contingent resource (3C) of 23.74 Mbbls (22.06 Mbbls in Licence 67 and 1.68 Mbbls in Licence 61) and net Pmean prospective resources for the Emtorskaya prospect of 48.09 Mbbls (Gross 96.18 Mbbls with a 49.7% geological chance of success).
In Table 2 below, the 2P NPV10 has increased significantly from $255.716M in 2011/16 to $522.21M as of 30th June 2021. The increased valuation is mainly a reflection of the materially improved long term oil pricing environment both internationally and domestically within Russia since the last report. The total valuation uplift is further increased by the recent acquisition of an additional 40% interest in Licence 67 in 2021.
Table 2: Discounted cashflow (NPV10) comparison between legacy (Ryder Scott) and 2021 (Miller & Lents) audits
| Net NPV10 $(US)M Asset Name | Ryder Scott 2011/16 Proved | Ryder Scott 2011/16 Proved & Probable | Miller & Lents 2021 Proved | Miller & Lents 2021 Proved & Probable |
| Probable | Probable | |||
| Licence 67 | 8.590 | 76.642 | 45.167 | 253.706 |
| Licence 61 | 55.409 | 179.074 | 133.151 | 268.499 |
| Total = | 63.999 | 255.716 | 178.318 | 522.205 |
While full copies of the actual reserve reports, which are by operational unit on a gross and net attributable basis, can be downloaded by clicking on the following link http://petroneft.com/investor-relations/reserve-reports/ , below is a management summary of the audit results.
David Sturt, CEO PetroNeft Resources commented:
‘We are delighted to be able to finally publish the results from our recent reserves and resource audit.
This has been a painstaking interactive process and we are pleased to have engaged Miller & Lents due to their depth of expertise and considerable experience of working with significant Russian oil operators, some with assets near our licenses and fields that are likely analogous to ours.
We feel the audit results fully supports our on-going strategy, with the Cheremshanskoye field on License 67 providing the most exciting near-term upside for our continued growth, reflected in the strong reserves numbers, which are all new and not reported at all in the last reserves audit.
On License 61, it is satisfying to see the exciting upside and running room potential of our northern hub, particularly at Emtorskaya, beginning to show through numerically. An extensive inventory of reserves remains at our other License 61 fields. Whilst comparison with the 2016 report is not straightforward due to the evolution of assessment methodology which has become more rigorous in the intervening years of production, we are satisfied that the latest audit gives a suitably robust view of our reserve base and wish to thank Miller & Lents for their thoroughness and professionalism.
The NPV10 valuation of our 2P reserves of over $520M is a clear indicator of our material value proposition, and we will continue to focus on building our production and cashflow to deliver the underlying values of our assets to our shareholders.’
Licence 67
PTR own and operate a 90% interest in the licence. The last reserves audit was carried out by Ryder Scott from existing legacy data in 2011, just after the award of the licence. Since then, the C-3 and C-4 wells on the Cheremshanskoye field and the L-2a well on the Ledovoye field have been drilled. Due to improved oil prices and cost optimisation initiatives, the 2P NPV10 per barrel has increased from approximately $3.50/bbl in 2011 to approximately $10.36/bbl in 2021.
Table 3: Licence 67 – Net Reserves and Cash flow value (NPV10), as of 30th June 2021
| All reserve figures in Mbbls Licence 67 Fields | All reserve figures in Mbbls Reservoir | All reserve figures in Mbbls Proved | Gross Proved | Gross Proved Possible & Probable | Net Attributable Proved | Net Attributable Proved & Probable | Net Attributable Proved Probable & Possible |
| Cheremshanskoye | U. Jurassic | 4.556 | 22.900 | 34.467 | 4.100 | 20.610 | 31.020 |
| L. Jurassic | 0.067 | 0.244 | 17.589 | 0.060 | 0.220 | 15.830 | |
| Ledovoye | U. Jurassic | 0.156 | 4.067 | 27.600 | 0.140 | 3.660 | 24.840 |
| Total Reserve = | 4.778 | 27.211 | 79.656 | 4.300 | 24.490 | 71.690 | |
| Total NPV 10 $M= | 50.189 | 281.900 | 45.170 | 253.710 | |||
| NPV10 $/bbl = | 10.50 | 10.36 | 10.50 | 10.36 |
Cheremshanskoye Field
There were no reserves calculated for this field by Ryder Scott in 2011. Since the last audit the C-3 and C-4 wells have been successfully drilled with the C-4 well currently producing.
The results demonstrate sizeable and well-defined reserves in two reservoirs (J1 ad J14) of the main Upper Jurassic zone, currently producing in the C-4 well. In addition, recognition is also made of the upside potential within the Lower Jurassic Tyumen formation with 15.83 Mbbls 3P net reserves, albeit with very modest 1P and 2P numbers at this early stage. The Tyumen formation is an economically attractive target as any production qualifies for a 20% reduction in the Mineral Extraction Tax.
Ledovoye Field
The field was last audited in 2011 soon after the licence award and before the acquisition of the 3D seismic data with a net 2P reserve of 14.0 Mbbls. Since then, the L2a well was drilled in 2012, which encountered oil but with a higher Oil Water Contact. This created uncertainty about the precise location of the Oil Water Contact, which has led to a significant portion of the 2P reserves now being moved to 3P with the 2P net reserve reduced from 14Mbbls in 2011 to the current 3.66Mbbls
Following the successful re-entry of the L-2a well earlier this year and the recovery of oil to surface on test, we are evaluating forward options for this field.
Licence 61
PTR own a 50% operated interest in the licence which was last audited by Ryder Scott in 2016. The NPV10 per barrel has increased from approximately $3.50/bbl in 2016 to over $11.00/bbl on a 2P basis.
Table 4: Licence 61 – Net Reserves and Cash flow value (NPV10), as of 30th June 2021
| All reserve figures in Mbbls Licence 61 Fields | All reserve figures in Mbbls Reservoir | Gross Proved | Gross Proved & Probable | Gross Proved Probable & Possible | Net Attributable Proved | Net Attributable Proved & Probable | Proved Probable & Possible |
| Lineynoye incl. west | U. Jurassic | 7.380 | 16.280 | 16.920 | 3.690 | 8.140 | 8.460 |
| Arbuzovskoye | U. Jurassic | 5.060 | 6.180 | 7.800 | 2.530 | 3.090 | 3.900 |
| Sibkrayevskoye | U. Jurassic | 11.700 | 24.160 | 42.520 | 5.850 | 12.080 | 21.260 |
| Tungolskoye | U. Jurassic | 0.180 | 1.560 | 3.480 | 0.090 | 0.780 | 1.740 |
| Kondrashevskoye | U. Jurassic | 0.020 | 0.160 | 0.240 | 0.010 | 0.080 | 0.120 |
| Total Reserve = | 24.340 | 48.340 | 70.960 | 12.170 | 24.170 | 35.480 | |
| Total NPV 10 $M= | 266.300 | 537.000 | 133.150 | 268.500 | |||
| NPV10 $/bbl = | 10.94 | 11.11 | 10.94 | 11.11 |
Lineynoye & West Lineynoye Field
There is a reduction of 2P reserves on a net basis of 4Mbbls, this is due to a more rigorous well log interpretation reducing overall net pay. Recent engineering studies based on historical production (material balance calculations) provided a degree of verification of the new volumes calculated.
This field cluster is a key producing asset of the Company. The production wells at Pad 1 continue to perform well, with three producing over 700,000 bbls and two more over 300,000 bbls cumulative production to date. The recent re-frac of the L-115 well has proven highly successful, with additional wells planned to be fracked this winter (Q1 2022).
Sibkrayevskoye Field
The unsuccessful drilling of two appraisal / development wells (S-374 and S-375) in 2016 and 2017 has resulted in a significant reduction of 2P reserves at this field compared to the 2016 report, with the southern extension of the field being written off.
Despite this, management remains very confident that this field will continue to provide an engine room for production growth and are particularly enthusiastic regarding last year’s frac of the S-373 well having added more than 500 bopd post frac. While the field still has a substantial reserve base and future upside, management focus will be on the further development of the frac programme, which is expected to provide a continuing and growing revenue stream. The earlier unsuccessful drilling results have confirmed management’s view of the pitfalls of drilling certain development wells, prior to 3D seismic and therefore no further drilling is anticipated to take place prior to 3D seismic.
Arbuzovskoye Field
There has been a small 0.36 Mbbls net reduction in 2P reserve, but we are pleased to see a 1.6Mbbls net increase in 1P reserves due to the drilling of the horizontal wells at PAD 2 in 2016.
The performance of these two horizontal wells has been excellent, with the A-214 Hz well recovering 750,000 bbls and the A-215 Hz well recovering almost 400,000 bbls.
Tungolskoye Field
There has been a reduction of 2Mbbls (net) of 2P reserves due to the poor performance of the wells drilled in 2015 when four horizontal and four vertical wells were drilled. Initial rates on the horizontal wells were very encouraging with rates over 500 bopd but declined rapidly. As reported earlier, the field was suspended in early 2019 due to low flow rates leading to non-commercial production. There are plans to re-enter the T-501 horizontal well during this coming winter season, and if successful, the program could expand. Upon success, we would expect reserve numbers to increase at the next reserve audit.
Emtorskaya Prospect
The Emtorskaya prospect sits on the northern margin of the licence up dip and between the Lineynoye field to the south and the Sibkrayevskoye field to the east. This prospect provides material risked upside for License 61.
Table 5: Licence 61 – Gross Unrisked Prospective Resources (M&L), as of 30th June 2021
| Prospect | Gross | Net Attributable | ||||||
| P90 | P50 | Pmean | P10 | P90 | P50 | Pmean | P10 | |
| Mbbls | Mbbls | Mbbls | Mbbls | Mbbls | Mbbls | Mbbls | Mbbls | |
| Emtorskaya | 10.50 | 55.52 | 96.18 | 253.35 | 5.25 | 27.76 | 48.09 | 126.68 |
The prospect was also evaluated in 2016 by Ryder Scott, but due to changes in assessment methodology associated with reserve audit regulations, direct comparison is not straightforward. PTR believes the 2016 P3 figure of 46.78 Mbbls as not fully reflecting the more robust upside seen with additional in-house integrated evaluation of legacy wells in the vicinity and newer 2D seismic data.
M&L estimated the (gross) Pmean of 96.18 Mbbls with an estimated geological chance of success of 49.7% which PTR believes is a more accurate reflection of the potential value of the prospect to the Company.
In 2016, PetroNeft Resources also had 11 prospects in the southern part of the licence audited by Ryder Scott as potential prospective resources. This portfolio of dependent prospects presents future significant upside unrisked gross potential of ca.287Mbbls. However, as very little new information is available on these prospects since the last audit, combined with the operational focus of the value creation being around existing fields and the northern hub, a decision was taken to exclude this resource in the current audit report.
