SAGA Oil has purchased the 637 square kilometer Kudryashovsky license in the Orenburg region in Russia. The license has preliminary extractable reserves of 60.8 million BOE, confirmed by the Russian state. The price for the license is USD 10.5 million.
"The purchase of the Kudryashovsky license is in line with SAGA Oil's defined strategy to increase its reserve base through acquisition of reserves at low cost, low risk and with large potential. The transaction marks two important milestones for SAGA Oil. First, the transaction leads to total reserves of above hundred million barrels of extractable oil equivalents. Second, SAGA now enters into gas production in addition to today's oil production. Russia has a very promising gas business with a more lean taxation regime and the Russian state has decided to significantly increase the domestic price for gas within the year 2011", says CEO Mr. Malvin Hoeydal.
The Kudryashovsky license consists of oil and gas reserves of 23.4 million bbl light oil (API gravity 30-40) and 5,86 billion cubic meters of gas. The company's total reserves, inclusive SAGA Oil's internal upgrade of the reserves of the Rodnikovsky license exceeds 100 million barrels of oil equivalents.
The proven reserves are based on 17 existing test wells that were drilled during the Soviet era and later by the Russian company Gazprom. The proven oil reserves are at a depth of 3500 meters and the gas reserves are at a depth of 1500 meters. The oil deposits are pressured reservoirs, which simplifies and reduces the cost of production.
The new license was bought on a state auction and all exploration and production licenses are henceforth already granted by the state for a period of 25 years. This greatly reduces the risk and delays that one usually can encounter during "green field" development. The license is situated 75 km north of Orenburg City and is located in an area of oil and gas production with pipeline infrastructure close by.
The purchase of the new Kudryashovsky oil field is financed by loans and guarantees on favorable terms from large shareholders of SAGA Oil.
SAGA has by this purchase secured reserves that will allow the company to further expand its production after the currently producing Rodnikovsky license reaches its peak production in year 2009-2010.
SAGA Oil will during the third quarter 2008 move one of the rigs that is currently drilling on the Rodnikovsky license to the new license. Existing 2D seismic and well data have a quality that is sufficient for the first part of the field development. The first appraisal/test wells for verification of production data and new reserves will be drilled during the last part of this year. Commercial production will start in year 2009.
SAGA will in the meanwhile continue to focus on the ongoing production from the Rodnikovsky license.
The Company has an ambition to produce 3 500 bbl per day at year end. SAGA Oil sees a large potential in the new Kudryashovsky-license and expects to be able to add further reserves on the prospective new 637 square kilometer area.