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2016/2017 Work Programme & Budget Agreed with Oil India

Source: www.gulfoilandgas.com 3/21/2016, Location: Asia

PetroNeft (PTR) an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased announce that it has reached agreement with Oil India, its partner on license 61, for a budget and major work programme for 2016 and 2017.

This work programme is expected to require gross funding of at least US$35 million. Oil India have indicated to the Company their willingness to provide 100 per cent. of this funding by way of a shareholder loan to the joint venture company on favourable terms.

Principal repayments by the joint venture on the proposed loan will not commence until 2019. The legal documentation for the first tranche of this proposed financing is currently being finalised and Shareholders will be updated once that is complete.

This is a significant accomplishment for PetroNeft in the current market as it would otherwise be extremely challenging, expensive and dilutive to Shareholders for PetroNeft to raise the required funding for its share of these costs.

However, Oil India has indicated that this funding will only be made available conditional on the current management team remaining in place. Furthermore, should there be a change in management subsequent to the drawdown of the new loan this would constitute an event of default, requiring immediate repayment of amounts advanced and further requiring PetroNeft to provide its 50% share of this funding.

The major points of this work programme are as follows:
2016
South Arbuzovskoye Development Plan
• One vertical and up to 3 horizontal wells
• Pad 2 construction has been completed and construction of the pipeline and power line to Pad 1 is in progress
• Production drilling rig is being moved to location with drilling and production to commence in Q2

Sibkrayevskoye Delineation and Optimization Studies
• Additional delineation well (S-374) at Sibkrayevskoye to better define south-eastern portion of the field
• S-374 drilling pad is under construction and the drilling rig is being moved to location
• Optimisation studies and approvals for Sibkrayevskoye Development

2017
Sibkrayevskoye Development Plan
• Development of Pad 1 with up to 7 vertical/slant wells and 6 horizontal wells
• Construction of 26 km pipeline and power line from Pad 1 to Lineynoye central processing facilities Q1
• Commencement of development drilling and production Q2

The economics for these developments are very good even in the current low oil price environment.

Current operations
The workover programme for Tungolskoye and Arbuzovskoye is currently in progress. The Sibkrayevskoye No. 373 well was put on long term test using an electric submersible pump and has consistently achieved a rate of over 200 bopd. Licence 61 is currently producing about 2,400 bopd (gross) and PetroNeft is debt free.

Dennis Francis, Chief Executive Officer of PetroNeft Resources plc, commented: “The agreement of a work programme and budget is a major step forward for the development of License 61. Given the challenges currently being experienced in the market, the ability to secure this funding is a major positive for the Company. We are delighted to be continuing our partnership with Oil India.

Our most recent drilling campaign has laid the groundwork for this, potentially transformative 2016 / 2017 drilling schedule. At Sibkrayevskoye, the S-373 well and extensive new seismic data acquired at Sibkrayevskoye in 2015 indicate that the field could ultimately be in the 100 million bbl range which would be one of the largest oil fields discovered in the Tomsk Region in the last 25 years.”

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