Licence Award & General Update and Notice of Results

Source: 6/15/2016, Location: Asia

Urals Energy PCL (AIM:UEN), the independent exploration and production company with operations in Russia, is pleased to provide an update for shareholders.

Licence award
The Company has been awarded a 25 year exploration and development licence for the South Dagi oil field on Sakhalin Island, following an auction by the Russian State Authorities. The licence, with an area of 28.8 sq. kms, 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. Russian State Registered reserves 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 auction bid price payable by the Company is Russian Roubles 134.6 million, equivalent to US$2.1 million, and thus approximately 12 cents US per barrel of 2P reserves.

The reserves and resource figures stated above have not been reviewed in accordance with the AIM Guidance Note for Mining, Oil and Gas Companies and the Company plans to get a review of the South Dagi licence undertaken, in addition to the Company's other assets, in accordance with an appropriate Standard in an updated Competent Person's report to be undertaken this year.

Dr Svyatoslav Bilibin, (Dr.Sci.Tech. and Corresponding Member of the Russian Academy of Natural Sciences), an independent adviser to Urals Energy, 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 this announcement.

The Company's plan is to design and seek approval for a Development Plan for the South Dagi license with the official authorities, which is expected to involve a drilling program with the objective of producing up to 2,000 bbls/day over the next 5 years. The oil from South Dagi will be transported by road tanker to the Company's refinery at Petrosakh, a distance of 400 kms, increasing the utilisation rate of the refinery, which will not need additional investment to process both the heavy and light oils produced at South Dagi.

The payment for the South Dagi licence has been funded from the Company's existing capital resources, while its development will be financed on a project basis with a loan from local banks, which is being negotiated.

General overview
The substantial improvement in the oil price in recent months has been somewhat offset by the recovery of the Russian Rouble against the US$. The Company has continued to trade profitably on a cash basis, even after recent increases in taxes. It is clear though that the development of oil fields in Russia, such as at the Company's new license at South Dagi, requires a higher net return after taxes. This is affecting all Russian producers and thus the general level of development. As with other independent oil companies, Urals has been discussing the need for reform of the tax system with the Russian Government, but we must be patient before we can expect changes.
The Company's strategy therefore remains to acquire licences and defer significant development decisions until conditions (oil price, exchange rates and taxes) become more favourable. By acquiring licences now, performing modest geological studies and work overs rather than new developments, we are able to acquire licences at modest cost.

As a result of our efforts over the last seven months, we now have an expanded portfolio of licences:
- The extension of our licence area at Arcticneft, announced on 7th of October 2015, adding 10.3 million barrels of reserves ABC1;
- The acquisitions of the two licences in the Komi Republic, announced on 19th of November 2015, adding 14.9 million barrels of reserves C1 plus C2; and 25.0 million barrels of D1 or possible reserves
- Today's announcement of the licence award at South Dagi.

In total, the above represents the equivalent of an additional 42.9 million barrels of 2P reserves. It remains our intention to have a reserve report prepared by a Competent Person later in the year.

At the same time, we have been able to maintain production at Arcticneft ("AKN") and Petrosakh ("PSK") at approximately 2,000 bbls/day on average, (AKN 676: bbls/day and PSK: 1,317 bbls/day) at low average operating costs of US$8.4 per barrel, as announced on 18 April 2016.

At AKN, the loading of our annual shipment should be in mid-July, but may be deferred until late in August, as we negotiate shipping arrangements.

At PSK, we are still testing Well 109, which has started to produce modest amounts of oil, but needs further intervention to reduce high pressure water from deeper horizons flowing to the surface. We have decided to defer drilling of additional wells at PSK until the completion of further geological investigation. It is therefore possible that the Company will not be able to defer the natural decline of the field. It is in this context that the acquisition of the South Dagi licence will be increasingly important for the optimisation of the refinery at PSK.

The Directors are disappointed by the further weakness of the Company's share price, but believe that by continuing our strategy we are building a platform for a significant increase in the scale of the Company's operations for the future, without taking undue risk in leveraging the balance sheet.

Financial results for the year to 31st December 2015
The Company intends to announce its financial results for the year ended 31 December 2015 on 28 June 2016.

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