Transmeridian Exploration Adds New Areas in Russia

Source: www.gulfoilandgas.com 7/2/2008, Location: Asia

Transmeridian Exploration Incorporated announced that it has strengthened its position in Russia's Dagestan region with its acquisition of both a second field and an undrilled anticline in trend with its Gasha Field. The company has concluded negotiations with its partners in DNK LLC on the joint operations of its properties in the region and signed a joint operating agreement. The agreement calls for an initial work program which includes a 200 square km 3D seismic program as well as re-entry of four wells and drilling of two new evaluation wells. The company, through a wholly owned subsidiary, owns a 50% interest in DNK, which has acquired the 125 sq km Selli License containing both the Selli Field and the Ullu Chai anticline. The License is immediately adjacent to DNK's Gasha License, both of which are located onshore in the Republic of Dagestan, an autonomous region within Russia located along the northwestern Caspian shoreline. Gasha and Selli Fields are part of a prolific oil and gas trend of anticlinal fractured carbonate structures discovered in the 1950s and developed to the extent that the technology of that era allowed under Soviet field development practices.

The Gasha and Selli Fields were active during the Soviet era from 1957-1976 and are located close to existing oil and gas pipeline infrastructure and transportation networks, which should allow for low cost access to internal and export markets for the gas and light sweet oil produced from the fields. The complexity and difficult drilling conditions presented by the geological formations encountered in the area discouraged the Soviets' interest in these fields. In spite of the limited drilling and technical tools available, the Gasha and Selli Fields each produced about 3 million barrels of oil and 4.4 BCF of gas, from 8 wells and 17 wells, respectively. Oil and gas shows were encountered in the overlying Mycop section during drilling of both fields, with limited testing resulting in oil flows, but no development works were made in these shallower intervals, nor were any resource values recorded in the field reserves for these intervals. The Russian government provides official estimates of recoverable resources for the developed portion of the fields of about 14.6 million and 11.0 million barrels of oil for the Selli and Gasha Fields, respectively. Gas resources have not been estimated at this time, though from the reported results of the re-entry of well 28 in 2007, the company believes gas could be an additional boon to the project economics. DNK reported to the company last year well flow rates of 450 barrels oil per day and 5.7 million cubic feet gas per day from a previously untested interval in well 28, with a flowing pressure of 4,400 psi, over a multi-day testing program. Export prices for gas in this region are reported to be about $3 per 1000 cubic feet and prices are expected to increase due to incentives to deliver more gas to the country's export system. The results of the company's evaluation of the resource potential of both fields with the use of more refined reservoir parameters and additional information gained from recent well test lead us to believe there could be at least a fivefold increase over the currently reported resource potential. More importantly, we believe that this significant upside potential in oil and gas resources can be unlocked with minimal new investment.

The 20-year Selli License consists of two anticlinal structures in trend with the Gasha Field. One of these structures is the Selli Field, approximately 30 sq km in area, penetrated by 56 wells, and the other anticline is Ullu Chai, which is of potentially similar area as Selli and is undrilled. The primary reservoirs are the massive Cretaceous carbonate reservoirs and the overlying Foramiferal reservoir, both of which are over pressured and heavily fractured. Both Selli and Ullu Chai are structurally shallower than Gasha.


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