In April 2011, the Company commenced drilling of Well No. 1 and Well No. 2 at its Krasnoleninsky Project, which comprises a 75% eqity interest in the exploration rights to four blocks covering a total area of 1,467 km² located in the Khanty-Mansiysk Autonomous Region in Western Siberia, the largest oil-producing region of Russia.
The 1,467 km² area comprising the Company’s four licence blocks has been extensively surveyed by 2,446 line-kilometres of closely-spaced 2D seismic data, which identified more than thirty prospects, including five “superstructures”. Within these superstructures, there are a number of potential reservoirs, ranging in age from Palaeozoic to Cretaceous, stacked upon each other, offering the potential of multiple producing zones in a single well.
Drilling at both Well No. 1 and Well No.2 reached the target depths of 2,850 metres and 2,930 metres respectively in May 2011, and oil was found during drilling of both wells. The results of the interpretation of electrical logging of Well No. 1 and Well No. 2 were obtained in June 2011, and the interpretation of the electrical logging indicated that the Bazhenov and Tyumen suites are oil-bearing. In addition, the interpretation of the Palaeozoic suite indicated that the fractured zones in both wells are potentially oilbearing.
In August 2011, the Company discovered an oilfield at Well No. 2. Oil commerciality was established in the J4 formation at the interval between 2,740 metres and 2,745 metres of Well No. 2, from which an unstimulated daily inflow of 6 cubic meters of oil was received. Using the data from this test, the Company has estimated oil flow rates after hydraulic fracturing to be 202 barrels per day (low case), 419 barrels per day (base case), and 508 barrels per day (high case) from this interval only.
Also in August 2011, the Company discovered a second oilfield during testing of Well No. 1. Oil commerciality was established in the J2-3 formation at the interval between 2,647 metres and 2,665.5 metres of Well No. 1, from which an unstimulated daily inflow of 5.5 cubic metres of oil was recorded.
By the end of December 2011, the Company had completed the testing of other prospective intervals in both Well No. 1 and Well No. 2.By the end of April 2012, the Company plans to have conducted a stimulation programme in these two wells and have commenced pilot oil production thereafter, and, by the end of April 2012, intends to issue a reserve report for the Krasnoleninsky Project in accordance with the industry standard SPE-PRMS standards.
During August 2011, the Company entered into an agreement to acquire Vamaro Investments Limited (“Vamaro”). Vamaro is the 100% legal and beneficial holder of Zapadno-Novomolodezhny LLC and YuzhnoSardakovskoye LLC, both Russian companies having rights for geological study of subsoil, prospecting and extraction of oil and gas in the Khanty-Mansiysk Autonomous Region in Western Siberia (the “Vamarov Project”).
During February 2012, the Company formally completed the acquisition of Vamaro.
The Zapadno-Novomolodezhny field has had 13 wells drilled and the Yuzhno-Sardakovskoye field has had wells drilled and the Company plans to work over some of the wells and bring them into production during spring 2012.
By the end of April 2012, intends to issue a reserve report for the Vamarov Project in accordance with the industry standard SPE-PRMS standards.
On 4 November 2011, the Company entered into a Share Purchase and Funding Agreement to acquire 75% of the issued share capital of Charlize Investments Limited (an entity incorporated in Cyprus) (“Charlize”) (“Charlize Acquisition”). Charlize owns 100% of the issued share capital of OOO VostokNefteGaz (an entity incorporated in Russia) (“VNG”). VNG owns an exploration licence in the Tomsk region of Western Siberia (the “Tomsk Exploration Licence”).
During January 2012, the Company completed the acquisition of Charlize Investments Limited.
During the second half of 2012, the Company plans to carry out a 2D seismic study.
The Company, through its wholly owned subsidiary, North Caspian Petroleum Ltd, operates and owns a 50% interest in subsoil use rights for the exploration of hydrocarbons in an early stage project in Kazakhstan (“Alakol Licence Area” or “Kazakhstan Project”). The remaining 50% is owned by Remas Corporation LLP, a privately owned Kazakhstan company.
The Alakol Licence Area is located in eastern Kazakhstan and borders the western boundary of the People’s Republic of China. The main target reservoirs in the Alakol basin are carbonates or sandstones of Paleozoic age occurring at depths ranging between 1,600 and 3,500 metres. The Alakol basin is considered to be similar to the Junggar and Zaisan basins across the border in China which are both proven oil provinces.
In January 2011, drilling to a target depth of 2,600 metres commenced at Well A-3 located on a Paleozoic prospect in the eastern portion of the Alakol Licence Area near a number of artesian wells associated with hydrocarbon seeps or oil films proving generation of hydrocarbons within the basin. Seismic interpretation indicated the possible presence of reservoirs below a capping volcanic seal.
In March 2011, after drilling through more than 500 metres of massive Mesozoic-age quartzite and silicified sandstones, not seen in the previous Wells A-1 and A-2, before intersecting Paleozoic-age volcanic sediments, the decision was made to plug and abandon Well A-3. No shows of hydrocarbons were seen during drilling. Though planned for a total depth of 2,600 metres, the unexpected thick interval of metamorphic formations encountered provided clear evidence that the intense heat and pressure associated with mountain building during the Paleogene period in the eastern portion of the Alakol Basin destroyed any existence of reservoir rock properties in the full column of sediments from near surface and below in the A-3 well area. Owing to this event, reservoir quality formations below the Paleozoic volcanics are not anticipated. In June 2011, the Company commenced drilling Well A-8, the fourth well to be drilled in the Alakol Licence Area. Seismic data indicated that potential Jurassic and Triassic reservoirs were present as stratigraphic traps on the flanks of Paleozoic-age volcanic intrusions or basement highs. In a report dated 6 June 2011 to evaluate the hydrocarbon resource potential (“Ryder Scott Report”), Ryder Scott estimated the unrisked prospective (undiscovered recoverable) resources at 935 (Low Estimate), 1,379 (Best Estimate) and 1,980 (High Estimate) mmboe.
Based on the undiscovered unrisked resource estimates from Ryder Scott, the directors believe that the Kazakhstan Project has the exploration potential of 1.4 billion barrels (Best Estimate).
In July and August 2011, a final depth of 2,019 metres was reached at Well A-8, well logging data was evaluated and drill stem testing of prospective intervals was carried out.Well A-8 was the first well to test the geological model that formed the basis of the Ryder Scott Report and, while it confirmed that reservoir-quality sands are present on the flanks of Paleozoic-age volcanic intrusions or basement highs, no hydrocarbons were found in this well. Consequently, the Company plugged and abandoned Well A-8. During the second half of 2012, the Company plans to carry out a 3D seismic study in order to assist with targeting the reservoir-quality sands and selecting the locations of future exploration wells.