ZOL – Operations Update

Zoltav (AIM: ZOL), the Russia-focused oil and gas exploration and production company, is pleased to provide an update on strategy and operations at the Bortovoy Licence, Saratov.

Western Gas Plant

The Western Gas Plant continued to be operated efficiently throughout 2018 with only one, scheduled, 48-hour maintenance shutdown. Average net daily production (sold to customers) through the Western Gas Plant in 2018 was 33 mmcf/d (0.94 mmcm/d) of gas (2017: 40.4 mmcf/d or 1.15 mmcm/d) and 301 bbls/d (38 t/d) of oil and condensate (2017: 337 bbls/d or 43 t/d). The natural production decline from existing well stock continued at a slower rate than predicted, primarily due to Zhdanovskoye Well 8 remaining on production throughout 2018 and the well head compressor having been put into operation on the Karpenskoye field.

In line with its strategy to reverse production decline, management has approved the drilling of the first two sidetracks on existing well stock (each with a 500 m horizontal ending) on the Zhdanovskoye field. A rig tendering process is at an advanced stage, with the first well (Zhdanovskoye Well 103) anticipated to be spud in Q2 2019. Both wells are expected to be put on production before year-end, adding an estimated 11 mmcf/d (0.3mmcm/d) of gas and a 3% increase to daily condensate production. Further wells, on the Zhdanovskoye and Karpenskoye fields, are slated for approval.

Exploration Programme

Interpretation of the 341 sq km of 3D seismic data acquired in 2017-2018 over the Carbonian and Devonian (and also prospective Permian) structures in the Mokrousovskoye block has identified a prospective gas field in the Devonian structure and a prospective gas field in the Permian structure; both of which will require exploratory drilling. Management’s estimates of prospective resources within the identified fields is subject to ongoing work and will be communicated in due course.    

In light of the ongoing review of the full range of commercial opportunities on the Bortovoy Licence, the geotechnical team, led by Yuri Krasnevsky, Director for Geology and Field Development, has concluded that the Company should focus in the near-term on commercialising existing low risk reserves (under the Russian classification system) in both the western and eastern fields of the Bortovoy Licence, before proceeding with further exploratory drilling on the new prospective fields. The final results of the 3D seismic interpretation will be included in the mid- to long -term exploration programme, which is under development and will be communicated in due course.

East Bortovoy

Progress continues to be made towards commercialising the substantial reserves in the eastern fields of the Bortovoy Licence. Approximately 70% of the Bortovoy Licence 2P gas reserves of 750 bcf (21.2 bcm) (based on the 2014 CPR) are concentrated in the eastern fields of the licence. Producing these existing reserves (before taking into account the potential upside of further exploration activities) would utilise Western Gas Plant capacity for up to 15 years. The preferred development scenario envisages the construction of a gas pipeline from the Western Gas Plant, connecting the western Mokrousovskoye field, followed by the eastern Pavlovskoye, Lipovskoye, and ultimately the easternmost, substantial, Nepryakhinskoye, fields.

Approximately RUB 150 million (USD 2.5 million) has been budgeted to re-enter and evaluate production rates, gas composition and well conditions of existing Soviet wells on the Pavlovskoye, Lipovskoye and Nepryakhinskoye fields. Data acquired will contribute to the technical and economic feasibility study required to address uncertainties (including cost, pipeline corridor and parameters, and Western Gas Plant capacity extension) before making a final investment decision. To date, the Company has re-entered one well on the Pavlovskoye field and four wells on the Lipovskoye field. All wells tested in line with or better than management expectations based on Soviet flow rate data. The re-entry programme is anticipated to be completed by the end of May 2019 and the Company intends to update on the progress of the technical and feasibility study prior to the end of July 2019.

Tigran Tagvoryan, Chief Executive Officer of Zoltav, commented:

“I am pleased that previous exploration activities carried out over the Mokrous area confirm the further exploration potential of the Bortovoy Licence. These, and other opportunities for additional assets, will form part of our mid- to long -term exploration strategy. However, my near-term focus is on bringing current reserves into production with the lowest possible risk, while preserving opportunities for exploration upside in due course. This development strategy naturally focuses on the east of the licence which accounts for 70% of the substantial 2P gas reserves. Initial results from well re-entries are encouraging and are contributing to the detailed feasibility analysis that is ongoing. I look forward to updating shareholders on this progress later this year.

In the meantime, we are poised to drill the first two sidetracks on existing well stock in the western fields as part of the strategy to increase production from these fields. Both wells are anticipated to be on production by year-end.”

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