CALGARY, ALBERTA — (Marketwire) — 03/20/12 — Kulczyk Oil Ventures Inc. (“Kulczyk Oil”, “KOV” or the “Company”) (WARSAW: KOV), an international upstream oil and gas company, announces reserves and resource volumes and estimated value for its Ukrainian assets effective as of 31 December 2011, as evaluated by independent reserve engineers RPS Energy Consultants Ltd. (“RPS”). All figures below refer to KOV–s effective 70% ownership interest of KUB-Gas LLC (“KUB-Gas”), its partially-owned subsidiary, which owns and operates the four gas producing licenses (Vergunskoye, Olgovskoye, Makeevskoye and Krutogorovskoye) and the North Makeevskoye exploration license which were evaluated by RPS.
Highlights:
Tim Elliott, CEO of Kulczyk Oil, commented:
“We had a very successful drilling program in 2011 and have increased KUB-Gas production from 6.1 MMcf/d,or 4.3 MMcf/d net to KOV, at the start of 2011 to more than 20 MMcf/d, or more than 14 MMcf/d net to KOV, today. While the drilling program led to significant additions to reserves, an unusual side-effect of our ongoing technical work has been to minimize the positive impact that would have resulted from these additions. After accounting for approximately 2.3 Bcf of net KOV production in 2010 net 1P reserves were increased by 9.2% while net 2P reserves decreased by 1.7%. However, the Net Present Value of the 2P reserves has increased 33.4% due to higher commodity prices.
The new wells were all logged with modern logging tools and when the wireline logs from these new wells were integrated into our data base and analyzed we found that the old logs had overstated hydrocarbon pay by up to 30%. This difference between modern logs and old logs in conjunction with a more constrained geologic model resulting from the interpretation of 3D seismic data had a material impact on the calculation of reserves at year-end 2011, particularly for the Olgovskoye Field. Fortunately, the Company–s drilling program discovered new reserves in both the Olgovskoye and Makeevskoye Fields that offset the negative impact of the log data adjustment and 3D seismic interpretation.
In 2011 we drilled 5 new wells in the Olgovskoye Field and commenced production from the M-19 well in the Makeevskoye Field area. M-19 is a very good well and the Makeevskoye Field production has increased by more than 700% from 849 Mcf/d in January 2011 to 7.1 MMcf/d currently. During the same time period Olgovskoye Field production increased by more than three times from 3.5 MMcf/d to 11.5 MMcf/d.
Going forward, we have a solid base with which to continue to build our business in Ukraine. A 5 to 6 well drilling program is planned for 2012 which will target the discovery of new reservoirs and the appraisal and further development of new discoveries drilled in the past 18 months, with the target of converting some of the 60 Bcf of net Contingent Resources (Best Estimate) identified by RPS into Reserves. The upcoming drilling program will also include a few exploration wells targeting some of the 78 Bcf of net Prospective Resources (Best Estimate) that have been identified by RPS. Two wells of particular note in this coming year–s drilling program are the NM-1 well and the M-16 well. NM-1, the first well to be drilled on the North Makeevskoye license will start drilling in the next few weeks and will target some of the up to 75 Bcf (High Case) of net Prospective Resources identified by RPS. The M-16 well, to be drilled on the Makeevskoye license during the summer months will be the deepest well every drilled by the Company in Ukraine and will target some of the up to 102 Bcf (High Case) of Contingent Resources and 94 Bcf (High Case) of Prospective Resources identified by RPS for the Makeevskoye area.
In summary, we continue to be extremely pleased with the progress made to date in Ukraine. While we don–t expect every new well to be a success, we are confident that our drilling program will continue to yield positive results and that we will continue to build on the solid base that we have established. The new 3D seismic data that we acquired over the Olgovskoye, Makeevskoye and North Makeevskoye license areas is expected to provide us with plenty of drilling targets for a number of years to come.”
Reserves
Proved plus probable (2P) reserves at 31 December 2011, net to KOV, have more than doubled to 31.6 billion cubic feet equivalent (“Bcfe”) (5.27 MMboe) after royalties, since the time of acquisition in June 2010. The percentage change in reserves volumes from 31 December 2010 to 31 December 2011, after considering KOV–s net production during the year, are shown in the table below. Reserves additions came from successful drilling and development in the Makeevskoye and Olgovskoye field areas. Decreases in reserves resulted from technical revisions as a result of a re-evaluation of older wireline logs, from the evaluation of new 3D seismic data and from the approximately 2.3 Bcf of net natural gas volumes produced during the year.
Resources
The report prepared by RPS also evaluated the Prospective and Contingent Resources attributable to the 70% interest of KOV in KUB-Gas and estimated total high case (3C) Contingent Resources at more than 148 Bcf and total high case (3C) Prospective Resources at more than 183 Bcf as summarized in the table below:
Oil and Gas Equivalents
Production information is commonly reported in units of barrel of oil equivalent (“boe” or “Mboe” or “MMboe”) or in units of natural gas equivalent (“Mcfe” or (“MMcfe” or (“Bcfe”). However, BOEs or Mcfe–s may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf = 1 barrel, or an Mcfe conversion ratio of 1 barrel = 6 Mcf, is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Defined Terms
“Reserves” are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves must further satisfy four criteria: they must be discovered, recoverable, commercial, and remaining (as of the evaluation date) based on the development project(s) applied. Reserves are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by development and production status.
“Proved Reserves” are those quantities of petroleum, which by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods and government regulations.
“Probable Reserves” are those additional Reserves which analysis of geosciences and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves.
“Possible Reserves” are those additional Reserves which analysis of geosciences and engineering data indicate are less likely to be recoverable than Probable Reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible Reserves.
“Contingent Resources” are those quantities of petroleum that are estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not yet considered mature enough for commercial development because of one or more contingencies. Contingencies may include factors such as economic, legal, environmental, political, and regulatory matters, or a lack of markets. Contingent Resources are further categorized into Low Estimate (1C), Best Estimate (2C) and High Estimate (3C) according to the level of certainty associated with the estimates and may be sub-classified based on economic viability.
“Prospective Resources” are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective Resources have both an associated chance of discovery and a chance of development. Prospective Resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be sub-classified based on project maturity.
“Low Estimate (1C)” is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability (P90) that the quantities recovered will equal or exceed the low estimate.
“Best Estimate (2C)” is considered to be the best estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be a 50 percent probability (P50) that the quantities recovered will equal or exceed the best estimate.
“High Estimate (3C)” is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities recovered will equal or exceed the high estimate.
About Kulczyk Oil
Kulczyk Oil is an international upstream oil and gas exploration and production company with a diversified portfolio of projects in Brunei, Syria and Ukraine and with a risk profile ranging from exploration in Brunei and Syria to production and development in Ukraine. In addition, KOV has an option to participate for a 9% net indirect working interest in OML 42 in Nigeria. The common shares of the Company trade on the Warsaw Stock Exchange under trading symbol “KOV”.
In Brunei, KOV owns working interests in two production sharing agreements which gives the Company the right to explore for and produce oil and natural gas from Block L and Block M. KOV owns a 90% working interest in Block L, a 1,110 square kilometre (275,000 acre) area covering onshore and offshore areas in northern Brunei and a 36% working interest in Block M, a 1,505 square kilometre (372,000 acre) area onshore in southern Brunei.
In Ukraine, KOV owns an effective 70% interest in KUB-Gas LLC. The assets of KUB-Gas consist of 100% interests in five licences near to the City of Lugansk in the northeast part of Ukraine. Four of the licences are gas producing.
In Syria, KOV holds a participating interest of 50% in the Syria Block 9 production sharing contract which provides the right to explore for and, upon the satisfaction of certain conditions, to produce oil and gas from Block 9, a 10,032 square kilometre (2.48 million acre) area in northwest Syria. The Company has an agreement to assign a 5% ownership interest to a third party which is subject to the approval of Syrian authorities, and which, if approved, would leave the Company with a remaining effective interest of 45% in Syria Block 9.
In Nigeria, KOV has an option until 31 March 2012 to participate for a 9% net indirect interest in OML 42, an 814 km2 licence area in the Niger Delta with oil production and shut-in oil and gas producing capability.
The main shareholder of the Company, Kulczyk Investments S.A. owns approximately 44 % of the issued common shares. Kulczyk Investments S.A. is an international investment house founded by Polish businessman Dr. Jan Kulczyk.
Translation: This news release has been translated into Polish from the English original.
Forward-looking Statements This release contains forward-looking statements made as of the date of this announcement with respect to future activities of KUB-Gas and related to its five license areas in Ukraine and to certain wells drilled or seismic activities undertaken within those license areas that either are not or may not be historical facts. Although the Company believes that its expectations reflected in the forward-looking statements are reasonable as of the date hereof, any potential results suggested by such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors that could impair or prevent the Company from completing the expected activities on its projects include that the Company–s projects experience technical and mechanical problems, there are changes in product prices, failure to obtain regulatory approvals, the state of the national or international monetary, oil and gas, financial, political and economic markets in the jurisdictions where the Company operates and other risks not anticipated by the Company or disclosed in the Company–s published material. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties and actual results may vary materially from those expressed in the forward-looking statement. The Company undertakes no obligation to revise or update any forward-looking statements in this announcement to reflect events or circumstances after the date of this announcement, unless required by law.
Canada
Suite 1170, 700-4th Avenue S.W., Calgary, Alberta, Canada
Telephone: +1-403-264-8877
Facsimile: +1-403-264-8861
Dubai
Al Shafar Investment Building, Suite 123, Shaikh Zayed Road,
Box 37174, Dubai, United Arab Emirates
Telephone: +971-4-339-5212
Facsimile: +971-4-339-5174
Poland
Nowogrodzka 18/29
00-511 Warsaw, Poland
Telephone: +48 (22) 414 21 00
Facsimile: +48 (22) 412 48 60
Contacts:
Kulczyk Oil Ventures Inc. – Canada
Norman W. Holton
Vice Chairman
+1-403-264-8877
Kulczyk Oil Ventures Inc. – Poland
Jakub J. Korczak
Vice President Investor Relations & Managing Director CEE
+48 22 414 21 00