UEN

Now that Sakhalin-2 is in the news, I checked out UEN's property map on the island. For new-comers, here's the scope on UEN's operations to the south of Sakhalin-1 & -2 . Read the update on depths drilled by 1st Dec. too.

Exploration Update - Petrosakh
Urals Energy also announces the commencement of drilling the first exploration well to test the Pogranichny license offshore Sakhalin Island. The East Okruzhnoye No. 1 well spudded on November 1 and is now drilling and has reached a depth of 550 metres. This well is ahead of schedule and is expected to reach the target formation, the Pileng horizon, by the end of the year. The Pogranichny license area is held by the Company’s 97%-owned subsidiary, ZAO Petrosakh (“Petrosakh”).

If the well encounters an oil bearing zone, extensive testing will be conducted to determine commerciality. Petrosakh is already producing 2,800 bopd from other wells in the Okruzhnoye field with a 14 well development drilling programme targeted at increasing production to c. 5,800 bopd.

DeGolyer and MacNaughton estimates this prospect to contain unrisked potential resources of approximately 50 million barrels.

Once the East Okruzhnoye No. 1 well is complete, the East Okruzhnoye No. 2 well will be drilled and is expected to spud in January. Both these wells are being drilled with a BU-1600, a Russian rig, which has been improved through the addition of extra equipment enabling Petrosakh to complete the drilling of these wells ahead of time and under budget.

On 1 November 2005, the Sakhalin Department of the Federal Services on Natural Reserves completed an audit of Petrosakh’s compliance with the terms of the Pogranichny exploration license. The audit confirms that Petrosakh is in full compliance with the license terms. Once the two exploration wells have been drilled, Petrosakh will have fulfilled its work obligations under the terms of the existing exploration license. The Company is therefore confident of extending the term of the exploration licence and, in the event of a commercial discovery, converting to a production licence.

Urals Energy had intended to commence drilling in the first quarter of 2006 on the Vitnitskaya prospect from a well site approximately 40 kilometres south of the Okruzhnoye field using the Deutag T-2000 rig. However, due to delays resulting from damage recently incurred by the barge hired to transport the rig, it will not be possible to move the rig from the mainland to Sakhalin Island and complete drilling prior to the start of the Spring thaw and potentially stranding the rig for a prolonged period and incurring significant additional cost.

This delay, and consequent negotiations that are in progress regarding the Deutag rig, may require the Company to adjust its 2005 consolidated income statement for previously capitalised costs associated with the procurement and mobilisation of the rig. However, the Board is confident that it can secure a cost effective solution that will result in the Vitnitskaya Prospect being drilled within or under budget. For example, the Company is evaluating the use of a local Russian rig to drill the Vitnitskaya Prospect and would as a result not expect to incur any material incremental cash costs as a result of these developments. The Board is also confident that any delay in drilling the Vitnitskaya prospect will have no impact on either Petrosakh’s license obligations being fully met or the merit of Petrosakh’s application to extend the license term and, in the event of a discovery, conversion to a production license.