FIELD ACTIVITIES / Bitech
BITECH PETROLEUM CORPORATION - KOMI REPUBLIC UPDATE
TORONTO, July 10 /CNW/ - BITECH PETROLEUM CORPORATION (TSE: ''BPU'')
announced today several items which have consolidated its position in the Komi
Republic of the Russian Federation.
100% Ownership
The acquisition of the remaining 5% interest in its Russian subsidiary,
Bitech-Silur JSC, has now been completed. The consideration paid for the
acquisition was the issue of 2,190,116 Bitech Petroleum Corporation shares.
Based on the latest audited reserve report, this acquisition added
approximately 7.4 million barrels to the Company's 1st January 1998 reserve
estimates.
New License
Following its recent successful tendering for the West Kyrtayel license,
Bitech has been offered an additional license, referred to as the Denissov
Depression. This license lies to the north of Pechora, the centre of the
Company's operations. The work programme is currently under negotiation with
the Government but is expected to comprise a five and half year period,
including a mix of reprocessing of existing seismic and the acquisition of new
seismic leading to the possible drilling of two wells. The attached map sets
out the license's exact location in relation to Bitech's existing assets and
other proven oil and gas fields.
The area covered by the Denissov Depression is 4,393 km(2).
Lekker First Commercial Production
Commercial production commenced at Lekker on 11th June from well L-11.
Well L-1 is expected to be in production shortly.
Financial Results, Operations and Oil Sales
Bitech recently released its first quarter's results. These reported net
income for the quarter of US $899,546, based on oil revenues of US $8,033,630.
This represented cash flow from operations before changes in non-cash working
capital of US $2,488,751 or 5.4 cents per share.
In the text of the Quarterly Report, reference was made to the decline in
the price of crude oil and the effects this has had on the Company's cash flow
and operations. The oil price situation has declined even further in the last
few weeks. The price of Brent is now at its lowest point for a number of years
and the domestic price in Russia has weakened. The latter point appears to
have been caused by a Government decree seeking to control export sales of
those companies who have taxation arrears. Bitech is not affected by the
decree directly as its tax payments are up to date.
In view of the deteriorating price position, Bitech has taken stringent
but controlled cost cutting measures to preserve cash. These have included the
decision to curtail its current development programme at its Lekker and South
Kyrtayel fields and defer the drilling of new wells at Lekker. All necessary
infra-structure, for full production at Lekker, is in place, including the
drilling rig and Transneft pipeline tie in. The first Lekker well will be
spudded and other capital programmes resumed, when Management believes the oil
price has returned to sustainable levels.
Two wells have been drilled recently at South Kyrtayel. Well SK-102,
drilled from the south pad, was a step-out well aimed at appraising the
eastern flank of the reservoir. The well demonstrated that the main
oil-bearing sand has been eroded in this area. The well is currently suspended
and will be side-tracked when the oil price improves.
SK-204, drilled from the north pad, encountered a separate fault block
with reservoir pressure higher than that originally experienced in the main
field. The well is currently being tested to provide an initial indication of
the reserves contained in the separate fault block. Following this, it is
expected that the well will be deepened to determine the oil water contact and
further assess the size of this new accumulation. Again, the timing of this
extension is dependent on the oil price.
To increase production in the short term, the Company is carrying out two
work-overs at South Kyrtayel and the selective acidization of wells L-1 and
L-11, at Lekker.
The effect of the drilling results and the deferral of the new drilling
at Lekker means that the 1998 production targets will not be met. The impact
of this is partly mitigated by the anticipated increase in production from the
work-overs and selective acidization discussed above. On the assumption that
one new well is drilled at Lekker it is now anticipated that year-end
production will be approx. 12,000 barrels of oil a day.
Tax Reductions
In Russia, tax revenues are allocated between the Federal and local
Republic Governments. With effect from 1st July, the Komi Government has
reduced its share of taxes that it collects. The reductions affect royalty (or
subsoil tax), geological, road and property taxes. Using current prices, the
1998 positive financial impact of the tax reductions to Bitech is expected to
be approximately US $700,000.
Economic situation in Russia
The economic situation in Russia has been the subject of much discussion
recently. Whereas this is a cause for concern, it also gives rise to a number
of business opportunities. As the Russian Government seeks to bring commercial
discipline to major Russian companies, unexpected acquisition possibilities
are emerging. Bitech is well placed to take advantage of these and is working
to capitalise on the current window of opportunity.
BITECH PETROLEUM CORPORATION is a Canadian company with a service office
in London, England. Through its wholly owned Russian subsidiary, the Company
is active in oil development and production in the Komi Republic of the
Russian Federation.
-30-
For further information: Mr. James B. Clubb, Chairman and CEO;
Mr. Nicholas H. Gay, Chief Financial Officer; Mr. Raymond De Smedt, Vice
Chairman; Telephone - 44 171 766 9600; Facsimile - 44 171 766 9600;
bitechpetroleum.com
|
