15th May 2006 07:01
Cardinal Resources plc15 May 2006 CARDINAL RESOURCES PLC ANNOUNCES PUBLICATION OF RESERVE REPORT RESERVES INCREASE 75% SINCE IPO TO 32.5 MMBOEPV 12 UP 162% TO $105.6 MILLION LONDON - Monday, 15th May 2006 Cardinal Resources plc (AIM:CDL) ("Cardinal" or "The Company"), an independentoil and gas production and exploration company operating in Ukraine, announcesthat the Company's independent competent person, Scott Pickford Ltd., has todaysupplied its reserve report for Cardinal, as of 31st December 2005. Total proved (P1) and probable (P2) reserves for the Company are estimated to be32.5 million barrels of oil equivalent (MMBOE), of which 85% is natural gas and62% P1. The year end estimate represents a 75% increase over the reserves statedin the 31st March 2005 Scott Pickford report published at Cardinal's admissionon AIM in April 2005. The increase is due to the acquisition of Rudis DrillingCompany that Cardinal made in October 2005. The pre-tax present value of theCompany's reserves, discounted at 12%, has increased 162% to $105.6 million overthe same period due to the inclusion of the Rudis reserves and upward revisionsto expected future gas and oil prices in Ukraine. The pre-tax present valuediscounted at 10% is $124.7 million. Reserve Data------------Detailed tables can be found in the Appendix on page 5 P1 P2 P1 + P2Property Total MBOE Rudis 50,818 2,021 10,491 34,118 1,392 7,078 17,569RC 50,714 754 9,206 29,183 421 5,285 14,491Bytkiv 530 295 383 44 26 33 416TOTAL 102,062 3,070 20,080 63,344 1,839 12,396 32,477 Rudis Assets------------Reserves for the Rudis properties have been upgraded to 17.6 MMBOE from the 9.1MMBOE stated at the time of the Rudis Drilling acquisition in October 2005. Thisis due to Cardinal's initiation of an aggressive work programme to completeseven workovers and initiate drilling operations on seven of eleven identifieddevelopment locations by year-end 2007 as a result of the well swap withUkrgazvydobuvannya (Ukrgaz) conducted in January of 2006. Cardinal is innegotiations to hire three locally-sourced Uralmash drilling rigs which it willupgrade using certain modern equipment and supplies. Negotiations are alsounderway to lease a further Uralmash workover rig. Production at the Rudisproperties is anticipated to increase by 2,500 to 3,000 barrels of oilequivalent per day (boepd) by the end of 2007 from 597 boepd at 31st March 2006.The capital investment to develop these locations is forecast to be in the rangeof $25 to $42 million, dependant upon the number of wells drilled, the extent ofmodern equipment utilised and the availability of finance. Rudivsko-Chernovozavodske (RC) Field------------------------------------Reserves for the RC Field have been reduced slightly from 16.2 MMBOE to 14.5MMBOE due to poorer than expected production at Well #117. The delay Cardinal isexperiencing in reinstating its net profit interest in the field back up to 45%has also resulted in setbacks in executing the work programme set out at thetime of the IPO. The workover on Well #102 has been temporarily suspended and itis expected that, apart from the four wells Ukrnafta is currently drillingoutside of the JAA, no further wells will be drilled in the field in 2006. RC Field Reinstatement----------------------Cardinal expects discussions with Ukrnafta and its primary shareholdersregarding the reinstatement of its net profit interest in the RC Field back upto 45% and the purchase of shares in four wells currently drilling on the field,will resume after a Parliamentary coalition has been formed in Ukraine. In themeantime, the active work programme on the Rudis assets is expected to producepositive results for the Company and more than compensate for the setbacks atthe RC Field. Bytkiv-Babchenske (Bytkiv) Field--------------------------------Effective 1st January 2006 the Ukrainian Government imposed a 59% increase intaxes on oil produced in Ukraine. This coincided with the expiration of Bytkiv'sroyalty-free status which had previously been granted due to the technicalchallenges of operating the field. Consequently, the economics for drilling newwells in the Bytkiv Field have diminished significantly. UkrCarpatOil - theJoint Venture (owned 50% by Cardinal) that owns and operates the Bytkiv licence- will therefore focus primarily on low cost, high return workovers, and ScottPickford has reduced the P1 and P2 reserves in the field. However, Cardinal iscurrently in discussions with Ukrnafta to decide whether the drilling of well #1007 will proceed as planned. Valuation---------The Scott Pickford report also provides updated present values for the Company'sreserves based on the new reserve data inclusive of the Rudis assets and a morepositive outlook for gas and oil prices in Ukraine. The pre-tax net presentvalue of Cardinal's reserves discounted at 12% (PV12) has increased 162% to$105.6 million from $40.3 million at the time of Cardinal's listing on AIM inApril 2005. The pre-tax PV10 value is set at $124.7 million and will be thefigure Cardinal uses going forward to bring the Company in line with valuationsattributed to its peers. Property PV @ 10% ($ ,000) PV @ 12% ($ ,000) Rudis 71,983 61,107RC 50,420 42,336Bytkiv 2,316 2,173Total 124,720 105,616 The following price assumptions were made by Scott Pickford in establishing thepresent values: Time Period Forecast Average Forecast Average Forecast Average Gas Price/Mcf Oil Price/Bbl Cond Price/Bbl 2006 $2.60 $53.36 $59.67 2007 $2.67 $54.20 $60.702008 to 2020 $3.40 $54.45 $60.982021 to 2030 $4.52 $70.19 $78.61 Commenting on the new reserve report, Robert J. Bensh, Chairman and CEO ofCardinal Resources said, "The Scott Pickford report shows what a long wayCardinal has come since the AIM listing in April 2005. The acquisition of RudisDrilling Company has more than compensated for the setbacks we have experiencedin the work programmes on our original assets. "The new reserve figures show that the Rudis acquisition was made at the priceof just $0.85/BOE and we will be conducting a significant amount of developmentactivity on these properties over the next few years to fully exploit theirpotential. Gas prices have also increased more than our expectations, resultingin the sharp increase in the net present value of our reserves. We plan tocontinue to create value for our shareholders by executing similar acquisitionsat attractive prices that boost both reserves and increase production." Glossary of Terms Bbl Barrel of oilBcf Billion cubic feet of gasBoepd Barrels of oil equivalent per dayMbbls Thousand barrels of oilMcf Thousand cubic feet of gasMMcf Million cubic feet of gasMBOE Thousand barrels of oil equivalentMMBOE Million barrels of oil equivalentP1 (Proved) Those oil or gas reserves considered to have at least a 90% chance of being recovered (using the Society of Petroleum Engineers definitions)P2 (Probable) Those oil or gas reserves considered to have at least a 50% chance of being recovered (using the Society of Petroleum Engineers definitions)PV Present value The classification Standard used for the Scott Pickford report is the CanadianNational Instrument 51-101 Standards of Disclosure for Oil and Gas Activities("NI 51-101") and specifically the definitions and interpretations detailed inthe Canadian Oil and Gas Evaluation Handbook (COGEH), Volumes 1 & 2, as endorsedby the Canadian Institute of Mining, Metallurgy and Petroleum (CIM). Scott Pickford confirms that it has reviewed this press release and finds thatthe information presented herein has been extracted from its Report in a mannerwhich is not misleading and provides a balanced view of the Report. ### For further information please contact: Cardinal Resources Parkgreen CommunicationsKate Spiro Justine Howarth / Victoria Thomas+44 (0) 20 7936 5258 +44 (0) 20 7493 [email protected] [email protected] Notes to Editor Cardinal Resources plcCardinal Resources plc is an independent oil and gas production and explorationcompany with assets in Ukraine. Cardinal is an experienced operator in thecountry focused on expanding its existing operations through the farm-in oracquisition of additional upstream oil and gas assets that can be furtherdeveloped through the application of modern technology and expertise. Cardinal's assets are: Rudivsko-Chernovozavodske (RC) FieldRudivsko-Chernovozavodske is a large under-developed gas field (1.54 TCForiginal gas in place), located in the Dnieper-Donets basin, 200km east of Kievin the Poltava Oblast. Cardinal has a Joint Activity Agreement (JAA) with asubsidiary of Ukrnafta for production and further development. Bytkiv-Babchenske (Bytkiv) FieldBytkiv-Babchenske is an oil field, located in the Carpathian fold belt, 45kmsouth-west of Ivano-Frankivsk in the Nadvirna Oblast. Cardinal has a 45%interest through UkrCarpatOil, a Joint Venture (JV) with Ukrnafta, to operateand develop the field. The following assets were acquired as part of the Rudis Drilling Companytransaction in 2005: Bilousivsko-Chornukhinska (BC) LicenceBilousivsko-Chornukhinska is a producing gas-condensate licence in theDnieper-Donets basin, owned and operated by Cardinal. North Yablunivska (NY) LicenceNorth Yablunivska is a producing gas-condensate licence in the Dnieper-Donetsbasin, owned by Cardinal and operated under the JAA #429 with Ukrgazvydobuvannya(Ukrgaz). Dubrivska (DB) LicenceCardinal is currently drilling an exploration well as part of the JAA withUkrgaz. Ukrgazvydobuvannya JAA #429Cardinal has a 50% percent interest in three wells in two other fields(Kulickykhin and Bilskie) in the Dnieper-Donets Basin under this JAA withUkrgaz. This release may contain certain forward-looking statements. These statementsrelate to future events or future performance and reflect management'sexpectations regarding Cardinal's growth, results of operations, performance andbusiness prospects and opportunities. Such forward-looking statements reflectmanagement's current beliefs, are based on information currently available tomanagement and are based on reasonable assumptions as of this date. Noassurance, however, can be given that the expectations will be achieved. Anumber of factors could cause actual results to differ materially from theprojections, anticipated results or other expectations expressed in thisrelease. While Cardinal makes these forward-looking statements in good faith,neither Cardinal, nor its directors and management, can guarantee that theanticipated future results will be achieved. APPENDIX The following Reserves and Resources tables are formatted to match the guidancenote for mining, oil and gas companies as issued by the London Stock Exchange inMarch 2006. Summary Table of Assets Asset Operator Company Status Licence Licence Comments Net Expiry Area Interest Date (%)----------------------------------------------------------------------------------------------------------------------- RC PNG 14.91% Production 20/7/2024 192km2 Negotiations to restore current 14.91% net interest to 45% continue----------------------------------------------------------------------------------------------------------------------- Bytkiv UkrCarpatOil 45% Production 28/7/2015 176km2 Well #1007 scheduled to start Drilling (JV) in August 2006-----------------------------------------------------------------------------------------------------------------------Rudis Licences and JAA #429----------------------------------------------------------------------------------------------------------------------- Kulickykhin Rudis 50% Production N/A N/A Ukrgaz has the #18 & 26 PDP (JAA # Production Licence Wells 429) ----------------------------------------------------------------------------------------------------------------------- Bilskie Rudis 50% Production N/A N/A Ukrgaz has the#161 PDP Well (JAA # Production Licence 429)----------------------------------------------------------------------------------------------------------------------- North (JAA # 50% in Pilot Exploration 29/11/06 52km2 Licence extension will be applied for* Yablunivska 429) the PDNP and Production #201 PDNP Rudis Wells Licence #203 PDP & & #300 PDNP Licence 100% in #4 new well (New New Drill location Wells) Wells constructionis underway & expect to start inAugust 2006----------------------------------------------------------------------------------------------------------------------- Dubrivska Rudis 50% Pilot Exploration 29/11/06 40km2 Licence extension will be applied for* One (JAA # and Production exploration 429) Licence well is currentlybeing drilled-----------------------------------------------------------------------------------------------------------------------Bilousivsko-Chornukhinska Rudis 100% Pilot Exploration 23/11/06 45km2 Licence extension will be applied for*#13 PDP & #110 (Licence) and Production PDP Licence Chornukhinska #3 new drillwell is rigged up and scheduled tostart in June 2006----------------------------------------------------------------------------------------------------------------------- Source: Scott Pickford Ltd. * The licences are in good standing, their work programmes are ongoing andCardinal has no reason to believe the licence extensions will not be granted asper Ukraine's existing Petroleum Law. Summary of Reserves and Resources by Status Oil and Liquids Reserves Gross (Mbbls) Net Attributable (Mbbls) Operator----------------------------------------------------------------------------------------------- Proved Proved & Proved, Proved Proved & Proved, Probable Probable & Probable Probable & Possible Possible-----------------------------------------------------------------------------------------------RC 5,057 7,881 Not Calculated 754 1,175 Not Calculated PNG(Condensate)-----------------------------------------------------------------------------------------------Bytkiv (Oil) 656 711 Not Calculated 295 320 Not Calculated UkrCarpatOil (JV)-----------------------------------------------------------------------------------------------Rudis(Condensateand Oil) 2,403 3,911 Not Calculated 2,021 3,413 Not Calculated Rudis-----------------------------------------------------------------------------------------------Total Oiland 8,116 12,503 3,070 4,908Liquids----------------------------------------------------------------------------------------------- Gas Reserves Gross (Bcf) Net Attributable (Bcf) Operator----------------------------------------------------------------------------------------------- Proved Proved & Proved, Proved Proved & Proved, Probable Probable & Probable Probable & Possible Possible-----------------------------------------------------------------------------------------------RC 340 536 Not 50.714 79.897 Not PNG Calculated Calculated-----------------------------------------------------------------------------------------------Bytkiv 1.178 1.276 Not 0.530 0.574 Not UkrCarpatOil Calculated Calculated (JV)-----------------------------------------------------------------------------------------------Rudis 59.670 104.032 Not 50.818 84.936 Not Rudis Calculated Calculated-----------------------------------------------------------------------------------------------Total 400.85 641.31 102.06 165.41Gas----------------------------------------------------------------------------------------------- Oil & Gas - Contingent Resources Gross Recoverable Net Attributable Risk Operator Factor*----------------------------------------------------------------------------------------------- Low Best High Low Best High Estimate Estimate Estimate Estimate Estimate Estimate-----------------------------------------------------------------------------------------------Bytkiv 2,476 2,647 Not 1,114 1,191 Not 50% UkrCarpatOil(Oil) Mbbls Mbbls Calculated Mbbls Mbbls Calculated (JV)-----------------------------------------------------------------------------------------------Bytkiv 4.258 4.744 Not 1.916 2.135 Not 50% UkrCarpatOil(Gas) Bcf Bcf Calculated Bcf Bcf Calculated (JV)----------------------------------------------------------------------------------------------- Source: Scott Pickford Ltd. * Risk Factor - This is Scott Pickford's opinion of the probability that thesetechnically recoverable reserves will become economic and be converted fromContingent Resource to Reserves. 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